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corporate customers expect real time information on the status of their payments instead of waiting for an end of day report . and regulators expect banks to be monitoring key measures like liquidity in real time . aci 's focus has always been on the real time execution of transactions and delivery of information through real time tools such as dashboards so our experience will be valuable in addressing this trend . 25 increasing competition . the electronic payments market is highly competitive and subject to rapid change . our competition comes from in-house information technology departments , third-party electronic payment processors and third-party software companies located both within and outside of the united states . many of these companies are significantly larger than us and have significantly greater financial , technical and marketing resources . as electronic payment transaction volumes increase , third-party processors tend to provide competition to our solutions , particularly among customers that do not seek to differentiate their electronic payment offerings or are eliminating banks from the payments service reducing the need for our solutions . as consolidation in the financial services industry continues , we anticipate that competition for those customers will intensify . adoption of cloud technology . in an effort to leverage lower-cost computing technologies some financial institutions , retailers and electronic payment processors are seeking to transition their systems to make use of cloud technology . currently this is impacting areas such as customer relationship management systems rather than payment services . our investment in aci on demand provides us the grounding to deliver cloud capabilities in the future . electronic payments fraud and compliance . as electronic payment transaction volumes increase , criminal elements continue to find ways to commit a growing volume of fraudulent transactions using a wide range of techniques . financial institutions , retailers and electronic payment processors continue to seek ways to leverage new technologies to identify and prevent fraudulent transactions . due to concerns with international terrorism and money laundering , financial institutions in particular are being faced with increasing scrutiny and regulatory pressures . we continue to see opportunity to offer our fraud detection solutions to help customers manage the growing levels of electronic payment fraud and compliance activity . adoption of smartcard technology . in many markets , card issuers are being required to issue new cards with embedded chip technology . chip-based cards are more secure , harder to copy and offer the opportunity for multiple functions on one card ( e.g . debit , credit , electronic purse , identification , health records , etc. ) . the emv standard for issuing and processing debit and credit card transactions has emerged as the global standard , with many regions throughout the world working on emv rollouts . the primary benefit of emv deployment is a reduction in electronic payment fraud , with the additional benefit that the core infrastructure necessary for multi-function chip cards is being put in place ( e.g. , chip card readers in atms and pos devices ) allowing the deployment of other technologies like contactless . we are working with many customers around the world to facilitate emv deployments , leveraging several of our solutions . single euro payments area ( sepa ) . the sepa , primarily focused on the european economic community and the united kingdom , is designed to facilitate lower costs for cross-border payments and reduce timeframes for settling electronic payment transactions . recent moves to set an end date for the transition to sepa payment mechanisms will drive more volume to these systems with the potential to cause banks to review the capabilities of the systems supporting these payments . our retail and wholesale banking solutions facilitate key functions that help financial institutions address these mandated regulations . however current uncertainty over the future of the euro currency may delay further take up of the sepa payment mechanisms . financial institution consolidation . consolidation continues on a national and international basis , as financial institutions seek to add market share and increase overall efficiency . such consolidations have increased , and may continue to increase , in their number , size and market impact as a result of the global economic crisis and the financial crisis affecting the banking and financial industries . there are several potential negative effects of increased consolidation activity . continuing consolidation of financial institutions may result in a smaller number of existing and potential customers for our products and services . consolidation of two of our customers could result in reduced revenues if the combined entity were to negotiate greater volume discounts or discontinue use of certain of our products . additionally , if a non-customer and a customer combine and the combined entity decides to forego future use of our products , our revenue would decline . conversely , we could benefit from the combination of a non-customer and a customer when the combined entity continues use of our products and , as a larger combined entity , increases its demand for our products and services . we tend to focus on larger financial institutions as customers , often resulting in our solutions being the solutions that survive in the consolidated entity . 26 global vendor sourcing . global and regional financial institutions , processors and retailers are aiming to reduce the costs in supplier management by picking suppliers who can service them across all their geographies instead of allowing each country operation to choose suppliers independently . our global footprint from both customer and a delivery perspective enable us to be successful in this global sourced market . however , projects in these environments tend to be more complex and therefore of higher risk . electronic payments convergence . as electronic payment volumes grow and pressures to lower overall cost per transaction increase , financial institutions are seeking methods to consolidate their payment processing across the enterprise . story_separator_special_tag we believe that the strategy of using service-oriented-architectures to allow for re-use of common electronic payment functions such as authentication , authorization , routing and settlement will become more common . using these techniques , financial institutions will be able to reduce costs , increase overall service levels , enable one-to-one marketing in multiple bank channels , leverage volumes for improved pricing and liquidity , and manage enterprise risk . our agile payments solution strategy is , in part , focused on this trend , by creating integrated payment functions that can be re-used by multiple bank channels , across both the consumer and wholesale bank . while this trend presents an opportunity for us , it may also expand the competition from third-party electronic payment technology and service providers specializing in other forms of electronic payments . many of these providers are larger than us and have significantly greater financial , technical and marketing resources . mobile banking and payments . there is a growing demand for the ability to carry out banking services or make payments using a mobile phone . our customers have been making use of existing products to deploy mobile banking , mobile payment and mobile commerce and mobile payment solutions for their customers in many countries . as the market continues to develop , we expect to extend our product sets as appropriate to support mobile functionality . the banking , financial services and payments industries have come under increased scrutiny from federal , state and foreign lawmakers and regulators in response to the crises in the financial markets and the global recession . in particular , the dodd-frank wall street reform and consumer protection act ( the dodd-frank act ) , which was signed into law july 21 , 2010 , represents a comprehensive overhaul of the u.s. financial services industry and requires the implementation of many new regulations that will have a direct impact on our customers and potential customers . these regulatory changes may create both opportunities and challenges for us . the application of the new regulations on our customers could create an opportunity for us to market our product capabilities and the flexibility of our solutions to assist our customers in addressing these regulations . at the same time , these regulatory changes may have an adverse impact on our operations and our financial results as we adjust our activities in light of increased compliance costs and customer requirements . it is currently too difficult to predict the actual extent to which the dodd-frank act or the resulting regulations will impact our business and the businesses of our current and potential customers . several other factors related to our business may have a significant impact on our operating results from year to year . for example , the accounting rules governing the timing of revenue recognition in the software industry are complex and it can be difficult to estimate when we will recognize revenue generated by a given transaction . factors such as maturity of the software product licensed , payment terms , creditworthiness of the customer , and timing of delivery or acceptance of our products often cause revenues related to sales generated in one period to be deferred and recognized in later periods . for arrangements in which services revenue is deferred , related direct and incremental costs may also be deferred . additionally , while the majority of our contracts are denominated in the united states dollar , a substantial portion of our sales are made , and some of our expenses are incurred , in the local currency of countries other than the united states . fluctuations in currency exchange rates in a given period may result in the recognition of gains or losses for that period . we continue to seek ways to grow , through organic sources , partnerships , alliances , and acquisitions . we continually look for potential acquisitions designed to improve our solutions ' breadth or provide access to new markets . as part of our acquisition strategy , we seek acquisition candidates that are strategic , capable of being integrated into our operating environment , and financially accretive to our financial performance . international business machines corporation alliance on december 16 , 2007 , we entered into a master alliance agreement ( the alliance ) with ibm relating to joint marketing and optimization of our electronic payments application software and ibm 's middleware and hardware platforms , tools and services . on march 17 , 2008 , the company and ibm entered into amendment no . 1 to the alliance ( amendment no . 1 and included hereafter in all references to the alliance ) , which changed the timing of certain payments to be made by ibm . under the terms of the alliance , each party will retain ownership of its respective intellectual property and will independently determine product offering pricing to customers . in connection with the formation of the alliance , we granted warrants to ibm to purchase up to 1,427,035 shares of our common stock at a price of $ 27.50 per share and up to 1,427,035 shares of our common stock at a price of $ 33.00 per share . the warrants are exercisable for five years . 27 during the year ended december 31 , 2008 , the company received an additional payment from ibm of $ 37.3 million per amendment no . 1. as of december 31 , 2011 , all the technical enablement costs related to this payment have been fulfilled . this amount represents a prepayment of funding for technical enablement milestones and incentive payments to be earned under the alliance and related agreements and , accordingly , a portion of this payment is subject to refund by the company to ibm under certain circumstances . as of december 31 , 2011 , $ 20.7 million is refundable subject to achievement of certain minimum sales targets through december 16 , 2013. no additional payments were received in 2010 and 2011 relating to amendment no . 1 of this agreement .
| aci employs measurement tools that monitor the number of transactions processed by customers and if contractually specified limits are exceeded , additional fees are charged for the overage . capacity overages may occur at varying times throughout the term of the agreement depending on the product , the size of the customer , and the significance of customer transaction volume growth . depending on specific circumstances , multiple overages or no overages may occur during the term of the agreement . as a result of the maturation of certain retail payment engine products , a higher percentage of our initial license fees are being recognized ratably over an extended period . initial license and capacity fees that are recognized as revenue ratably over an extended period are included in our monthly license fee revenues . the ratable recognition of ilf revenue from certain retail payment engine products over an extended period is expected to continue in future periods . initial license fee ( ilf ) revenue ilf revenue includes license and capacity revenues that do not recur on a monthly or quarterly basis . included in ilf revenues are license and capacity fees that are recognizable at the inception of the agreement and license and capacity fees that are recognizable at interim points during the term of the agreement , including those that are recognizable annually due to negotiated customer payment terms . ilf revenues during the year ended december 31 , 2011 compared to the same period in 2010 , increased by $ 12.4 million , or 20.1 % . all reportable operating segments experienced increases in ilf revenues with the americas , emea and asia/pacific reportable operating segments increasing by $ 6.5 million , $ 1.1 million and $ 4.8 million , respectively . the increase in ilf revenues in the asia/pacific reportable operating segment is largely attributable to customers converting from perpetual license arrangements to term and transaction based license arrangements during the year ended december 31 , 2011 as compared to the same period in 2010. included in the above are capacity related revenue increases of $ 1.0 million and $ 3.8 million in the americas
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as of december 31 , 2020 , we had an accumulated deficit of $ 202.0 million and cash , cash equivalents , restricted cash and marketable securities of $ 286.0 million . we expect to continue to incur losses for the foreseeable future and expect to incur increased expenses as we advance our product candidates through clinical trials and regulatory submissions . we do not expect to generate revenue from product sales unless , and until , we obtain regulatory approval or clearance from the fda or other foreign regulatory authorities for our product candidates . if we obtain regulatory approval or clearance for our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . in addition , we expect that our expenses will increase substantially as we continue preclinical studies and clinical trials for , and research and development of , our product candidates and maintain , expand and protect our intellectual property portfolio . as a result , we will need substantial additional funding to support our operating activities . adequate funding may not be available to us on acceptable terms , or at all . we currently anticipate that we will seek to fund our operations through equity or debt financings or other sources , such as future potential collaboration agreements . our failure to obtain sufficient funds on acceptable terms as and when needed could have a material adverse effect on our business , results of operations and financial condition . see “ —liquidity , capital resources and requirements ” below and note 1 to the financial statements for additional information . based on our current planned operations , we expect that our current cash , cash equivalents and marketable securities , along with the cash proceeds received in february 2021 related to our financing , will be sufficient to fund our operations into 2023. we rely on third parties in the conduct of our preclinical studies and clinical trials and for manufacturing and supply of our product candidates . we have no internal manufacturing capabilities , and we will continue to rely on third parties , many of whom are single source suppliers , for our preclinical and clinical trial materials , as well as the commercial supply of our products . in addition , we do not yet have a sales organization or fully developed commercial infrastructure . accordingly , we expect to incur significant expenses to fully develop a sales organization or commercial infrastructure in advance of generating any product sales . 87 index to financial statements covid-19 update in march 2020 , the world health organization declared a pandemic related to the covid-19 outbreak . covid-19 has placed strains on the providers of healthcare services , including the sites where we conduct our clinical trials . these strains have resulted in some clinical sites slowing or halting enrollment in clinical trials and restricting the on-site monitoring of clinical trials . we follow fda guidance on clinical trial conduct during the covid-19 pandemic , including the remote monitoring of clinical data . we are monitoring the impact covid-19 may have on the clinical development of our product candidates , including potential delays or modifications to ongoing and planned trials . thus far , we have seen limited impact on our clinical trials including some disruptions in screening , enrollment and monitoring , however at this time , we do not expect delays to previously disclosed clinical timelines , including those for roflumilast cream , roflumilast foam and arq-252 . we can not , at this time , predict the specific extent , duration , or full impact that the covid-19 outbreak will have on our ongoing and planned clinical trials and other business operations . there have been no disruptions in our supply chain of drug manufacturers necessary to conduct our clinical trials and , given our drug inventories , we believe that we will be able to supply the drug needs of our ongoing clinical studies . in alignment with public health guidance designed to slow the spread of covid-19 , we implemented a remote work plan for all employees as of mid-march 2020. we may need to undertake additional actions that could impact our operations as required by applicable laws or regulations , or which we determine to be in the best interests of our employees . license agreements astrazeneca license agreement in july 2018 , we entered into the astrazeneca license agreement with astrazeneca , granting us a worldwide exclusive license , with the right to sublicense through multiple tiers , under certain astrazeneca-controlled patent rights , know-how and regulatory documentation , to research , develop , manufacture , commercialize and otherwise exploit products containing roflumilast in topical forms , as well as delivery systems sold with or for the administration of roflumilast , or collectively , the az-licensed products , for all diagnostic , prophylactic and therapeutic uses for human dermatological indications , or the dermatology field . under this agreement , we have sole responsibility for development , regulatory , and commercialization activities for the az-licensed products in the dermatology field , at our expense , and we shall use commercially reasonable efforts to develop , obtain and maintain regulatory approvals for , and commercialize the az-licensed products in the dermatology field in each of the united states , italy , spain , germany , the united kingdom , france , china , and japan . we paid astrazeneca an upfront non-refundable cash payment of $ 1.0 million and issued 484,388 shares of our series b convertible preferred stock , valued at $ 3.0 million on the date of the astrazeneca license agreement . we subsequently paid astrazeneca the first milestone cash payment of $ 2.0 million upon the completion of a phase 2b study of roflumilast cream in plaque psoriasis in august 2019 for the achievement of positive phase 2 data for an az-licensed product . story_separator_special_tag we have agreed to make additional cash payments to astrazeneca of up to an aggregate of $ 12.5 million upon the achievement of specific regulatory approval milestones with respect to the az-licensed products and payments up to an additional aggregate amount of $ 15.0 million upon the achievement of certain aggregate worldwide net sales milestones . with respect to any az-licensed products we commercialize under the astrazeneca license agreement , we will pay astrazeneca a low to high single-digit percentage royalty rate on our , our affiliates ' and our sublicensees ' net sales of such az-licensed products , until , as determined on an az-licensed product-by-az-licensed product and country-by-country basis , the later of the date of the expiration of the last-to-expire astrazeneca-licensed patent right containing a valid claim in such country and ten years from the first commercial sale of such az-licensed product in such country . see note 6 to the financial statements for additional information . 88 index to financial statements hengrui exclusive option and license agreement in january 2018 , we entered into the hengrui license agreement , with hengrui , whereby hengrui granted us an exclusive option to obtain certain exclusive rights to research , develop and commercialize products containing the compound designated by hengrui as shr0302 , a jak 1 inhibitor , in topical formulations for the treatment of skin diseases , disorders , and conditions in the united states , canada , japan , and the eu ( including for clarity the united kingdom ) . we made a $ 0.4 million upfront non-refundable cash payment to hengrui upon execution of the hengrui option and license agreement . in december 2019 , we exercised our exclusive option under the agreement , for which we made a $ 1.5 million cash payment , and also contemporaneously amended the agreement to expand the territory to additionally include canada . in addition , we have agreed to make cash payments of up to an aggregate of $ 20.5 million upon our achievement of specified clinical development and regulatory approval milestones with respect to the licensed products and cash payments of up to an additional aggregate of $ 200.0 million in sales-based milestones based on achieving certain aggregate annual net sales volumes with respect to a licensed product . with respect to any products we commercialize under the hengrui license agreement , we will pay tiered royalties to hengrui on net sales of each licensed product by us , or our affiliates , or our sublicensees , ranging from mid single-digit to sub-teen percentage rates based on tiered annual net sales bands subject to specified reductions . we are obligated to pay royalties until the later of ( 1 ) expiration of the last valid claim of the licensed patent rights covering such licensed product in such country and ( 2 ) the expiration of regulatory exclusivity for the relevant licensed product in the relevant country , on a licensed product-by-licensed product and country-by-country basis . additionally , we are obligated to pay hengrui a specified percentage , ranging from the low-thirties to the sub-teens , of certain non-royalty sublicensing income we receive from sublicensees of our rights to the licensed products , such percentage decreasing as the development stage of the licensed products advance . the agreement continues in effect until the expiration of our obligation to pay royalties as described above , unless earlier terminated in accordance with the following : ( 1 ) by either party upon written notice for the other party 's material breach or insolvency event if such party fails to cure such breach or the insolvency event is not dismissed within specified time periods ; and ( 2 ) by us for convenience upon 90 days prior written notice to hengrui and having discussed and consulted any potential cause or concern with hengrui in good faith . see note 6 to the financial statements for additional information . components of our results of operations operating expenses research and development expenses since our inception , we have focused significant resources on our research and development activities , including conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings for our product candidates . research and development costs are expensed as incurred . these costs include direct program expenses , which are payments made to third parties that specifically relate to our research and development , such as payments to clinical research organizations , clinical investigators , manufacturing of clinical material , preclinical testing and consultants . in addition , employee costs , including salaries , payroll taxes , benefits , stock-based compensation and travel , for employees contributing to research and development activities are classified as research and development costs . we allocate direct external costs to our product candidates ; internal costs are not allocated to specific product candidates . we expect to continue to incur substantial research and development expenses in the future as we develop our product candidates . in particular , we expect to incur substantial research and development expenses for the phase 3 trials of roflumilast cream for atopic dermatitis and roflumilast foam for seborrheic dermatitis and scalp psoriasis , the preclinical studies and clinical trials for the continued development of arq-252 for hand eczema and vitiligo , and arq-255 for alopecia areata . we have entered , and may continue to enter , into license agreements to access and utilize certain molecules for the treatment of dermatological diseases and disorders . we evaluate if the license agreement is an acquisition of an asset or a business . to date , none of our license agreements have been considered to be an acquisition of a business . for asset acquisitions , the upfront payments to acquire such licenses , as well as any future milestone payments made before product approval , are immediately recognized as research and development expense when due , provided there is no alternative future use of the rights in other research and development projects .
| the increase in compensation and personnel-related expenses , which includes stock compensation , was primarily due to an increase in headcount . the increases in professional services and insurance costs were mainly due to overall company growth and the costs associated with being a public company . 91 index to financial statements other income , net other income , net decreased by $ 0.2 million , or 15 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the decrease was primarily due to a lower yield on our investment portfolio , partially offset by higher balances . comparison of the year ended december 31 , 2019 and 2018 the following table sets forth our results of operations for the periods indicated : replace_table_token_7_th research and development expenses replace_table_token_8_th research and development expenses increased by $ 18.6 million , or 104 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase was due to an increase in clinical trial costs of $ 14.6 million , an increase in compensation and personnel-related expenses of $ 3.0 million , and an increase in manufacturing costs of $ 1.0 million . the increases in clinical trial and manufacturing costs relate to the initiation of the phase 2b and open label extension studies in roflumilast cream for plaque psoriasis in the second half of 2018 and the initiation of the phase 2 study in roflumilast cream in atopic dermatitis in early 2019. the increase in compensation and personnel-related expenses , which includes stock compensation , was primarily due to an increase in headcount . general and administrative expenses general and administrative expenses increased by $ 4.8 million , or 268 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase was primarily due to an increase in professional services associate with the general growth of the business of $ 2.3 million , which includes legal , tax , audit , market research studies and various
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to date , we have financed our operations primary through $ 50.0 million in net proceeds from our initial public offering , or ipo , $ 23.8 million in net proceeds from a private placement in april 2019 , $ 10.2 million in net proceeds from a public offering in june 2020 , $ 33.1 million in net proceeds from a registered direct offering in january 2021 , $ 23.9 million in net proceeds from “ at the market ” offerings , $ 4.4 million in net proceeds from sales pursuant to an equity line financing , $ 131.2 million from our sales of preferred stock prior to our ipo , $ 0.6 million from the exercise of stock options and $ 34.9 million from a collaboration agreement . since our inception , we have incurred significant losses on an aggregate basis . our net losses were $ 21.2 million and $ 29.4 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 219.3 million . these losses have resulted primarily from costs incurred in connection with research and development activities , licensing and patent investment and general and administrative costs associated with our operations . we expect to continue to incur significant expenses and operating losses for at least the next several years . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through public or private equity offerings , collaborations and licensing arrangements , or other sources of capital . adequate additional financing may not be available to us on acceptable terms , if at all . market conditions are volatile and may continue to be volatile for the foreseeable future , which may limit our ability to raise capital . in addition , while we may seek one or more collaborators for future development of our product candidates for one or more indications , we may not be able to enter into a collaboration for alrn-6924 for such indications on suitable terms , on a timely basis or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . if we are unable to raise capital when needed , or on acceptable terms , we may be forced to delay , reduce and or eliminate some or all of our clinical and drug development programs and future commercialization efforts . we may also be forced to take other actions that could adversely affect our business . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . we believe that , based on our current operating plan , our cash , cash equivalents and investments of $ 13.8 million as of december 31 , 2020 , together with the net proceeds of approximately $ 33.1 million from our issuance and sale of shares of common stock in a registered direct public offering on january 8 , 2021 , net proceeds of approximately $ 20.0 million from our issuance and sale of shares of common stock in at-market-offerings under capital on demand sales agreements between january 1 , 2021 and the date of this annual report on form 10-k , and net proceeds of approximately $ 2.6 million from our issuance and sale of shares of common stock from our common stock purchase agreement with lincoln park capital fund , llc between january 1 , 2021 and the date of this annual report on form 10-k , will enable us to fund our operating expenses into the second half of 2023 . our funding estimates are based on assumptions that may prove to be wrong , and we could use our available capital resources sooner than we currently expect . changing circumstances , some of which may be beyond our control , 94 could cause us to consume capital significantly faster than we currently anticipate . in any event , our cash , cash equivalents and investments will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development or commercialization of alrn-6924 . see “ liquidity and capital resources. ” our future viability is dependent on our ability to raise additional capital to finance our operations . in the first half of 2020 we implemented various cost savings measures , including the elimination of previously planned research activities and a shift to a remote work environment , due to our limited cash resources and the uncertainty associated with the coronavirus pandemic . covid-19 in march 2020 , we began precautionary measures to protect the health and safety of our employees and partners and prospective clinical trial participants during the covid-19 pandemic . because covid-19 infections have been reported throughout the united states and worldwide , certain national , state and local governmental authorities have issued orders , proclamations and or directives aimed at minimizing the spread of covid-19 . additional , more restrictive orders , proclamations and or directives may be issued in the future . as a result , the conduct of our clinical studies with our external partners has been adjusted to institute virtual clinical trial site training and site monitoring , along with partnering with sites to minimize patient visits and institute telemedicine to minimize patient exposure . story_separator_special_tag while the covid-19 pandemic did not significantly impact our business or results of operations during the year ended december 31 , 2020 , the ultimate impact of the covid-19 pandemic on our operations is unknown and will depend on future developments . such future events are highly uncertain and can not be predicted with confidence , including the duration of the covid-19 outbreak , new information which may emerge concerning the severity of the covid-19 pandemic , and any additional preventative and protective actions that governments or we may direct , which may result in an extended period of continued business disruption , reduced patient traffic and reduced operations . in particular , the speed of the continued spread of covid-19 globally , and the magnitude of interventions to contain the spread of the virus , such as government-imposed quarantines , including shelter-in-place mandates , sweeping restrictions on travel , mandatory shutdowns for non-essential businesses , requirements regarding social distancing , and other public health safety measures , will determine the impact of the pandemic on our business . we are continuing to monitor the latest developments regarding the covid-19 pandemic and its impact on our business , financial condition , results of operations and prospects . components of our results of operations revenue we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future . if our development efforts for alrn-6924 or other product candidates that we may develop in the future are successful and result in marketing approval or collaboration or license agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties . 95 operating expenses our expenses since inception have consisted solely of research and development costs and general and administrative costs . the ongoing coronavirus pandemic has created substantial uncertainties in the united states and throughout the world , including in the financial markets and in the biopharmaceutical industry . . we are continuing to assess our strategy as the full impact of the coronavirus pandemic is better understood . in 2021 , we raised additional capital through our issuance and sale of shares of common stock in a registered direct public offering on january 8 , 2021 , from our issuance and sale of shares of common stock in at-market-offerings under capital on demand sales agreements , and from our issuance and sale of shares of common stock under our common stock purchase agreement with lincoln park capital fund , llc . see “ liquidity and capital resources . we expect that our operating expenses will increase if and as we use the proceeds of such sales of our common stock to increase our level of clinical development of alrn-6924 and hire additional personnel to carry out such clinical development . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , and include : expenses incurred under agreements with third parties , including contract research organizations , or cros , that conduct research , preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations , or cmos , that manufacture our product candidates for use in our preclinical and clinical trials ; salaries , benefits and other related costs , including stock-based compensation expense , for personnel engaged in research and development functions ; costs of outside consultants , including their fees , stock-based compensation and related travel expenses ; the costs of laboratory supplies and acquiring , developing and manufacturing preclinical study and clinical trial materials ; third-party license fees ; costs related to compliance with regulatory requirements ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development costs as incurred . we recognize costs for certain development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors and our clinical investigative sites . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued research and development expenses . we typically use our employee and infrastructure resources across our development programs . we track outsourced development costs and milestone payments made under our licensing arrangements by product candidate or development program , but we do not allocate personnel costs , license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates . these costs are included in employee , facility and other development expenses in the table below . employee , facility and other expenses also includes internal research relating to non-clinical and pipeline compounds in oncology and non-oncology indications . 96 the following table summarizes our research and development expenses : replace_table_token_1_th 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 expenses in the foreseeable future as we continue our ongoing clinical trials of alrn-6924 , initiate additional clinical trials of alrn-6924 and pursue later stages of clinical development of alrn-6924 . we can not determine with certainty the duration and costs of the current or future clinical trials of our product candidates or if , when , or to what extent we will generate revenue from the commercialization and sale of any of our product candidates for which we obtain marketing approval .
| on november 11 , 2020 , we entered into a lease termination agreement with respect to our former corporate headquarters in watertown , massachusetts . in connection with the lease termination we derecognized our right of use assets and operating lease liabilities associated with the lease . the derecognition of these assets and liabilities resulted in a non-cash charge of $ 0.8 million . we anticipate that our interest income will fluctuate in the future in response to our level of cash , cash equivalents and investments , and then current interest rates . other income ( expense ) , net for the year ended december 31 , 2019 consisted solely of interest income of $ 0.6 million . liquidity and capital resources since our inception , we have incurred significant losses on an aggregate basis . we have not yet commercialized any product candidate , including alrn-6924 , which is in clinical development , and we do not expect to generate revenue from sales of any products for several years , if at all . we have financed our operations through sales of common stock in our initial public offering and follow-on public offerings , sales of common stock and warrants in a private placement , sales of common stock in “ at-the-market ” offerings under the capital on demand sales agreements , sales of common stock under our equity line with lpc , sales of preferred stock prior to our initial public offering and payments received under a collaboration agreement . as of december 31 , 2020 , we had cash , cash equivalents and investments of $ 13.8 million . public offerings in june 2020 , we issued and sold in an underwritten public offering an aggregate of 10,162,059 shares of common stock , including an additional 1,071,149 shares of common stock upon the partial exercise of the option of the underwriter to purchase additional shares of common stock , for a purchase price to the public
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o rders for products generally correspond to the production schedules of our customers and are supported with firm purchase orders . o ur customers have continuous control of the work in progress and finished goods throughout the pcb and custom electronic assemblies manufactur ing process , as these are built to customer specifications with no alternative use , and there is an enforceable right of payment for work performed to date . as a result , beginning in the first quarter of 2018 , w e began recogniz ing revenue progressively over time based on the extent of progress towards completion of the performance obligation . w e recognize revenue based on the cost-to-cost method as it best depicts the transfer of control to the customer which takes place as we incur costs . under the cost-to-cost measure of progress , the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation . revenues are recorded proportionally as costs are incurred . we also manufacture certain components , assemblies , and subsystems which service our wireless communications customers . we recognize revenue at a point in time upon transfer of control of the products to our customer . point in time recognition was determined as our customers do not simultaneously receive or consume the benefits provided by our performance and the asset being manufactured has alternative uses to us . net sales consist of gross sales less an allowance for returns , which typically have been approximately 2 % of gross sales . we provide our customers a limited right of return for defective pcbs including components , subsystems and assemblies . we record an estimate for sales returns and allowances at the time of sale based on historical results and anticipated returns . cost of goods sold consists of materials , labor , outside services , and overhead expenses incurred in the manufacture and testing of our products . shipping and handling fees and related freight costs and supplies associated with shipping products are also included as a component of cost of goods sold . many factors affect our gross margin , including capacity utilization , product mix , production volume , and yield . while we have entered into supply assurance agreements with some of our key suppliers to maintain the continuity of supply of some of the key materials we use , we generally do not participate in any significant long-term contracts with suppliers , and we believe there are a number of potential suppliers for most of the raw materials we use . selling and marketing expenses consist primarily of salaries , labor related benefits , and commissions paid to our internal sales force , independent sales representatives , and our sales support staff , as well as costs associated with marketing materials and trade shows . general and administrative costs primarily include the salaries for executive , finance , accounting , information technology , facilities , research and development , and human resources personnel , as well as expenses for accounting and legal assistance , incentive compensation expense , and gains or losses on the sale or disposal of property , plant and equipment . critical accounting policies and estimates our consolidated financial statements included in this report 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 assumptions that affect the reported amounts of assets , liabilities , net sales and expenses , and related disclosure of contingent assets and liabilities . a critical accounting policy is defined as one that is both material to the presentation of our consolidated financial statements and requires us to make judgments that could have a material effect on our financial condition or results of operations . these policies require us to make assumptions about matters that are highly uncertain at the time of the estimate . different estimates we could reasonably have used , or changes in the estimates that are reasonably likely to occur , could have a material effect on our financial condition or results of operations . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . management has discussed the development , selection and disclosure of these estimates with the audit committee of our board of directors . actual results may differ from these estimates under different assumptions or conditions . our critical accounting policies include impairment of goodwill and intangible assets and realizability of deferred tax assets . goodwill and intangible assets we have significant goodwill and definite-lived intangibles . we review these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . in addition , we perform an impairment test related to goodwill at least annually . as necessary , we make judgments regarding future cash flow forecasts in the assessment of impairment . we have two reportable segments consisting of pcb and e-m solutions . goodwill is only attributable to our pcb reportable segment . goodwill is allocated to our reporting units , which are our operating segments or one level below our operating segments ( the component level ) . reporting units are determined by the discrete financial information available for the component and whether it 38 is regularly reviewed by segment management . components are aggregated into a single reporting unit if they share similar economic characteristics . our pcb reportable segment is made up of five reporting units . the company evaluates its goodwill on an annual basis in the fourth quarter or more frequently if it believes indicators of impairment exist . story_separator_special_tag we assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or perform its annual impairment test . when tested quantitatively , we compare the fair value of the applicable reporting unit with its carrying value . we estimate the fair values of our reporting units using a combination of the income and market approach . if the carrying amount of a reporting unit exceeds the reporting unit 's fair value , the amount by which the carrying value exceeds the fair value is recognized as an impairment los s. during the third fiscal quarter , our communications and computing and automotive and medical/industrial/instrumentation reporting units had lower than anticipated results and continued declines in sales . we considered these factors to be indicators of potential impairment requiring us to test the related goodwill of $ 39.3 million for communications and computing reporting unit and $ 185.5 million for automotive and medical/industrial/instrumentation reporting unit for impairment . as of september 30 , 2019 , we completed a quantitative goodwill impairment analysis related to these reporting units by comparing the fair value of the reporting unit with its carrying amount . we determined the fair value of the reporting units by using discounted cash flow ( dcf ) and market analyses . under the market approach , we used revenue and earnings multiples based on comparable industry multiples to estimate the fair value of the reporting units . a dcf analysis requires us to estimate the future cash flows as well as to select a risk-adjusted discount rate to measure the present value of the anticipated cash flows . when determining future cash flow estimates , we consider historical results adjusted to reflect current and anticipated future operating conditions . we estimate cash flows for a reporting unit over a discrete period and a terminal period ( considering expected long-term growth rates and trends ) . based on our analysis , we estimated that the fair value of the communications and computing and automotive and medical/industrial/instrumentation reporting units exceeded their respective carrying value by 19 % and 8 % , respectively . if our future cash flow projections and other fair value assumptions for our reporting unit change , we may be subject to potential impairment in subsequent quarters . estimating the fair value of the reporting unit requires us to make assumptions and estimates in such areas as future economic conditions , industry-specific conditions , product pricing , and necessary capital expenditures . the use of different assumptions or estimates for future cash flows , discount rates , or terminal growth rates could produce substantially different estimates of the fair value of the reporting unit . in the fourth quarter of 2019 , we performed our annual impairment test qualitatively and concluded that it was more likely than not that goodwill was not impaired . management will continue to monitor the reporting units for changes in the business environment that could impact recoverability . the recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities . if the economy or business environment falter and we are unable to achieve our assumed revenue growth rates or profit margin percentages , our projections used would need to be re-measured , which could impact the carrying value of our goodwill in one or more of our reporting units . we also assess definite-lived intangibles for potential impairment given similar impairment indicators . when indicators of impairment exist related to our definite-lived intangible assets , we use an estimate of the undiscounted cash flows in measuring whether the carrying amount of the assets is recoverable . measurement of the amount of impairment , if any , is based upon the difference between the asset 's carrying value and estimated fair value . fair value is determined through various valuation techniques , including cost-based , market and income approaches as considered necessary , which involve judgments related to future cash flows and the application of the appropriate valuation model . income taxes deferred income tax assets are reviewed for recoverability , and valuation allowances are provided , when necessary , to reduce deferred income tax assets to the amounts that are more likely than not to be realized based on our estimate of future taxable income . as of december 30 , 2019 , we had a net non-current deferred income tax asset of $ 26.1 million , which is comprised of a net deferred tax asset of $ 164.9 million and a net deferred tax liability of $ 138.8 million . as of december 30 , 2019 , our deferred income tax asset of $ 164.9 million was net of a valuation allowance of approximately $ 25.9 million . should our expectations of taxable income change in future periods , it may be necessary to adjust our valuation allowance , which could affect our results of operations in the period such a determination is made . we are subject to income taxes in the united states and foreign jurisdictions . significant judgment is required in determining our worldwide provision for income taxes . in the ordinary course of our business , there are many transactions for which the ultimate tax determination is uncertain . additionally , our calculations of income taxes are based on our interpretations of applicable tax laws in the jurisdictions in which we file . 39 story_separator_special_tag december 31 , 2018. the increase in selling and marketing expenses in 2019 primarily relates to expenses associated with operations acquired in the anaren acquisition .
| these changes resulted in a 16.7 % decrease in the volume of pcb shipments partially offset by an average pcb selling price increase of 10.0 % , driven mainly by product mix shift , as compared to the year ended december 31 , 2018. net sales for the e-m solutions reportable segment increased $ 0.4 million , or 0.2 % , to $ 226.3 million for the year ended december 30 , 2019 from $ 225.9 million for the year ended december 31 , 2018. the increase was primarily due to higher demand in our automotive end market , partially offset by a lower demand in medical/industrial/instrumentation and networking/communications end markets . total net sales increased $ 188.7 million , or 7.1 % , to $ 2,847.3 million for the year ended december 31 , 2018 from $ 2,658.6 million for the year ended january 1 , 2018. net sales for the pcb reportable segment increased $ 172.8 million , or 7.1 % , to $ 2,621.3 million for the year ended december 31 , 2018 from $ 2,448.5 million for the year ended january 1 , 2018. this increase was primarily due to the acquisition of anaren , which accounted for $ 191.0 million in net sales in 2018 , as well as higher demand in the aerospace and defense , computing/storage/peripherals and medical/industrial/instrumentation end markets compared to the year ended january 1 , 2018 , partially offset by a decline in demand in our cellular phone , networking/communications and automotive end markets . these changes resulted in an average pcb selling price increase of 8.1 % , driven mainly by product mix shift , however the resulting increase in net sales was partially offset by a 6.9 % decrease in the volume of pcb shipments as compared to the year ended january 1 , 2018. net sales for the e-m solutions reportable segment increased $ 15.8 million , or 7.5 % , to $ 225.9 million for the year ended december 31 , 2018 from $ 210.1 million for the year ended january 1 , 2018. the increase was primarily due to higher demand in our automotive and networking/communications end markets . for information regarding net sales
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the recoverability of our deferred tax assets are evaluated each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets . valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized . provision has been made for income taxes on unremitted earnings of subsidiaries and affiliates , except for subsidiaries in which earnings are deemed to be indefinitely reinvested . the calculation of income tax liabilities involves uncertainties in the application of complex tax laws and regulations , which are subject to legal interpretation and management judgment . eastman 's income tax returns are regularly examined by federal , state and foreign tax authorities , and those audits may result in proposed adjustments . the company has evaluated these potential issues under the more-likely-than-not standard of the accounting literature . a tax position is recognized if it meets this standard and is measured at the largest amount of benefit that has a greater than 50 percent likelihood of being realized . such judgments and estimates may change based on audit settlements , court cases and interpretation of tax laws and regulations . the company accrues interest related to unrecognized income tax positions , which is included as a component of the income tax provision on the balance sheet . the company recognizes income tax positions that meet the more likely than not threshold . the accrued interest related to unrecognized income tax positions and taxes resulting from the global intangible low-tax income ( `` gilti `` ) are recorded as a component of the income tax provision . for additional information , see note 7 , `` income taxes `` . cash and cash equivalents cash and cash equivalents include cash , time deposits , and readily marketable securities with original maturities of three months or less . fair value measurements eastman records recurring and non-recurring financial assets and liabilities as well as all non-financial assets and liabilities subject to fair value measurement at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . these fair value principles prioritize valuation inputs across three broad levels . level 1 inputs are quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability , either directly or indirectly through market corroboration , for substantially the full term of the financial instrument . level 3 inputs are unobservable inputs based on the company 's assumptions used to measure assets and liabilities at fair value . an asset or liability 's classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement . accounts receivable and allowance for credit losses trade accounts receivable are recorded at the invoiced amount and do not bear interest . eastman maintains allowances for estimated credit losses , which are developed at a market , country , and region level based on risk of collection as well as current and forecasted economic conditions . the company calculates the allowance based on an assessment of the risk when the accounts receivable is recognized . write-offs are recorded at the time a customer receivable is deemed uncollectible . allowance for credit losses was $ 14 million and $ 11 million as of december 31 , 2020 and december 31 , 2019 , respectively . the company does not enter into receivables of a long-term nature , also known as financing receivables , in the normal course of business . 77 notes to the audited consolidated financial statements inventories inventories measured by the last-in , first-out ( `` lifo `` ) method are valued at the lower of cost or market and inventories measured by the first-in , first-out ( `` fifo `` ) method are valued at the lower of cost or net realizable value . eastman determines the cost of most raw materials , work in process , and finished goods inventories in the united states and switzerland by the lifo method . the cost of all other inventories is determined by the average cost method , which approximates the fifo method . the company writes-down its inventories equal to the difference between the carrying value of inventory and the estimated market value or net realizable value based upon assumptions about future demand and market conditions . properties eastman records properties at cost . maintenance and repairs are charged to earnings ; replacements and betterments are capitalized . when eastman retires or otherwise disposes of assets , it removes the cost of such assets and related accumulated depreciation from the accounts . the company records any profit or loss on retirement or other disposition in `` cost of sales `` in the consolidated statements of earnings , comprehensive income and retained earnings . asset impairments are reflected as increases in accumulated depreciation for properties that have been placed in service . in instances when an asset has not been placed in service and is impaired , the associated costs are removed from the appropriate property accounts . depreciation and amortization depreciation expense is calculated based on historical cost and the estimated useful lives of the assets , generally using the straight-line method . estimated useful lives for buildings and building equipment generally range from 20 to 50 years . estimated useful lives generally ranging from 3 to 33 years are applied to machinery and equipment in the following categories : computer software ( 3 to 5 years ) ; office furniture and fixtures and computer equipment ( 5 to 10 years ) ; vehicles , railcars , and general machinery and equipment ( 5 to 20 years ) ; and manufacturing-related story_separator_special_tag the recoverability of our deferred tax assets are evaluated each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets . valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized . provision has been made for income taxes on unremitted earnings of subsidiaries and affiliates , except for subsidiaries in which earnings are deemed to be indefinitely reinvested . the calculation of income tax liabilities involves uncertainties in the application of complex tax laws and regulations , which are subject to legal interpretation and management judgment . eastman 's income tax returns are regularly examined by federal , state and foreign tax authorities , and those audits may result in proposed adjustments . the company has evaluated these potential issues under the more-likely-than-not standard of the accounting literature . a tax position is recognized if it meets this standard and is measured at the largest amount of benefit that has a greater than 50 percent likelihood of being realized . such judgments and estimates may change based on audit settlements , court cases and interpretation of tax laws and regulations . the company accrues interest related to unrecognized income tax positions , which is included as a component of the income tax provision on the balance sheet . the company recognizes income tax positions that meet the more likely than not threshold . the accrued interest related to unrecognized income tax positions and taxes resulting from the global intangible low-tax income ( `` gilti `` ) are recorded as a component of the income tax provision . for additional information , see note 7 , `` income taxes `` . cash and cash equivalents cash and cash equivalents include cash , time deposits , and readily marketable securities with original maturities of three months or less . fair value measurements eastman records recurring and non-recurring financial assets and liabilities as well as all non-financial assets and liabilities subject to fair value measurement at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . these fair value principles prioritize valuation inputs across three broad levels . level 1 inputs are quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability , either directly or indirectly through market corroboration , for substantially the full term of the financial instrument . level 3 inputs are unobservable inputs based on the company 's assumptions used to measure assets and liabilities at fair value . an asset or liability 's classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement . accounts receivable and allowance for credit losses trade accounts receivable are recorded at the invoiced amount and do not bear interest . eastman maintains allowances for estimated credit losses , which are developed at a market , country , and region level based on risk of collection as well as current and forecasted economic conditions . the company calculates the allowance based on an assessment of the risk when the accounts receivable is recognized . write-offs are recorded at the time a customer receivable is deemed uncollectible . allowance for credit losses was $ 14 million and $ 11 million as of december 31 , 2020 and december 31 , 2019 , respectively . the company does not enter into receivables of a long-term nature , also known as financing receivables , in the normal course of business . 77 notes to the audited consolidated financial statements inventories inventories measured by the last-in , first-out ( `` lifo `` ) method are valued at the lower of cost or market and inventories measured by the first-in , first-out ( `` fifo `` ) method are valued at the lower of cost or net realizable value . eastman determines the cost of most raw materials , work in process , and finished goods inventories in the united states and switzerland by the lifo method . the cost of all other inventories is determined by the average cost method , which approximates the fifo method . the company writes-down its inventories equal to the difference between the carrying value of inventory and the estimated market value or net realizable value based upon assumptions about future demand and market conditions . properties eastman records properties at cost . maintenance and repairs are charged to earnings ; replacements and betterments are capitalized . when eastman retires or otherwise disposes of assets , it removes the cost of such assets and related accumulated depreciation from the accounts . the company records any profit or loss on retirement or other disposition in `` cost of sales `` in the consolidated statements of earnings , comprehensive income and retained earnings . asset impairments are reflected as increases in accumulated depreciation for properties that have been placed in service . in instances when an asset has not been placed in service and is impaired , the associated costs are removed from the appropriate property accounts . depreciation and amortization depreciation expense is calculated based on historical cost and the estimated useful lives of the assets , generally using the straight-line method . estimated useful lives for buildings and building equipment generally range from 20 to 50 years . estimated useful lives generally ranging from 3 to 33 years are applied to machinery and equipment in the following categories : computer software ( 3 to 5 years ) ; office furniture and fixtures and computer equipment ( 5 to 10 years ) ; vehicles , railcars , and general machinery and equipment ( 5 to 20 years ) ; and manufacturing-related
| business into eastman or that the integration efforts will not achieve the expected benefits . risks related to regulatory changes and compliance legislative , regulatory , or voluntary actions could increase the company 's future health , safety , and environmental compliance costs . eastman , its facilities , and its businesses are subject to complex health , safety , and environmental laws , regulations , and related voluntary actions , both in the u.s. and internationally , which require and will continue to require significant expenditures to remain in compliance with such laws , regulations , and voluntary actions . the company 's accruals for such costs and associated liabilities are subject to changes in estimates on which the accruals are based . for example , any amount accrued for environmental matters reflects the company 's assumptions about remediation requirements at the contaminated site , the nature of the remedy , the outcome of discussions with regulatory agencies and other potentially responsible parties at multi-party sites , and the number of and financial viability of other potentially responsible parties . changes in the estimates on which the accruals are based , unanticipated government enforcement action , or changes in health , safety , environmental , chemical control regulations and actions , and testing requirements could result in higher costs . specifically , future changes in legislation and regulation and related voluntary actions associated with physical impacts of climate change may increase the likelihood that the company 's manufacturing facilities will in the future be impacted by carbon requirements , regulation of greenhouse gas emissions , and energy policy , and may result in capital expenditures , increases in costs for raw materials and energy , limitations on raw material and energy source and supply choices , and other direct compliance costs . see `` business - eastman chemical company general information - compliance with environmental and other government regulations '' in part i , item 1 of this annual report . 63 item
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the combined purchase price was approximately $ 125 million , net of cash acquired and deferred acquisition payments and subject to certain post-closing adjustments . we financed both of the acquisitions using cash on hand and borrowings under our existing credit facility . these transactions broadened our plumbing portfolio and enhanced future growth opportunities . during the third quarter of 2016 , we announced the creation of gpg , which was designed to support the growth of multiple plumbing brands with an enhanced set of products and brands , while leveraging moen 's existing global supply chain and broad distribution network . in september 2016 , we acquired rohl , a california-based luxury plumbing company and in a related transaction , we acquired tcl manufacturing ltd , which gave us ownership of perrin & rowe , a uk 19 manufacturer and designer of luxury kitchen and bathroom plumbing products . the total combined purchase price was approximately $ 166 million , subject to certain post-closing adjustments . we financed both acquisitions using cash on hand and borrowings under our existing credit facility . these transactions broadened the plumbing portfolio and enhanced future growth opportunities . in june 2016 , we amended and restated our credit agreement to combine and rollover the existing revolving credit facility and term loan into a new standalone $ 1.25 billion revolving credit facility . terms and conditions of the credit agreement , including the total commitment amount , essentially remained the same . the revolving credit facility will mature in june 2021 and borrowings thereunder will be used for general corporate purposes . in may 2016 , we acquired riobel , a canadian plumbing company specializing in premium showroom bath and shower fittings , for a total purchase price of $ 94.6 million , subject to certain post-closing adjustments . we financed the transaction using cash on hand and borrowings under our existing credit facilities . in september 2015 , we completed the sale of waterloo industries , inc. ( waterloo ) , our tool storage business which was included in our security segment for approximately $ 14 million in cash , subject to certain post-closing adjustments . in june 2015 , we issued $ 900 million of unsecured senior notes ( senior notes ) in a registered public offering . we used the proceeds from the senior notes offering to pay down our revolving credit facility and for general purposes . in may 2015 , we acquired norcraft companies , inc. ( norcraft ) , a leading publicly-owned manufacturer of kitchen and bathroom cabinetry , for a total purchase price of $ 648.6 million . we financed the transaction using cash on hand and borrowings under our existing credit facilities . basis of presentation the consolidated financial statements in this annual report on form 10-k have been derived from the accounts of the company and its wholly-owned subsidiaries . the company 's consolidated financial statements are based on a fiscal year ending december 31. certain of the company 's subsidiaries operate on a 52 or 53 week fiscal year ending during the month of december . there were certain transactions that resulted in net cash outflows of $ 38 million and $ 49 million as of december 31 , 2017 and 2016 , respectively , relating to payments made to third parties in the normal course of business during the period between the year-end of our wholly-owned subsidiaries and the company 's year-end . in october 2017 , we acquired victoria +albert . in july 2017 , we acquired shaws . the financial results of both of the acquisitions were included in the company 's consolidated balance sheets as of december 31 , 2017 and in the company 's consolidated statements of income and statements of cash flow beginning in october 2017 and july 2017 , respectively . the results of operations are included in the plumbing segment . in september 2016 , we acquired rohl and in a related transaction , we acquired tcl manufacturing ltd. , which gave us ownership of perrin & rowe and in may 2016 , we acquired riobel . the financial results of rohl and riobel were included in the company 's consolidated balance sheets as of december 31 , 2016 and 2017 and in the company 's consolidated statements of income and statements of cash flow beginning in september 2016 and may 2016 , respectively . the results of operations are included in the plumbing segment . in september 2015 , we completed the sale of waterloo . in accordance with accounting standards codification ( asc ) requirements , the results of operations of waterloo through the date of sale , were classified and separately stated as discontinued operations in the accompanying consolidated statements of income for 2015 and 2014. the assets and liabilities of waterloo were classified as discontinued operations in the accompanying consolidated balance sheet as of december 31 , 2014 . 20 in may 2015 , we acquired norcraft . the financial results of norcraft were included in the company 's consolidated statements of income and statements of cash flow beginning in may 2015 and the consolidated balance sheets as of december 31 , 2015 and 2016. the cash flows from discontinued operations for 2015 were not separately classified on the accompanying consolidated statements of cash flows . information on business segments was revised to exclude these discontinued operations . story_separator_special_tag style= '' margin-top:0px ; margin-bottom:0px '' > $ 13.0 million , respectively ) and favorable tax rates in foreign jurisdictions ( $ 8.3 million and $ 7.6 million , respectively ) , offset by state and local taxes and increases to uncertain tax positions ( $ 11.6 million and $ 13.2 million , respectively ) . story_separator_special_tag the tax act made significant changes to the u.s. internal revenue code including a reduction in the corporate tax rate from 35 % to 21 % for tax years beginning after december 31 , 2017 , generally providing for an exemption from federal income tax for dividends received from foreign subsidiaries , and imposing a one-time transition tax on the deemed repatriation of cumulative foreign earnings and profits as of december 31 , 2017. we have calculated our best estimate of the impact of the tax act on our 2017 effective income tax rate based upon available information , limited timing and our understanding of the tax act , as well as the facts and guidance available at our assessment date of january 22 , 2018. the company has recorded a provisional net benefit of $ 25.7 million related to the tax act in the fourth quarter of 2017 , the period in which it was enacted . this provisional amount includes an estimated reduction in the company 's net deferred tax liabilities of $ 62.4 million resulting from the decrease in the federal income tax rate ; an estimated deemed repatriation tax liability of $ 28.5 million ; and an estimated net increase to our provision for taxes on foreign earnings not considered permanently reinvested of $ 8.2 million . the impact of the tax act may differ from these estimates , possibly materially , due to , among other things , refinement of calculations due to additional analysis , changes in interpretations , assumptions made and additional guidance that may be issued . any subsequent adjustment , related to the aforementioned , will be recorded in current tax expense when such analysis is completed or such guidance is issued . income from continuing operations net income from continuing operations was $ 475.3 million in 2017 compared to $ 412.4 million in 2016. the increase of $ 62.9 million was primarily due to higher operating income . ( loss ) income from discontinued operations the loss from discontinued operations of $ 2.6 million in 2017 primarily related to the prior sale of the waterloo tool storage business and simonton window businesses . the income from discontinued operations of $ 0.8 million in 2016 included the effect of tax adjustments relating to the waterloo business . results by segment cabinets net sales increased $ 69.3 million , or 2.9 % , due to higher sales volume driven primarily by continuing improvement in the u.s. home products market and the benefit from new product introductions , price increases to help mitigate cumulative raw material cost increases and a $ 3 million benefit from favorable foreign exchange . these benefits were partially offset by unfavorable mix and higher sales promotions . operating income increased $ 9.4 million , or 3.6 % , due to the increase in net sales and productivity improvements . these benefits were partially offset by unfavorable mix , higher employee-related costs , higher labor inflation and higher transportation costs . plumbing net sales increased $ 186.4 million , or 12.1 % , due to higher sales volume driven by continuing improvement in the u.s. home products market and the benefit from new product introductions , higher sales in international markets , principally china , and the benefit from the acquisitions of riobel , rohl and perrin & rowe in 2016 as well as shaws and victoria +albert in 2017. these benefits were partially offset by higher sales rebates . operating income increased $ 37.3 million , or 11.4 % , due to higher net sales , productivity improvements and favorable mix as well as a $ 4 million benefit from favorable foreign exchange . these benefits were partially offset by employee-related costs , higher raw materials costs and higher advertising costs . 24 doors net sales increased $ 29.9 million , or 6.3 % , due to higher sales volume driven primarily by continuing improvement in the u.s. home products market and the benefit from new product introductions and price increases to help mitigate cumulative raw material cost increases . operating income increased $ 12.6 million , or 20.4 % , due to higher net sales , the benefits from productivity improvements and leveraging sales on our existing fixed cost base . security net sales increased $ 12.8 million , or 2.2 % , due to higher sales volume and price increases to help mitigate cumulative raw material cost increases . these benefits were partially offset by the impact of our exiting of two product lines in our commercial distribution channel . operating income increased $ 5.8 million , or 8.7 % , primarily due to the higher net sales , the benefits from productivity improvements , lower restructuring and other charges ( approximately $ 6 million ) relating to the completion in 2016 of a manufacturing facility relocation , favorable foreign exchange and the related cost savings resulting from the facility relocation . corporate corporate expenses increased by $ 5.7 million mainly due to the impairment of a long lived asset and recognition of an actuarial gain versus an actuarial loss in 2016 and higher defined benefit plan income during 2017 compared to 2016. replace_table_token_11_th in future periods the company may record , in the corporate segment , material expense or income associated with actuarial gains and losses arising from periodic remeasurement of our liabilities for defined benefit plans . at a minimum the company will remeasure its defined benefit plan liabilities in the fourth quarter of each year . remeasurements due to plan amendments and settlements may also occur in interim periods during the year . remeasurement of these liabilities attributable to updating our liability discount rates and expected return on assets may , in particular , result in material income or expense recognition . 2016 compared to 2015 total fortune brands net sales net sales increased $ 405.5 million , or 9 % .
| in 2017 , financial results included : > the benefit of the acquisitions in our plumbing segment , > restructuring and other charges of $ 18.5 million before tax ( $ 12.3 million after tax ) , primarily related to losses on disposal of inventory associated with exiting a product line in our security segment and exiting a customer relationship in our cabinets segment , as well as severance costs within our security , plumbing and cabinets segments , > impairment charge of $ 7.0 million pertaining to a cost method investment in a development stage home products company due to other-than-temporary decline in its fair value , 21 > the impact of foreign exchange primarily due to movement in the canadian dollar , which had a favorable impact compared to 2016 , of approximately $ 4 million on net sales , approximately $ 5 million on operating income and approximately $ 4 million on net income and > an estimated net tax benefit of $ 25.7 million resulting from the enactment of the u.s. tax cuts and jobs act of 2017 on december 22 , 2017 ( the tax act ) . in 2016 , financial results included : > the benefit of the acquisitions in our cabinets and plumbing segments , > defined benefit plan recognition of actuarial losses , recorded in the corporate segment , of $ 1.9 million ( $ 1.3 million after tax ) compared to $ 2.5 million ( $ 1.6 million after tax ) in 2015. the actuarial losses in 2016 were primarily due to the re-measurement relating to a retiree medical plan , > restructuring and other charges of $ 19.3 million before tax ( $ 13.6 million after tax ) , primarily associated with severance costs and charges associated with the relocation of a manufacturing facility within our security segment and > the impact of foreign exchange primarily due to movement in the canadian dollar , which had an unfavorable impact compared to 2015 , of approximately $ 27 million on net sales , approximately $ 6 million on operating income and approximately $ 6 million on net income . in 2015 , financial results included : > the benefit of the norcraft , sentrysafe and anaheim acquisitions , > defined benefit plan recognition of actuarial losses , recorded in the corporate segment , of $ 2.5 million ( $ 1.6 million after tax )
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since then , we have been focused on our business and human response to the crisis -- - managing and operating our business as seamlessly as possible , and supporting our clients , employees and communities as we weather the crisis together . during this volatile time , we remain focused on our capital and liquidity . we are “ well-capitalized , ” remaining above all applicable regulatory capital requirements . we have a liquid and high-quality balance sheet , with approximately half of our assets as of december 31 , 2020 held in cash and marketable securities , primarily agency-backed mortgage securities and u.s. treasuries . we also have access to other funding sources , as necessary . moreover , we paused our stock repurchase program , and the program expired on october 29 , 2020. in addition , we have also elected to use a phase-in transitional approach for the estimated impact of cecl on our regulatory capital , as permitted by the 2020 cecl transition rule . the uncertainties of the duration and severity of the effect of covid-19 on economic , market and business conditions have made it more difficult to forecast our operating results and the macroeconomic conditions to which our business is subject . some notable negative effects emerged late in the first quarter and continued through the fourth quarter , as discussed in this management discussion and analysis section , but any longer-term effects or trends remain subject to significant uncertainty . moreover , we are subject to heightened business , operational ( including fraud ) , market , credit and other risks related to the covid-19 pandemic , which may have an adverse effect on our business , financial condition and results of operations . ( see “ risk factors ” under part ii , item 1a of this report ) we continue to serve our clients during this difficult time , while managing our credit risk . during the fourth quarter , we continued to provide special debt relief assistance to support certain clients who are experiencing financial hardships related to the covid-19 pandemic , including offering certain venture-backed companies , private bank , wine and other clients the opportunity to temporarily defer their scheduled loan principal payments . we continue to engage with our clients to understand client needs , and we may implement additional assistance or other relief to support clients across various sectors and life stages . additionally , we continue to participate as a lender in the ppp and the second draw loan program under the cares act and the u.k. coronavirus business interruption loan scheme ( `` cbils '' ) and coronavirus large business interruption loan scheme ( `` clbils '' ) , and may participate in other government relief programs in the u.s. or internationally . these government programs are complex and our participation in any of these programs may lead to governmental , regulatory and other scrutiny , litigation , negative publicity and reputation damage for us and our customers who participate . for example , like many other participating banks in the united states , we have been named in various lawsuits regarding the right to agent fees under the ppp . overall , these relief measures , whether our own programs or our participation in government programs , are new programs for us and we may not be successful in implementing or administering the programs as intended . further , the extent to which these programs are successful in assisting our clients is uncertain . these relief programs are temporary in nature , such as the ppp , and our loan payment deferral programs , which expired during the second half of the year ( certain of our programs ended in the third quarter with the remaining ending by year end ) . our clients may experience financial difficulties without the continued support from these programs . if these relief measures are not effective , or if they are effective for only a limited period and our clients experience delayed financial hardship , there may be an adverse effect on our revenue and results of operations , including increased provisions in our allowance for credit losses , higher rates of default and increased credit losses in future periods . we are also prioritizing the safety and well-being of our employees . in march 2020 , we activated our business continuity and pandemic plans globally , moving to a work-from-home plan , prohibiting all business travel , postponing or moving online all svb-hosted events , and enabling remote access to our systems . we have implemented various programs to provide work , life and health-related support for our employees , ranging from expanded time-off , counseling and medical benefits for employees directly impacted by covid-19 , to providing reimbursements and practical support for working from home . in addition , we are also developing a plan for employees to eventually return to work in our offices , which will be subject to a variety of complex considerations . while much of our workforce continues to work from home through the crisis ( currently expected until july 2021 , subject to further extensions or other changes ) and perhaps to some extent beyond the crisis , in the event that we allow an increase in remote working practices even after the pandemic subsides , we will need to continue to provide support to our employees to work effectively in a remote environment , taking into consideration needs relating to technology , physical working conditions , work/life balance , and continued team collaboration . 41 moreover , consistent with our tradition of supporting and giving back to our communities , we have also committed $ 5.5 million to local , regional and global covid-19 relief activities in various u.s. and international locations where we have offices . this includes corporate contributions to global , national and regional charities , direct community-based giving , and a 3:1 match for employees ' donations to relevant causes . story_separator_special_tag additionally , we have donated approximately $ 20 million in ppp fees received from the sba , net of our costs incurred , to charitable relief efforts . although the effects of the pandemic remain uncertain , for the year ending 2021 , we currently expect growth in average on-balance sheet deposits and average loans and stable core fees . while credit metrics have been stable to date , we continue to monitor our portfolio vigilantly , in light of continued economic uncertainty , fading government stimulus and expiring deferral programs . additionally , volatile equity markets , ipo and m & a activity may impact investment banking and market-sensitive revenues . even after the pandemic subsides , it is possible that the u.s. and other major economies will continue to experience a prolonged recession , which we expect would materially and adversely affect our business , financial condition , liquidity , capital and results of operations . results for the fiscal year ended , and as of , december 31 , 2020 ( compared to the fiscal year ended , and as of , december 31 , 2019 , where applicable ) : balance sheet earnings assets . $ 85.8 billion in average total assets ( up 35.7 % ) . $ 115.5 billion in period-end total assets ( up 62.7 % ) . loans . $ 37.3 billion in average total loan balances , amortized cost ( up 24.6 % ) . $ 45.2 billion in period-end total loan balances , amortized cost ( up 36.2 % ) . total client funds . ( on-balance sheet deposits and off-balance sheet client investment funds ) . $ 192.8 billion in average total client fund balances ( up 31.5 % ) . $ 243.0 billion in period-end total client fund balances ( up 51.0 % ) . afs/htm fixed income investments . $ 31.8 billion in average fixed income investment securities ( up 30.9 % ) . $ 47.5 billion in period-end fixed income investment securities ( up 70.5 % ) . eps . earnings per diluted share of $ 22.87 ( up 5.2 % ) . net income . consolidated net income available to common stockholders of $ 1.19 billion ( up 4.8 % ) . - net interest income of $ 2.16 billion ( up 2.8 % ) . - net interest margin of 2.67 % ( down 84bps ) . - noninterest income of $ 1.84 billion ( up 50.6 % ) , non-gaap core fee income + of $ 603.2 million ( down 6.0 % ) and non-gaap svb leerink revenue ++ of $ 480.6 million ( up 91.1 % ) . - noninterest expense of $ 2.04 billion ( up 27.1 % ) . roe . return on average equity ( “ roe ” ) performance of 16.83 % ( down 16.0 % ) . operating efficiency ratio . operating efficiency ratio of 50.92 % with a non-gaap core operating efficiency ratio of 55.90 % +++ . capital credit quality capital ++++ . continued strong capital , with all capital ratios considered `` well-capitalized '' under banking regulations . svbfg and svb capital ratios , respectively , were : - cet 1 risk-based capital ratio of 11.04 % and 10.70 % . - tier 1 risk-based capital ratio of 11.89 % and 10.70 % . - total risk-based capital ratio of 12.64 % and 11.49 % . - tier 1 leverage ratio of 7.45 % and 6.43 % . credit quality . stable credit in an evolving credit environment . - allowance for credit losses of 0.99 % as a percentage of period-end total loans . - allowance for unfunded credit commitments of 0.38 % as a percentage of total unfunded credit commitments . - provision for loans of 0.42 % as a percentage of total loans . - net loan charge-offs of 0.20 % as a percentage of average total loans . + consists of fee income from client investments , foreign exchange , credit cards , deposit services , lending related activities and letters of credit and standby letters of credit . this is a non-gaap financial measure . ( see the non-gaap reconciliation under “ results of operations—noninterest income ” ) . ++ consists of investment banking revenue and commissions . this is a non-gaap financial measure . ( see the non-gaap reconciliation under “ results of operations—noninterest income ” ) . +++ this ratio excludes certain financial line items where performance is typically subject to market or other conditions beyond our control and excludes svb leerink revenue and expenses as well as other non-recurring expenses . it is calculated by dividing noninterest expense after adjusting for noninterest expense attributable to svb leerink and other non-recurring expenses by total revenue after adjusting for noninterest income attributable to svb leerink , net gains or losses on investment securities and equity warrant assets , investment banking revenue and commissions . additionally , noninterest expense and total revenue are adjusted for income or losses and expenses attributable to noncontrolling interests and adjustments to net interest income for a taxable equivalent basis . this is a non-gaap financial measure . ( see the non-gaap reconciliation under `` results of operations-noninterest expense '' ) . ++++ in march 2020 , the federal banking agencies provided transitional relief to banking organizations with respect to the impact of cecl on regulatory capital . under the 2020 cecl transition rule , banking organizations may delay the estimated impact of cecl on regulatory capital for two years , followed by a three-year period to phase out the aggregate capital benefit provided during the initial two-year delay . we have elected to use this five-year transition option . for additional details , see `` capital resources '' within `` consolidated financial condition '' under part 1 , item 2 of this report .
| the provision of $ 166.0 million also consisted of $ 30.7 million in additional reserves for period-end loan growth , $ 49.2 million for charge-offs not specifically reserved for at december 31 , 2019 and $ 59.8 million in net new nonaccrual loans , partially offset by $ 29.0 million of recoveries . the provision for loan losses of $ 94.2 million in 2019 , under the previous incurred loss methodology , was reflective primarily of $ 38.7 million from period-end loan growth , $ 56.3 million in net new specific reserves for nonaccrual loans and $ 43.2 million from charge-offs not specifically reserved for , partially offset by a decrease of $ 23.0 million for our performing loans and $ 21.0 million of recoveries . noninterest income decreased by $ 32.2 million in 2020 , related primarily to an overall decrease in our core fees ( lower client investment fees and credit card fees offset by increases in foreign exchange fees and lending related fees ) . the decreases were due primarily to the impact of the federal rate cuts on yield rates affecting client investment fees as well as a decrease in transactional volume on credit cards due to covid . the increase in foreign exchange fees was due primarily to increased trade volumes reflective of our global expansion initiative and increased client engagement efforts . noninterest expense increased by $ 145.1 million in 2020 , due primarily to increased expenses for compensation and benefits and professional services , partially offset by a decrease in business development and travel expense . compensation and benefits expenses increased as a result of higher salaries and wages . the increase in gcb salaries and wages expenses was due primarily to an increase in the average number of ftes at gcb , which increased by 524 to 2,874 ftes in 2020 , compared to 2,350 ftes in 2019. professional services expenses increased due to higher expenses primarily related to our continued
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28 results of operations - for the years ended december 31 replace_table_token_5_th net revenues net revenues for the year ended december 31 , 2019 , increased by 4.5 % , or $ 122.3 million , compared to the same period in 2018 due to the following : pricing 1.8 % volume 2.8 % acquisitions / divestitures 1.3 % currency exchange rates ( 1.4 ) % total 4.5 % the increase in net revenues was primarily driven by higher volumes , improved pricing and incremental net revenues from the acquisitions , less divestitures , discussed above . these increases were partially offset by unfavorable foreign currency exchange rate movements . net revenues for the year ended december 31 , 2018 , increased by 13.4 % , or $ 323.5 million , compared to the same period in 2017 due to the following : pricing 1.6 % volume 4.4 % acquisitions 6.6 % currency exchange rates 0.8 % total 13.4 % the increase in net revenues was primarily driven by higher volumes in all segments , improved pricing , incremental net revenues from the acquisitions discussed above and favorable foreign currency exchange rate movements relative to the u.s. dollar . cost of goods sold for the year ended december 31 , 2019 , cost of goods sold as a percentage of net revenues decreased to 56.1 % from 57.0 % due to the following : 29 pricing and productivity in excess of inflation ( 1.6 ) % volume / product mix 0.2 % acquisitions / divestitures 0.2 % currency exchange rates 0.1 % restructuring / acquisition costs 0.2 % total ( 0.9 ) % costs of goods sold as a percentage of net revenues for the year ended december 31 , 2019 , decreased due to pricing and productivity in excess of inflation . this decrease was partially offset by the impact of volume/product mix , the impact of the acquisitions and divestitures discussed above , unfavorable foreign currency exchange rate movements and increased restructuring and acquisition costs . for the year ended december 31 , 2018 , cost of goods sold as a percentage of net revenues increased to 57.0 % from 55.4 % due to the following : inflation in excess of pricing and productivity 0.1 % volume / product mix ( 0.1 ) % acquisitions 1.5 % investment spending 0.3 % currency exchange rates ( 0.1 ) % restructuring / acquisition costs ( 0.1 ) % total 1.6 % costs of goods sold as a percentage of net revenues for the year ended december 31 , 2018 , increased primarily due to inflation in excess of pricing and productivity , the impact of acquisitions and increased investment spending . these increases were partially offset by favorable foreign currency exchange rate movements , favorable product mix and volume and decreased restructuring and acquisition costs . selling and administrative expenses for the year ended december 31 , 2019 , selling and administrative expenses as a percentage of net revenues increased to 24.1 % from 23.7 % due to the following : replace_table_token_6_th selling and administrative expenses as a percentage of net revenues for the year ended december 31 , 2019 , increased primarily due to inflation in excess of productivity benefits , the impact of the acquisitions and divestitures discussed above , increased investment spending , higher restructuring and acquisition costs and trade name impairment charges recorded during 2019 . these increases were partially offset by favorable leverage due to increased volume and foreign currency exchange rate movements . for the year ended december 31 , 2018 , selling and administrative expenses as a percentage of net revenues decreased to 23.7 % from 24.1 % due to the following : 30 inflation in excess of productivity 0.5 % volume leverage ( 0.8 ) % acquisitions ( 0.4 ) % investment spending 0.3 % total ( 0.4 ) % selling and administrative expenses as a percentage of net revenues for the year ended december 31 , 2018 , decreased primarily due to favorable leverage due to increased volume and the impact of acquisitions . these decreases were partially offset by inflation in excess of productivity benefits and increased investment spending . operating income/margin operating income for the year ended december 31 , 2019 , increased $ 39.3 million from the same period in 2018 , and operating margin increased to 19.8 % from 19.2 % , due to the following : replace_table_token_7_th operating income increased due to pricing and productivity in excess of inflation and favorable volume/product mix . these increases were partially offset by unfavorable foreign currency exchange rate movements , the impact of acquisitions and divestitures , increased investment spending , higher restructuring and acquisition costs and trade name impairment charges recorded during 2019 . operating margin increased primarily due to pricing and productivity in excess of inflation and favorable volume/product mix . these increases were partially offset by the impact of acquisitions and divestitures , increased investment spending , higher restructuring and acquisition costs and trade name impairment charges recorded during 2019 . operating income for the year ended december 31 , 2018 , increased $ 33.3 million from the same period in 2017 , and operating margin decreased to 19.2 % from 20.5 % , due to the following : replace_table_token_8_th operating income increased due to favorable volume/product mix in all segments , foreign currency exchange rate movements , the impact of acquisitions and lower restructuring and acquisition costs . these increases were partially offset by inflation in excess of pricing and productivity and increased investment spending . operating margin decreased primarily due to inflation in excess of pricing and productivity , increased investment spending and lower margins from acquisitions made during 2018 . these decreases were partially offset by favorable volume/product mix and lower restructuring and acquisition costs . 31 interest expense interest expense for the year ended december 31 , 2019 , increased $ 2.0 million compared to the same period of 2018 , primarily due to a $ 2.7 million charge related to the write-off of previously deferred financing costs related to our term facility . story_separator_special_tag this charge was recognized in conjunction with a $ 400.0 million principal payment to partially pay down the outstanding term facility balance in 2019. interest expense for the year ended december 31 , 2018 , decreased $ 51.7 million compared to the same period of 2017 , primarily due to $ 44.7 million of costs in 2017 associated with the refinancing of our credit facilities , issuance of our 3.200 % and 3.550 % senior notes and redemption of our previously outstanding senior notes in 2017. lower interest rates on our outstanding indebtedness also contributed to the decrease in interest expense . loss on divestitures during the year ended december 31 , 2019 , we recorded a loss on divestitures of $ 30.1 million related to the divestitures of our business operations in colombia and turkey . in june 2019 , we closed our production facility in turkey and subsequently sold certain of the production assets thereof for total proceeds of approximately $ 4.1 million . we recorded a loss on divestiture of $ 24.2 million ( $ 25.5 million , net of tax ) , primarily driven by $ 25.0 million of cumulative currency translation adjustments previously deferred in equity that were reclassified to earnings upon sale . additionally , during the fourth quarter of 2019 , we sold our interests in our colombia operations for an immaterial amount . as a result of the sale , we recorded a net loss on divestiture of $ 5.9 million , of which $ 1.2 million relates to cumulative currency translation adjustments previously deferred in equity that were reclassified to earnings upon sale . neither of these divestitures is expected to have a material impact on our future results of operations or cash flows . other expense ( income ) , net the components of other expense ( income ) , net , for the years ended december 31 were as follows : replace_table_token_9_th for the year ended december 31 , 2019 , other expense ( income ) , net was unfavorable $ 7.2 million compared to 2018 , due primarily to an unfavorable change in net periodic pension and postretirement benefit cost ( income ) , less service cost , of $ 9.6 million . this increase in expense was partially offset by investment income of $ 3.1 million during 2019 , which is included within other in the table above . for the year ended december 31 , 2018 , other income , net decreased by $ 5.5 million compared with the same period in 2017 due to a cumulative gain of $ 5.4 million from the sale of idevices , llc and gains of $ 7.3 million related to legal entity liquidations in our asia pacific region , of which $ 2.2 million was attributed to noncontrolling interests , in 2017 , neither of which recurred in 2018. these decreases were partially offset by net periodic pension and postretirement benefit income , less service cost of $ 2.8 million in 2018 , compared to net periodic pension and postretirement benefit cost , less service cost of $ 4.3 million in 2017 . provision for income taxes on december 22 , 2017 , the president of the united states signed comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax reform act ” ) . the tax reform act makes broad and complex changes to the u.s. tax code which impacted our years ended december 31 , 2019 , 2018 and 2017 , including , but not limited to ( 1 ) reducing the u.s. federal corporate 32 tax rate , ( 2 ) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries , and ( 3 ) requiring a review of the future realizability of deferred tax balances . for the year ended december 31 , 2019 , our effective tax rate was 15.4 % , compared to 8.4 % for the year ended december 31 , 2018 . the increase in the effective tax rate was primarily driven by the favorable benefit related to the tax reform act recorded in 2018 and the tax costs associated with divestitures in 2019. for the year ended december 31 , 2018 , our effective tax rate was 8.4 % , compared to 30.1 % for the year ended december 31 , 2017 . the effective income tax rate for the year ended december 31 , 2018 was positively impacted by guidance related to the tax reform act and the reduction in the us statutory tax rate from 35 % to 21 % . the effective income tax rate for the year ended december 31 , 2017 was negatively impacted by the enactment of the tax reform act , which was partially offset by a release of valuation allowances . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > operating margin decreased primarily due to inflation in excess of pricing and productivity , increased investment spending and lower margins from acquisitions . these decreases were partially offset by favorable volume/product mix , favorable foreign currency exchange rate movements and year-over-year decreases in restructuring and acquisition costs . emeia our emeia segment provides security products and solutions in approximately 85 countries throughout europe , the middle east , india and africa . the segment offers end-users a broad range of products , services and solutions including , locks , locksets , portable locks , key systems , door closers , exit devices , doors and door systems , electronic products and access control systems , as well as time and attendance and workforce productivity solutions . this segment 's primary brands are axa , bricard , briton , cisa , interflex and simonsvoss . this segment also resells lcn , schlage and von duprin products , primarily in the middle east .
| 33 2019 vs 2018 net revenues net revenues for the year ended december 31 , 2019 , increased by 6.3 % , or $ 125.9 million , compared to the same period in 2018 , due to the following : pricing 2.2 % volume 4.0 % acquisitions 0.3 % currency exchange rates ( 0.2 ) % total 6.3 % the increase in net revenues is primarily due to higher volumes , improved pricing and acquisitions during the prior year . these increases were partially offset by unfavorable foreign currency exchange rate movements . net revenues from non-residential products for the year ended december 31 , 2019 , increased high single digits compared to the prior year . net revenues from residential products for the year ended december 31 , 2019 , increased mid-single digits compared to the prior year . operating income/margin segment operating income for the year ended december 31 , 2019 , increased $ 67.1 million , and segment operating margin increased to 28.9 % from 27.4 % compared to the same period in 2018 , due to the following : replace_table_token_11_th the increases were primarily due to pricing improvements and productivity in excess of inflation , favorable volume/product mix and decreased restructuring and acquisition costs . these increases were partially offset by increased investment spending , the impact of acquisitions made during 2018 and unfavorable foreign currency exchange rate movements . 2018 vs 2017 net revenues net revenues for the year ended december 31 , 2018 , increased by 12.5 % , or $ 221.1 million , compared to the same period in 2017 , due to the following : pricing 1.7 % volume 5.1 % acquisitions 5.7 % total 12.5 % the increase in net revenues is due to higher volumes , improved pricing and acquisitions made during 2018 . net revenues from non-residential products for the year ended december 31 , 2018 , increased mid-teens compared to the prior year , primarily driven by higher volumes , improved pricing and acquisitions made during 2018 . net revenues from residential products for the year
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story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:0pt ; font-size:8pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > ( b ) includes bed bath & beyond , cost plus world market , buybuy baby and christmas tree shops ( c ) includes dick 's sporting goods and golf galaxy ( d ) includes ross dress for less and dd 's discounts ( e ) includes gap , old navy and banana republic the following table lists the company 's 10 largest tenants based on total annualized rental revenues of the wholly-owned properties and of the unconsolidated joint venture properties as of december 31 , 2017 : replace_table_token_23_th ( a ) includes t.j. maxx , marshalls , homegoods , sierra trading post and homesense ( b ) includes bed bath & beyond , cost plus world market , buybuy baby and christmas tree shops ( c ) includes dick 's sporting goods and golf galaxy ( d ) includes ross dress for less and dd 's discounts ( e ) includes gap , old navy and banana republic ( f ) includes stop & shop , martin 's and food lion 37 the company leased approximately 1 0 million square feet of gla , including 319 new leases and 817 renewals , for a tota l of 1,136 leases executed in 2017. the company continued to execute both new leases and renewals at positive rental spreads ; however , such spreads were lower than 2016 due to increased vacancy and weaker rental rates as discussed above . at december 31 , 2017 , the company had 735 leases expiring in 2018 with an average base rent per square foot of $ 18.20 . for the comparable leases executed in 2017 , at the company 's interest , the company generated positive leasing spreads of 11 . 1 % for new leases and 5 . 2 % f or renewals , or 6 .0 % on a blended basis . the new lease spread for 2017 was negatively impact by an anchor tenant lease executed at a puerto rico property to replace a dark but rent paying tenant . excluding the impact of this lease , the 2017 new lease spr eads were 15.9 % at the company 's interest , which is more in line with historical averages . leasing spreads are a key metric in real estate , representing the percentage increase over rental rates on existing leases versus rental rates on new and renewal le ases . the company 's leasing spread calculation includes only those deals that were executed within one year of the date the prior tenant vacated and , as a result , is a good benchmark to compare the average annualized base rent of expiring leases with the comparable executed market rental rates . for new leases executed during 2017 , at the company 's interest , the company expended a weighted-average cost of tenant improvements and lease commissions estimated at $ 4.76 per rentable square foot over the lease term . the annual weighted-average cost of tenant improvements and lease commissions ranged from $ 3.68 to $ 4.89 per rentable square foot over the five years ended december 31 , 2017. the company generally does not expend a significant amount of capital on lease renewals . overall , capitalized leasing capital expenditures and costs increased in 2017 to $ 35.0 million from $ 32.3 million in 2016 as a result of the higher costs associated with re-leasing anchor vacancies caused by the sports authority , golfsmith and hhgregg bankruptcies . hurricane casualty loss in september 2017 , hurricane irma made landfall in both puerto rico and florida , and hurricane maria made landfall in puerto rico . the company 's florida assets were minimally impacted by hurricane irma . however , the company 's 12 shopping centers in puerto rico and 36 employees based on the island were significantly impacted by hurricane maria . one of the company 's 12 shopping centers was severely damaged and is not operational , except for a few tenants representing a minimal amount of company-owned gla . the other 11 assets sustained varying degrees of damage , including some tenant spaces that are currently untenantable . following the storm , management 's first priority was to account for and provide necessary resources to its puerto rico-based team . second , the company worked diligently to make all properties physically safe and prevent further water intrusion . third , the company worked to remove debris and provide generator power where possible until grid power was restored so that tenants could open as soon as possible . since these initial efforts , the company has been actively working with its consultants to finalize the scope and schedule of work to be performed to restore the assets . restoration work has already started at several shopping centers . by the end of january 2018 , utility power had been fully restored at all 12 properties . the company estimates its aggregate casualty insurance claim will be in the range of $ 150 million to $ 175 million , which includes the costs to clean up , repair and rebuild , as well as lost revenue estimated through march 31 , 2018. this estimate is subject to change as the company continues to assess the costs to repair the damage . this amount also excludes casualty insurance proceeds due from certain continental-u.s.-based anchor tenants that maintain property insurance for their company-owned premises . the company maintains insurance on its assets in puerto rico with policy limits of approximately $ 330 million for both property damage and business interruption . see further discussion in both “ contractual obligations and other commitments ” and note 9 , “ commitments and contingencies , ” to the company 's consolidated financial statements included herein . story_separator_special_tag year in review—2017 financial results for the year ended december 31 , 2017 , net income attributable to common shareholders decreased compared to the prior year , primarily due to $ 340.5 million of impairment charges related to real estate assets marketed for sale and a change in strategic direction for certain properties , a $ 66.4 million loss on debt retirement , a $ 61.0 million valuation allowance recorded on the company 's preferred investments in two joint ventures , $ 17.9 million aggregate charges associated with the executive management transition and staff restructuring , a $ 10.8 million valuation allowance of a prepaid tax asset and $ 4.2 million of lost tenant revenues net of expenses , which were partially offset by business interruption insurance income related to the hurricanes and an increase in gain on sale of real estate assets . the following provides an overview of the company 's key financial metrics ( see non-gaap financial measures , ffo ) ( in thousands except per share amounts ) : replace_table_token_24_th 38 the following discussion of the company 's financial condition and results of operations provides information that will assist in the understanding of the company 's financial statements , the changes in certain key items and the factors that accounted for changes in the financial statements , as well as critical accounting policies that affected these financial statements . critical accounting policies the consolidated financial statements of the company include the accounts of the company and all subsidiaries where the company has financial or operating control . the preparation of financial statements in conformity with generally accepted accounting principles ( “ gaap ” ) requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes . in preparing these financial statements , management has used available information , including the company 's history , industry standards and the current economic environment , among other factors , in forming its estimates and judgments of certain amounts included in the company 's consolidated financial statements , giving due consideration to materiality . it is possible that the ultimate outcome as anticipated by management in formulating its estimates inherent in these financial statements might not materialize . application of the critical accounting policies described below involves the exercise of judgment and the use of assumptions as to future uncertainties . accordingly , actual results could differ from these estimates . in addition , other companies may use different estimates that may affect the comparability of the company 's results of operations to those of companies in similar businesses . revenue recognition and accounts receivable rental revenue is recognized on a straight-line basis that averages minimum rents over the current term of the leases . certain of these leases provide for percentage and overage rents based upon the level of sales achieved by the tenant . percentage and overage rents are recognized after a tenant 's reported sales have exceeded the applicable sales breakpoint set forth in the applicable lease . the leases also typically provide for tenant reimbursements of common area maintenance and other operating expenses and real estate taxes . accordingly , revenues associated with tenant reimbursements are recognized in the period in which the expenses are incurred based upon the tenant lease provision . ancillary and other property-related income , which includes the leasing of vacant space to temporary tenants , is recognized in the period earned . lease termination fees are included in other revenue and recognized and earned upon termination of a tenant 's lease and relinquishment of space in which the company has no further obligation to the tenant . management fees are recorded in the period earned . fee income derived from the company 's unconsolidated joint venture investments is recognized to the extent attributable to the unaffiliated ownership interest . in 2014 , the financial accounting standards board ( “ fasb ” ) issued revenue from contracts with customers , which is effective for the company in 2018. most significantly for the real estate industry , leasing transactions are not within the scope of the new standard . a majority of the company 's tenant-related revenue is recognized pursuant to lease agreements . this new standard and its impact on the company is more fully described in note 1 , “ summary of significant accounting policies – new accounting standards to be adopted , ” of the company 's consolidated financial statements included herein . the company makes estimates of the collectability of its accounts receivable related to base rents , including straight-line rentals , expense reimbursements and other revenue or income . the company analyzes accounts receivable , tenant credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts . in addition , with respect to tenants in bankruptcy , the company makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable . the time to resolve these claims may exceed one year . these estimates have a direct impact on the company 's earnings because a higher bad debt reserve and or a subsequent write-off in excess of an estimated reserve results in reduced earnings . consolidation all significant inter-company balances and transactions have been eliminated in consolidation . investments in real estate joint ventures in which the company has the ability to exercise significant influence , but does not have financial or operating control , are accounted for using the equity method of accounting . accordingly , the company 's share of the earnings ( or loss ) of these joint ventures is included in consolidated net income . the company has a number of joint venture arrangements with varying structures . the company consolidates entities in which it owns less than a 100 % equity interest if it is determined that it is a variable interest entity ( “ vie ” ) , and the company has a controlling interest in that vie or is the controlling general partner .
| december 31 , 2015 with the net decrease in occupancy primarily attributed to anchor tenant expirations and tenant bankruptcies , as well as the impact of asset sales with occupancy rates that were slightly above the portfolio average rate and placed over $ 100 million of development and redevelopment projects in service . retail environment the company continues to see demand from a broad range of retailers for its space , even as many retailers continue to adapt to an omni-channel retail environment . value-oriented retailers continue to take market share from conventional and national chain department stores . as a result , while certain of those conventional and national department stores have announced store closures and or reduced expansion plans , other retailers , specifically those in the value and convenience category , continue to have store opening plans for 2018 and 2019. many of the company 's largest tenants , including tjx companies , walmart , five below and ulta , have reported increased same-store sales on an annual basis , and remained well capitalized while outperforming other retail categories on a relative basis . the company has also been increasing its leasing to specialty grocers , which is an expanding category with strong traffic generation . company fundamentals the net 2.2 % decrease in occupancy in 2017 was attributable mainly to anchor store closures and tenant bankruptcies , coupled with the impact of asset sales with occupancy rates that were slightly above the portfolio average rate . the 2017 occupancy rate reflects 0.7 million square feet of gla of unabsorbed vacancy related to the sports authority and golfsmith bankruptcies in 2016 and the hhgregg bankruptcy in 2017. increased vacancy in the continental u.s. assets combined with weaker rental rates and the impact of hurricane maria in puerto rico generated a deceleration in comparable property profitability growth . 36 t he following table lists the company 's 10 largest tenants based on total annualized rental revenues of
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by increasing production volumes of the omnipod , we have been able to reduce our per-unit raw material costs and improve absorption of manufacturing overhead costs . our new omnipod was designed to further lower the cost of the product through component sourcing , volume discounts and efficient manufacturing . the cost reductions are important as we strive to achieve profitability . we believe our current manufacturing capacity is sufficient to meet our expected 2014 demand for omnipods . we purchase certain other diabetes management supplies from manufacturers at contracted rates and supply these products to our customers . based on market penetration , payor plans and other factors , certain manufacturers provide rebates based on product sold . we record these rebates as a reduction to cost of goods sold as they are earned . since our inception in 2000 , we have incurred losses every quarter . in the years ended december 31 , 2013 , 2012 and 2011 , we incurred net losses of $ 45.0 million , $ 51.9 million and $ 45.8 million , respectively . as of december 31 , 2013 , we had an accumulated deficit of $ 526.5 million . we have financed our operations through private placements of debt and equity securities , public offerings of our common stock , issuances of convertible debt and borrowings under certain other debt agreements . as of december 31 , 2013 , we had $ 143.8 million of convertible debt outstanding which matures in june 2016. since our inception , we have received net proceeds of $ 709.5 million from the issuance of redeemable convertible preferred stock , common stock and debt . our long-term financial objective is to achieve and sustain profitable growth . our efforts in the beginning of 2014 will be focused primarily on the expansion of our customer base in the united states and internationally . achieving these objectives is expected to require additional investments in certain personnel and initiatives . we believe that we will continue to incur net losses in the near term in order to achieve these objectives . however , we believe that the accomplishment of our near term objectives will have a positive impact on our financial condition in the future . at december 31 , 2013 , we had cash and cash equivalents totaling $ 149.7 million . we believe that our cash and cash equivalents , together with the cash expected to be generated from product sales , will be sufficient to meet our projected operating and debt service requirements for the next twelve months . financial operations overview revenue . we derive most of our revenue from the sale of the omnipod system and other diabetes related products including blood glucose testing supplies , traditional insulin pumps , pump supplies and other pharmaceuticals to customers and third-party distributors who resell the product to customers . the omnipod system is comprised of two devices : the omnipod , a disposable insulin infusion device that the patient wears for up to three days and then replaces ; and the pdm , a handheld device much like a personal digital assistant that wirelessly programs the omnipod with insulin delivery instructions , assists the patient with diabetes management and incorporates a blood glucose meter . 37 in june 2011 , we entered into a development agreement with a u.s. based pharmaceutical company ( the “ development agreement ” ) . under the development agreement , we are required to perform design , development , regulatory , and other services to support the pharmaceutical company as it works to obtain regulatory approval to use our drug delivery technology as a delivery method for its pharmaceutical . over the term of the development agreement , we have invoiced amounts as we meet certain defined deliverable milestones . revenue on the development agreement is recognized using a proportional performance methodology based on costs incurred and total payments under the agreement . the impact of changes in the expected total effort or contract payments are recognized as a change in estimate using the cumulative catch-up method . as of december 31 , 2013 and 2012 we had deferred revenue of $ 0.9 million and $ 5.4 million , respectively . these amounts primarily include product-related revenue and unrecognized amounts related to the development agreement . for the year ending december 31 , 2014 , we expect our revenue to continue to increase as we gain new customers in the united states and continue expansion in europe , canada , and certain other international markets . increased revenue will be dependent upon the success of our sales efforts , our ability to produce our new omnipods in sufficient volumes as our patient base grows and other risks and uncertainties . cost of revenue . cost of revenue consists primarily of raw material , labor , warranty and overhead costs such as freight and depreciation related to the omnipod system , the cost of products we acquire from third party suppliers , and costs incurred related to the development agreement . cost of revenue will continue to increase in line with an increase in revenue . research and development . research and development expenses consist primarily of personnel costs within our product development , regulatory and clinical functions , and the costs of market studies and product development projects . we expense all research and development costs as incurred . for the year ending december 31 , 2014 , we expect overall research and development spending to increase from our 2013 spend as we increase our development efforts on our on-going projects such as continued improvements to the manufacturing process of the omnipod system , the integration of our omnipod system with the lifescan onetouch blood glucose monitoring technology , the incorporation of continuous sensing technology into the omnipod , the development of a new pdm , the development of a type 2 pump with eli lilly and company ( `` lilly '' ) and the ability to use our technology as a delivery platform for other pharmaceuticals . story_separator_special_tag story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , as compared to $ 21.9 million for the year ended december 31 , 2011 . this increase was primarily related to an additional $ 1.9 million of employee related expenses including stock-based compensation and $ 1.5 million of consulting and other services in connection with development and regulatory approval of the new omnipod system . these increases were offset in part by a $ 0.8 million reduction in products used for research and development projects . 40 general and administrative general and administrative expense increased $ 7.1 million , or 16 % , to $ 51.2 million for the year ended december 31 , 2012 , as compared to $ 44.1 million for the year ended december 31 , 2011 . the increase was largely due to an additional $ 2.3 million of employee related expenses including stock-based compensation , a $ 2.1 million increase in amortization expense on the customer relationship and tradename assets related to the june 2011 acquisition of neighborhood diabetes , a $ 2.6 million increase in administrative and consulting services , a $ 1.6 million increase in product shipping expenses due to higher shipment volumes and a $ 1.3 million increase related to sales and use tax compliance . these increases were offset in part by $ 3.2 million of transaction costs related to the acquisition of neighborhood diabetes in june 2011. sales and marketing sales and marketing expense increased $ 9.5 million , or 22 % , to $ 52.7 million for the year ended december 31 , 2012 , as compared to $ 43.2 million for the year ended december 31 , 2011 . this increase was largely due to an increase of $ 8.8 million in employee related expenses including stock-based compensation as a result of the on-going expansion of our sales force and the acquisition of neighborhood diabetes , a $ 1.0 million increase for convention fees , and a $ 0.5 million increase in additional outside services costs primarily for customer support functions . other expense , net other expense , net mainly consists of interest income and expense . net interest expense was $ 15.7 million for the year ended december 31 , 2012 , compared to $ 14.6 million for the same period in 2011 . the increase in net interest expense for the year ended december 31 , 2012 , is primarily the result of additional interest expense due to the issuance of $ 143.8 million in principal amount of the 3.75 % notes ( as defined below ) in june 2011 , offset in part by the repurchase of $ 70 million in principal amount of the 5.375 % notes ( as defined below ) in june 2011. income tax benefit ( expense ) income tax expense was $ 0.2 million for the year ended december 31 , 2012 as compared to an income tax benefit of $ 11.2 million in the year ended december 31 , 2011 . income tax expense is comprised of a current and deferred portion . the current portion in 2012 and 2011 was primarily related to state , local , and foreign taxes and the deferred portion in 2012 primarily related to u.s. federal and state tax amounts . income tax benefit in 2011 was generated as a result of the deferred tax liabilities acquired with the neighborhood diabetes acquisition . these deferred tax liabilities were used to offset our preexisting deferred tax assets reducing the amount of the valuation allowance required in that period . liquidity and capital resources we commenced operations in 2000 and to date we have financed our operations primarily through private placements of common and preferred stock , secured indebtedness , public offerings of our common stock and issuances of convertible debt . in june 2011 , we acquired all of the outstanding shares of neighborhood diabetes . the aggregate purchase price of approximately $ 62.4 million included approximately $ 37.9 million in cash paid at closing . for the quarter ending march 31 , 2014 , the 3.75 % notes are convertible at the option of the holder since the last reported sales price per share of our common stock was equal to or greater than 130 % of the conversion price for at least 20 of the 30 trading days ended on december 31 , 2013. based on the terms of the 3.75 % notes we have the ability to convert using cash , shares of our common stock or a combination of cash and shares of our common stock for the principal amount . as of december 31 , 2013 , we had $ 149.7 million in cash and cash equivalents . we believe that our current cash and cash equivalents , together with the cash expected to be generated from sales , will be sufficient to meet our projected operating and debt service requirements for at least the next twelve months . equity in june 2011 , in connection with the acquisition of neighborhood diabetes , we issued 1,197,631 shares of our common stock with a value of $ 20.40 per share on the issuance date , as partial consideration for the acquisition . in january 2013 , in a public offering , we issued and sold 4,715,000 shares of our common stock at a price of $ 20.75 per share . in connection with the offering , we received total gross proceeds of $ 97.8 million , or approximately $ 92.8 million in net proceeds after deducting underwriting discounts and offering expenses . in may 2013 , we entered into an exchange agreement with a holder of our 5.375 % notes . under the exchange agreement , we issued 620,122 shares of our common stock to the holder in exchange for the extinguishment of $ 13 million in principal amount of the 5.375 % notes .
| this increase was offset by a reduction in revenue related to certain mail-order diabetic testing supplies such as blood glucose testing strips and lancets to medicare beneficiaries that we no longer are eligible to service under the medicare durable medical equipment , prosthetics , orthotics , and supplies ( `` dmepos '' ) competitive bidding program , which took effect on july 1 , 2013. cost of revenue cost of revenue was $ 134.7 million for the year ended december 31 , 2013 , as compared to $ 119.0 million for the year ended december 31 , 2012 . the increase is due to higher sales volumes in the united states and internationally . these increases were partially offset by lower per-unit costs of the omnipod system resulting from cost savings on raw materials , volume discounts from our suppliers and increased absorption of manufacturing overhead driven by increased production volumes . research and development research and development expense decreased $ 2.6 million , or 11 % , to $ 21.8 million for the year ended december 31 , 2013 , as compared to $ 24.4 million for the year ended december 31 , 2012 . this decrease was primarily a result of a $ 3.9 million reduction in third party costs associated with the development and regulatory approval of the new omnipod system and a $ 1.6 million decrease in supplies and consumables used in development efforts on our ongoing projects . these decreases were offset by a $ 3.0 million increase in employee related expenses . the new omnipod received 510 ( k ) clearance from the fda in december 2012 . 39 general and administrative general and administrative expense increased $ 12.8 million , or 25 % , to $ 64.1 million for the year ended december 31 , 2013 , as compared to $ 51.2 million for the year ended december 31 , 2012 . this increase was primarily the result of an increase of $ 9.6 million in legal expense mainly related to
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the fy13 base budget request of $ 525.4 billion results in a flat year-over-year budget for fy13 ( excluding supplementals ) with the reduction in the budget from fy12 coming from the overseas contingency operations budget . the president 's submission starts the long process of passing a spending bill and congressional hearings will continue through may 2012. the elections in november are expected to generate significant political dialogue around the federal deficit and potential cuts in government spending ; as a result , actual funding levels in the final enacted budget could be significantly delayed . while the real rate of growth in the top line defense budget has declined , the u.s. government 's budgetary process continues to give us good visibility with respect to future spending and the threat areas that the government is addressing and our current contracts and strong backlog provide us with good insight regarding our future cash flows . the proposed fy13 budget , which included $ 259 billion in spending reductions required by the budget control act , also outlined long-term plans showing flat to 1 % growth in the outyears . we believe that spending on modernization and maintenance of defense , intelligence and homeland security assets will continue to be a national priority . the vast majority of our programs are funded in the dod base budget and not the overseas contingency operations budget . we also believe that our business is aligned with mission critical national security priorities , particularly in the areas of uavs , cybersecurity , ballistic missile defense , space programs and science and technology efforts , where the proposed defense budget for fy13 has actually allocated increased funding . current reporting segments we operate in two principal business segments : kratos government solutions and public safety & security . we organize our business segments based on the nature of the services offered . transactions between segments are generally negotiated and accounted for under terms and conditions similar to other government and commercial contracts and these intercompany transactions are eliminated in consolidation . the consolidated financial statements in this annual report are presented in a manner 41 consistent with our operating structure . for additional information regarding our operating segments , see note 14 of notes to consolidated financial statements contained within this annual report . from a customer and solutions perspective , we view our business as an integrated whole , leveraging skills and assets wherever possible . kratos government solutions segment our kgs segment provides products , solutions and services primarily for mission critical national security priorities . kgs customers primarily include national security related agencies , the department of defense , intelligence agencies and classified agencies . our work includes weapon systems sustainment , lifecycle support and extension ; c5isr services , including related cybersecurity , cyberwarfare , information assurance and situational awareness solutions ; military range operations and technical services ; missile , rocket , and weapons systems test and evaluation ; mission launch services ; modeling and simulation ; uav products and technology ; advanced network engineering and it services ; and public safety , security and surveillance systems integration . we produce products , solutions and services related to certain c5isr platforms , unmanned system platforms , weapons systems , national security related assets and warfighter systems . the results of our acquisitions of herley , integral , secureinfo , southside container and trailer , llc ( `` sct '' ) , dei services corporation ( `` dei '' ) and gichner are included in this segment . public safety & security segment our pss segment provides independent integrated solutions for advanced homeland security , public safety , critical information , and security and surveillance systems for government and commercial applications . our solutions include designing , installing and servicing building technologies that protect people , critical infrastructure , assets , information and property and make facilities more secure and efficient . we provide solutions in such areas as the design , engineering and operation of command and control centers , the design , engineering , deployment and integration of access control , building automation and control , communications , digital and closed circuit television security and surveillance , fire and life safety , maintenance , services and product support services . we provide solutions for customers in the critical infrastructure , power generation , power transport , nuclear energy , financial , it , healthcare , education , transportation and petro-chemical industries , as well as certain government and military customers . for example , we provide biometrics and other access control technologies to customers such as pipelines , electrical grids , municipal port authorities , power plants , communication centers , large data centers , government installations and other commercial enterprises . the results of our acquisition of hbe are included in this segment . on june 24 , 2009 , as a result of the continued operating losses in the southeast division of the pss segment ( the `` southeast division '' ) , our board of directors approved a plan to sell and dispose of the southeast division . in accordance with fasb asc topic 205 , presentation of financial statements , this business unit was classified as held for sale and reported in discontinued operations in the accompanying consolidated financial statements . we recorded a $ 2.0 million impairment charge in the second quarter of 2009 and an additional $ 0.2 million in the second quarter of 2010 related to management 's estimate of the fair value of the business . on august 2 , 2010 , we divested this division for approximately $ 0.1 million cash consideration and the assumption of certain liabilities . story_separator_special_tag 2011 and 2010 strategic acquisitions secureinfo corporation on november 15 , 2011 , we acquired secureinfo for $ 18.7 million in cash , which does not include an estimated $ 1.5 million in potential earn-outs to be paid in the first half of 2012. based in northern virginia , secureinfo is a leading cybersecurity company specializing in assisting defense , intelligence , 42 civilian government and commercial customers to identify , understand , document , manage , mitigate and protect against cybersecurity risks while reducing information security costs and achieving compliance with applicable regulations , standards and guidance . secureinfo offers strategic advisory , operational cybersecurity and cybersecurity risk management services and is a recognized leader in the rapidly evolving fields of cloud security , continuous monitoring and cybersecurity training . customers include the dod , the dhs and large commercial customers , including market-leading cloud computing service providers . integral systems , inc. on july 27 , 2011 , we acquired integral in a cash and stock transaction valued at $ 241.1 million . as consideration for the acquisition of integral , each integral stockholder ( i ) received $ 5.00 per share of integral common stock , in cash , for an aggregate payment of approximately $ 131.4 million and ( ii ) was issued 0.588 shares of our common stock for each share of integral common stock , for an aggregate of approximately 10.4 million shares of our common stock valued at $ 108.7 million . the cash portion of the acquisition was substantially funded with the gross proceeds from the sale of our 10 % senior secured notes due 2017 in the aggregate principal amount of $ 115.0 million issued on july 27 , 2011 at a premium of 105 % . integral is a global provider of products , systems and services for satellite command and control , telemetry and digital signal processing , data communications , enterprise network management and communications information assurance . integral specializes in developing , managing and operating secure communications networks , both satellite and terrestrial , as well as systems and services to detect , characterize and geolocate sources of rf interference . integral 's customers include u.s. and foreign commercial , government , military and intelligence organizations . for almost 30 years , customers have relied on integral to design and deliver innovative commercial-based products , solutions and services that are cost effective and reduce delivery schedules and risk . herley industries , inc. on march 25 , 2011 , we acquired herley in a cash tender offer to purchase all of the outstanding shares of herley common stock . the shares of herley common stock were purchased at a price of $ 19.00 per share . accordingly , we paid total aggregate cash consideration of $ 270.7 million in respect of the shares of herley common stock and certain in-the-money options , which were exercised upon the change in control of herley . the fair value of the remaining non-controlling interest related to herley as of march 25 , 2011 was $ 16.9 million . in addition , upon completion of the acquisition , all unexercised options to purchase herley common stock were assumed by us and converted into options to purchase our common stock , entitling the holders thereof to receive 1.3495 shares of our common stock for each share of herley common stock underlying the options . all such options were fully vested upon completion of the acquisition and the fair value of such assumed options was $ 1.9 million . the total aggregate consideration for the purchase of herley was $ 272.5 million . to fund the acquisition of herley , on february 11 , 2011 , we sold approximately 4.9 million shares of common stock at a purchase price of $ 13.25 per share in an underwritten public offering . we received gross proceeds of approximately $ 64.8 million and net proceeds of approximately $ 61.1 million after deducting underwriting fees and other offering expenses . we used the net proceeds from this offering to fund a portion of the purchase price for the acquisition of herley . to fund the remaining purchase price , we issued $ 285.0 million in aggregate principal amount of 10 % senior secured notes due 2017 at a premium of 107 % . herley is a leading provider of microwave technologies for use in command and control systems , flight instrumentation , weapons sensors , radar , communication systems , electronic warfare and electronic attack systems . herley has served the defense industry for approximately 45 years by 43 designing and manufacturing microwave devices for use in high-technology defense electronics applications . it has established relationships , experience and expertise in the military electronics , electronic warfare and electronic attack industry . herley 's products represent key components in the national security efforts of the u.s. , as they are employed in mission-critical electronic warfare , electronic attack , electronic warfare threat and radar simulation , command and control network , and cyber warfare/cybersecurity applications . henry bros. electronics , inc . on december 15 , 2010 , we acquired hbe in a cash merger for a purchase price of $ 56.6 million , of which $ 54.9 million was paid in cash and $ 1.7 million reflects the fair value of options to purchase common stock of hbe that were assumed by us and converted into options to purchase our common stock upon completion of the merger . upon completion of the merger , holders of hbe common stock received $ 8.20 in cash for each share of hbe common stock held by them immediately prior to the closing of the merger . in addition , upon completion of the merger , all options to purchase hbe common stock were assumed by us ( the `` hbe options '' ) and converted into options to purchase our common stock , entitling the holders thereof to receive 0.7715 shares of our common stock for each share of hbe common stock underlying the hbe options .
| 46 product sales , which are all from the kgs segment , increased $ 245.8 million from $ 123.7 million for the year ended december 26 , 2010 to $ 369.5 million for the year ended december 25 , 2011. as a percentage of total revenue , product revenues were 30.3 % for the year ended december 26 , 2010 as compared to 51.1 % for the year ended december 25 , 2011. this increase was primarily related to the acquisitions of herley and integral . service revenue decreased in the kgs segment by $ 7.1 million from $ 248.5 million for the year ended december 26 , 2010 to $ 241.4 million for the year ended december 25 , 2011. the decrease in service revenue was primarily a result of our acquisition of integral , which had service revenue of $ 51.1 million offset by decreases in revenue of $ 58.2 million due to increased competitive pricing pressures experienced in our legacy services businesses , resulting in the reduction of revenues , and to a lesser extent expected reductions of small business set aside contract work from companies we previously acquired and in-sourcing of our employees by the u.s. government in certain of our businesses in the kgs segment . the increase in revenue in the pss segment is a result of the acquisition of hbe . as described in the `` critical accounting principles and estimates '' section of item 7 `` management 's discussion and analysis of financial condition and results of operations '' and in the notes to consolidated financial statements contained within this annual report , we utilize both the cost-to-cost and units produced measures under the percentage-of-completion method of accounting for recognizing revenue as provided for in topic 605 . when revenue is calculated using the percentage-of-completion method , total costs incurred to date are compared to total estimated costs to complete the contract . these estimates are reviewed monthly on a contract-by-contract basis , and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision . significant management judgments and estimates , including the estimated costs to complete projects , which determine the project 's percentage of completion , must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of
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the contracts are generally not cancelable by the customer unless the company fails to perform its obligations . in certain cases , the contract provides certain thresholds that , if not met by either party , allow the other party to terminate the agreement . joint revenue sharing arrangements generally have a 7 to 10-year initial term and may be renewed by the customer for an additional term . the introduction of joint revenue sharing arrangements has been an important factor in the expansion of the company 's commercial theatre network which has grown by approximately 71 % since 2008. joint revenue sharing arrangements allow commercial theatre exhibitors to install imax theatre systems without the initial capital investment required in a lease or sale arrangement . since customers under joint revenue sharing arrangements pay the company a portion of their ongoing box office and concession revenue , joint revenue sharing arrangements also drive recurring cash flows and earnings for the company . as the company continues to expand its number of theaters under joint revenue sharing arrangements , the company anticipates cash flows and earnings from joint revenue sharing arrangements will be an important driver of recurring revenue for the company . the retirement of a significant portion of the company 's debt during 2009 and increased cash flows from operations during 2009 and 2010 has allowed the company the financial flexibility to fund the expansion of its joint revenue sharing strategy . as at january 31 , 2011 , the company has entered into joint revenue sharing arrangements for 230 systems , 171 of which were in operation as at december 31 , 2010 , a 46.2 % increase as compared to the 117 joint revenue sharing arrangements opened as at december 31 , 2009. the revenue earned from customers under the company 's joint revenue sharing arrangements can vary from quarter to quarter and year to year based on a number of factors including film performance , the mix of theater system configurations , the timing of installation of the theater systems , the nature of the arrangement , the location , size and management of the theater and other factors specific to individual arrangements . revenue on theater systems under joint revenue sharing arrangements is recognized when box-office and concession revenues are reported by the theater operator , provided collection is reasonably assured . an annual maintenance and extended warranty fee is generally payable , except for theater systems under joint revenue sharing arrangements , commencing in the second year of theater operations . both ongoing fees and maintenance and extended warranty fees are typically indexed to a local consumer price index . see critical accounting policies below for further discussion on the company 's revenue recognition policies . theater network the following chart shows the number of the company 's theater systems by configuration in the theater network as at december 31 : replace_table_token_13_th 35 ( 1 ) in 2010 , the company upgraded 32 film-based imax theater systems to imax digital theater systems ( 30 sales arrangements and 2 joint revenue sharing arrangements ) . ( 2 ) in 2009 , the company upgraded 25 film-based imax theater systems to imax digital theater systems ( 14 sales arrangements , 2 treated previously as operating lease arrangements and 9 systems under joint revenue sharing arrangements ) . approximately 61.2 % of imax systems in operation are located in the united states and canada compared to 63.0 % last year . approximately 33.9 % of imax theater systems arrangements in backlog are scheduled to be installed in the united states and canada compared to 33.1 % last year . the commercial exhibitor market in the united states and canada represents an important customer base for the company in terms of both collections under existing arrangements and potential future theater system contracts . the company has targeted these operators for the sale or lease of its imax digital projection system , as well as for joint revenue sharing arrangements . while the company is pleased with its recent progress in the u.s. and canadian commercial exhibitor market , there is no assurance that the company 's progress in those countries will continue , particularly as a higher percentage of markets are penetrated , or that the company 's u.s. and canadian commercial exhibitors will not encounter future financial difficulties . to minimize the company 's credit risk in this area , the company retains title to the underlying theater systems leased , performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimates of potentially uncollectible amounts . as at december 31 , 2010 , approximately 38.8 % of imax systems in operation were located within international markets ( defined as all countries other than the united states and canada ) , as compared to 37.0 % as at december 31 , 2009. the company expects growth in international markets to be an increasingly significant part of its business . of the company 's record 221 theatre signings in 2010 , 127 were signings for theatres in international markets . consequently , approximately 66.1 % of imax theatre system arrangements in backlog as at december 31 , 2010 are scheduled to be installed within international markets , compared with 66.9 % as at december 31 , 2009. as at december 31 , 2010 , 145 ( 2009 106 ) of the 171 ( 2009 117 ) joint revenue sharing arrangements in operation , or 84.8 % ( 2009 90.6 % ) were located in the united states and canada , with the remaining 26 ( 2009 11 ) arrangements being located in international markets . the company continues to seek to expand its number of joint revenue sharing arrangements it has in select international markets . story_separator_special_tag sales backlog the company 's sales backlog fluctuates in both number of systems and dollar value from quarter to quarter depending on the signing of new theater system arrangements , which adds to backlog , and the installation and acceptance of theater systems and the settlement of contracts , both of which reduce backlog . sales backlog typically represents the fixed contracted revenue under signed theater system sale and lease agreements that the company believes will be recognized as revenue upon installation and acceptance of the associated theater . sales backlog includes initial fees along with the estimated present value of contractual ongoing fees due over the lease term , but excludes amounts allocated to maintenance and extended warranty revenues as well as fees in excess of contractual ongoing fees that might be received in the future . the value of sales backlog does not include revenue from theaters in which the company has an equity interest , joint revenue sharing arrangements , operating leases , letters of intent or long-term conditional theater commitments . the company believes that the contractual obligations for theater system installations that are listed in sales backlog are valid and binding commitments . the company 's sales backlog is as follows : replace_table_token_14_th ( 1 ) includes 25 upgrades from film-based imax theater systems to imax digital theater systems as at december 31 , 2010 , and 1 upgrade from a film-based imax theater system to an imax digital theater system as at december 31 , 2009 . ( 2 ) reflects the minimum number of theaters arisings from signed contracts in backlog . up to an additional 25 theaters ( 2009 1 ) may be installed pursuant to certain provisions in signed contracts in backlog . 36 the company 's theater signings are as follows : replace_table_token_15_th ( 1 ) includes 24 installations in 2010 and 71 in backlog as at december 31 , 2010 ( 6 installations in 2009 and 14 in backlog as at december 31 , 2009 ) . ( 2 ) includes 28 installations in 2010 and 27 in backlog as at december 31 , 2010 ( 11 installations in 2009 and 1 in backlog as at december 31 , 2009 ) . ( 3 ) includes 20 installations in 2010 and 51 in backlog as at december 31 , 2010 ( 2 installations and 1 in backlog as at december 31 , 2009 ) . the company 's backlog of sales and sale-type lease arrangements can be segregated both by territory of future installation and by customer type . the percentage of backlog relevant to each territory ( based on installed dollar value of anticipated theater system revenue as at december 31 , 2010 ) is as follows : central and south america 27.2 % , asia 43.0 % , north america ( excluding mexico ) 12.7 % , europe 14.4 % , africa 1.0 % and middle east 1.7 % . in addition , 97.6 % of backlog represents future installations to commercial theater customers and 2.4 % to institutional customers . the company 's backlog of theater systems under joint revenue sharing arrangements can be segregated by both territory of future installation and by customer type . the percentage of backlog relevant to each territory ( based on the number of systems at december 31 , 2010 ) is as follows : north america ( excluding mexico ) 72.9 % , europe 5.1 % , asia 11.9 % , japan 8.4 % and australia 1.7 % . all 59 theater systems under joint revenue sharing arrangements in backlog are for commercial theater customers . the company estimates that approximately 80-90 ( excluding digital upgrades ) of the 224 theater systems arrangements currently in backlog will be installed in 2011 , with the remainder being installed in subsequent periods . in addition , the company anticipates that it will install a number of the 25 digital system upgrades in backlog in 2011. the company also expects additional theater system arrangements not currently in backlog to be signed and installed in 2011. the configuration of the company 's backlog as at december 31 , 2010 , by product type has been disclosed on page 8 of the company 's 2010 form 10-k. in the normal course of its business , the company will have customers who , for a number of reasons , including the inability to obtain certain consents , approvals or financing , are unable to proceed with a theater system installation . once the determination is made that the customer will not proceed with installation , the agreement with the customer is generally terminated or amended . if the agreement is terminated , once the company and the customer are released from all their future obligations under the agreement , all or a portion of the initial rents or fees that the customer previously made to the company are recognized as revenue . film production and digital re-mastering ( imax dmr ) films produced by the company are typically financed through third parties , whereby the company will generally receive a film production fee in exchange for producing the film and a distribution fee for distributing the film . the ownership rights to such films may be held by the film sponsors , the film investors and or the company . in the past , the company frequently financed film production internally , but has moved to a model utilizing a majority of third-party funding for the original films it produces and distributes . in 2011 , the company , along with warner bros. pictures ( wb ) , will release born to be wild 3d : an imax 3d experience . in 2010 , the company , along with wb , released hubble 3d : an imax 3d experience . in 2009 , the company , along with wb , released under the sea 3d : an imax 3d experience .
| ( 2 ) includes rental income from operating leases , contingent rents from operating and sales-type leases , contingent fees from sales arrangements and finance income . ( 3 ) excludes the impact of discontinued operations . 47 year ended december 31 , 2010 versus year ended december 31 , 2009 the company reported net income of $ 100.8 million or $ 1.59 per basic share and $ 1.51 per diluted share for the year ended december 31 , 2010 as compared to net income of $ 5.0 million or $ 0.10 per basic share and $ 0.09 per diluted share for the year ended december 31 , 2009. net income for the year ended december 31 , 2010 includes a $ 21.9 million pre-tax charge ( 2009 $ 15.4 million ) or $ 0.33 per diluted share for variable share-based compensation expense largely due to the increase in the company 's stock price during the year ( from $ 13.31 per share at year-end 2009 to $ 28.07 per share at year-end 2010 ) and its impact on sars and restricted common shares , which was offset by a non-cash tax recovery of $ 54.8 million ( $ 0.82 per diluted share ) resulting from the release of a tax valuation allowance , relating to the expected reversal of future temporary differences ( 2009 $ nil ) . excluding the net impact of variable share-based compensation expense from both 2010 and 2009 and the non-cash tax benefit , net income would have been $ 67.8 million or $ 1.02 per diluted share in 2010 , as compared to net income of $ 20.5 million or $ 0.38 per diluted share in 2009. revenues and gross margin the company 's revenues for the year ended december 31 , 2010 , increased by 45.2 % to $ 248.6 million from $ 171.2 million in 2009 due to increases in revenue across all business segments . the gross margin across all segments in 2010 was $ 137.7 million , or 55.4 % of
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reflecting the complexity of chronic pain and the difficulty in treating it , we believe that inadequate relief leads 25 % to 50 % of pain sufferers to seek alternatives to prescription pain medications . these alternatives include nutraceuticals , acupuncture , chiropractic care , non-prescription analgesics , electrical stimulators , braces , sleeves , pads and other items . in total these pain relief products and services account for approximately $ 20 billion in annual out-of-pocket spending in the united states . nerve stimulation is a long-established category of treatment for chronic pain . this treatment approach is available through implantable devices which have both surgical and ongoing risks , such as migration of the implanted nerve stimulation leads . non-invasive approaches involving transcutaneous electrical nerve stimulation ( tens ) have achieved limited efficacy in practice due to power limitations , ineffective dosing and low patient adherence . we believe that our quell wearable technology for chronic pain is designed to address many of the limitations of traditional tens . story_separator_special_tag from the outcome of this uncertainty . we held cash and cash equivalents of $ 5.2 million as of december 31 , 2020. we believe that these resources , and the cash to be generated from future product sales will be sufficient to meet our projected operating requirements through the fourth quarter of 2021. accordingly , we will need to raise additional funds to support our operating and capital needs in the first quarter of 2022 and beyond . we continue to face challenges and uncertainties . among these uncertainties is the future effect on the company 's business of the covid-19 pandemic which depressed sales of the company 's products during 2020. as a result , our available capital resources may be consumed more rapidly than currently expected due to ( a ) decreases in sales of our products related to covid-19 pandemic and other factors including the uncertainty of future revenues from new products ; ( b ) the effect of the covid-19 pandemic on our ability to obtain parts and materials from our suppliers while continuing to staff critical production and fulfillment functions ; ( c ) changes we may make to the business that affect ongoing operating expenses ; ( d ) changes we may make in our business strategy ; ( e ) regulatory developments affecting our existing products ; ( f ) changes we may make in our research and development spending plans ; and ( g ) other items affecting our forecasted level of expenditures and use of cash resources . we may attempt to obtain additional funding through public or private financing , collaborative arrangements with strategic partners , or other debt financing sources . however , we may not be able to secure such financing in a timely manner or on favorable terms , if at all . we have an effective shelf registration statement on form s-3 on file with the sec covering the sales of shares of our common stock and other securities , giving us the opportunity to raise funding when needed or otherwise considered appropriate at prices and on terms to be determined at the time of any such offerings . pursuant to the instructions to form s-3 , we have the ability to sell shares under the shelf registration statement , during any 12-month period , in an amount less than or equal to one-third of the aggregate market value of our common stock held by non-affiliates . if we raise additional funds by issuing equity or debt securities , either through the sale of securities pursuant to a registration statement or by other means , our existing stockholders may experience dilution , and the new equity or debt securities may have rights , preferences and privileges senior to those of our existing stockholders . if we raise additional funds through collaboration , licensing or other similar arrangements , it may be necessary to relinquish valuable rights to our potential products or proprietary technologies , or grant licenses on terms that are not favorable to us . without additional funds , we may be forced to delay , scale back or eliminate some of our sales and marketing efforts , research and development activities , or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations . if any of these events occurs , our ability to achieve our development and commercialization goals would be adversely affected . at december 31 , 2020 , the company has federal net operating loss carryforwards ( “ nol ” ) of approximately $ 143.7 million , of which $ 138.4 million begin to expire in 2021 and $ 5.3 million have an indefinite carryforward . at december 31 , 2020 , the company has state nols of $ 53.1 million , some of which have an indefinite carryforward , and others that begin to expire in 2025. at december 31 , 2020 , the company has federal and state tax credits of approximately $ 1.8 million and $ 1.1 million , respectively , which may be available to reduce future taxable income and related taxes thereon . these amounts include tax benefits of approximately $ 2.5 million and $ 75,000 attributable to nol and tax credit carryforwards , respectively , that result from the exercise of employee stock options . the company experienced an ownership change in 2019 as defined under internal revenue service regulations , which significantly reduced the tax benefits associated with these carryforwards under internal revenue code sections 382 and 383. the federal nols , the state nols , and the federal and state research and development credits each began to expire in 2020. a full valuation allowance has been provided against our nol carryforwards and research and development credit carryforwards . if an nol or tax credit adjustment is required , it would be offset by a similar adjustment to the valuation allowance . thus , nol or tax credit adjustments would have no impact to the balance sheet or statement of operations . story_separator_special_tag 35 critical accounting policies and estimates our financial statements are based on the selection and application of generally accepted accounting principles , which require us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes . future events and their effects can not be determined with certainty . therefore , the determination of estimates requires the exercise of judgment . actual results could differ significantly from those estimates , and any such differences may be material to our financial statements . we believe that the policies set forth below may involve a higher degree of judgment and complexity in their application than our other accounting policies and represent the critical accounting policies used in the preparation of our financial statements . if different assumptions or conditions were to prevail , the results could be materially different from our reported results . our significant accounting policies are presented within note 2 to our financial statements . revenue recognition and accounts receivable revenues include product sales , net of estimated returns . revenue is measured as the amount of consideration the company expects to receive in exchange for product transferred . revenue is recognized when contractual performance obligations have been satisfied and control of the product has been transferred to the customer . in most cases , the company has a single performance obligation for product delivery . product returns are estimated based on historical data and evaluation of current information . revenue recognition involves judgments , including assessments of expected returns and expected customer relationship periods . we analyze various factors , including a review of specific transactions , historical product returns , average customer relationship periods , customer usage , customer balances , and market and economic conditions . changes in judgments or estimates on these factors could materially impact the timing and amount of revenues and costs recognized . should market or economic conditions deteriorate , our actual return or bad debt experience could exceed its estimate . certain product sales are made with a 30-day or 60-day right of return . trade accounts receivable are recorded at the invoiced amount and do not bear interest . accounts receivable are recorded net of the allowance for doubtful accounts receivable . the allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable . we review our allowance for doubtful accounts and determine the allowance based on an analysis of customer past payment history , product usage activity , and recent communications between us and the customer . individual customer balances which are past due and over 90 days outstanding are reviewed individually for collectability . account balances are written-off against the allowance when we feel it is probable the receivable will not be recovered . we do not have any off-balance sheet credit exposure related to our customers . inventories inventories , consisting primarily of finished goods and purchased components , are stated at the lower of cost or net realizable value . cost is determined using the first-in , first-out method . we write down inventory to its net realizable value for excess or obsolete inventory . the realizable value of inventories is based upon the types and levels of inventories held , forecasted demand , pricing , competition , and changes in technology . our consumable electrodes and biosensors have an eighteen to thirty-six month shelf life . should current market and economic conditions deteriorate , our actual recoveries could be less than our estimates . leases the company presents the lease obligations on the balance sheet , by recording a right- of-use asset and a lease liability for all leases other than those that , at lease commencement , have a lease term of 12 months or less . on the lease commencement date , the company is required to measure and record a lease liability equal to the present value of the remaining lease payments , discounted using the rate implicit in the lease or if that can not be readily determined , the company 's incremental borrowing rate . 36 income taxes the company records income taxes using the asset and liability method . deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases , and operating loss and tax credit carryforwards . the company 's financial statements contain certain deferred tax assets , which have arisen primarily as a result of operating losses , as well as other temporary differences between financial and tax accounting . in accordance with the provisions of the income taxes topic of the codification , the company is required to establish a valuation allowance if the likelihood of realization of the deferred tax assets is reduced based on an evaluation of objective verifiable evidence . significant management judgment is required in determining the company 's provision for income taxes , the company 's deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets . the company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized . utilization of the nol and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future , as provided by section 382 of the irs code of 1986 , as well as similar state provisions . ownership changes may limit the amount of nol and tax credit carryforwards that can be utilized to offset future taxable income and tax , respectively . in general , an ownership change , as defined by section 382 , results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period .
| sales and marketing sales and marketing expense for 2020 decreased by 69.8 % from 2019 primarily attributable to reduced quell advertising and trade show spending of $ 1.6 million . in addition , personnel costs decreased by $ 0.7 million due to business restructuring and professional services costs decreased by $ 0.8 million . general and administrative general and administrative expense for 2020 decreased by 40.6 % from 2019 due to lower professional service costs of $ 2.0 million . in addition , personnel costs decreased by $ 0.1 million due to business restructuring , which was offset with an increase in insurance costs of $ 0.2 million . collaboration income years ended december 31 , 2020 2019 change % change ( in thousands ) collaboration income $ — $ 7,716.7 $ ( 7,716.7 ) ( 100.0 ) % collaboration income in 2019 included development milestones paid by glaxosmithkline ( gsk ) under a 2018 quell collaboration agreement . the final development milestones were achieved in 2019. cumulative development milestone payments from gsk during the 2018-2019 period were approximately $ 20.5 million . other income replace_table_token_4_th other income primarily includes interest income . 33 net loss per common share applicable to common stockholders , basic and diluted net loss per common share applicable to common stockholders was $ ( 0.69 ) , basic and diluted for 2020. net loss per common share applicable to common stockholders was $ ( 3.90 ) , basic and diluted for 2019. weighted average shares outstanding used in computing per share amounts are included in note 2 to the financial statements . liquidity and capital resources our principal source of liquidity is cash of $ 5.2 million at december 31 , 2020. funding for our operations largely depends on revenues from the sales of our commercial products . a low level of market interest in our products , a decline in our consumables sales , or unanticipated increases in our operating costs , and the adverse effects of the covid-19 pandemic could have an adverse effect on our liquidity and cash . december
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as of december 31 , 2019 , management utilized a two-year lep for its commercial loan segments and a one-year lep for its consumer loan segments based on analyses of actual charge-offs tracked back in time to the triggering event for the eventual loss . in addition , various qualitative factors are considered , including specific terms and conditions of loans and leases , underwriting standards , delinquency statistics , industry concentration , overall exposure to a single customer , adequacy of collateral , the dependence on collateral , and results of internal loan review , including a borrower 's perceived financial and management strengths , the amounts and timing of the present value of future cash flows , and the access to additional funds . it should be noted that this evaluation is inherently subjective as it requires material estimates , including , among others , expected default probabilities , the amounts and timing of expected cash flows on impaired loans and leases , the value of collateral , estimated losses on consumer loans and residential mortgages and the relevance of historical loss experience . the process also considers economic conditions and inherent risks in the loan and lease portfolio . all of these factors may be susceptible to significant change . to the extent actual outcomes differ from management 's estimates , additional provision for loan and lease losses ( the “ provision ” ) may be required that would adversely impact earnings in future periods . see the section of this document titled asset quality and analysis of credit risk beginning at page 46 for additional information . on january 1 , 2020 , asu 2016-13 ( topic 326 - credit losses ) , commonly referenced as the current expected credit loss ( “ cecl ” ) became effective for the corporation . cecl will change the way we estimate credit losses for loans and leases , including off-balance sheet ( “ obs ” ) credit exposures , as well as change the accounting for available for sale debt securities for reporting periods beginning after january 1 , 2020. for more information regarding the cecl standard , see note 2 , “ recent accounting pronouncements ” in the accompanying notes to the consolidated financial statements in this annual report on form 10-k. executive overview the following executive overview provides a summary-level review of the results of operation for 2019 compared to 2018 and 2018 compared to 2017 as well as a comparison of the december 31 , 2019 balance sheet to the december 31 , 2018 balance sheet . more detailed information regarding these comparisons can be found in the sections that follow . 2019 compared to 2018 income statement the corporation reported net income attributable to bryn mawr bank corporation of $ 59.2 million , or $ 2.93 diluted earnings per share for the year ended december 31 , 2019 , decreases of $ 4.6 million and $ 0.20 , respectively , as compared to net income attributable to bryn mawr bank corporation of $ 63.8 million , or $ 3.13 diluted earnings per share , for the year ended december 31 , 2018 . return on average equity ( `` roe '' ) and return on average assets ( `` roa '' ) for the year ended december 31 , 34 2019 , were 10.05 % and 1.26 % , respectively , as compared to 11.78 % and 1.47 % , respectively , for the same period in 2018. contributing to the net income decrease was a decrease of $ 1.8 million in net interest income and increases of $ 6.2 million , $ 1.4 million , and $ 1.3 million in noninterest expense , income tax expense , and provision , respectively , offset by a $ 6.2 million increase in noninterest income . tax-equivalent net interest income of $ 148.1 million for the year ended december 31 , 2019 decreased $ 1.8 million as compared to $ 149.9 million for the year ended december 31 , 2018 . the decrease was primarily due to a $ 15.4 million increase in interest expense on interest-bearing deposits , partially offset by increases of $ 9.8 million and $ 2.2 million in interest income on tax-equivalent interest and fees on loans and leases and tax-equivalent interest income on available for sale investment securities , respectively , and decreases of $ 708 thousand and $ 600 thousand in interest expense on long-term fhlb advances and short-term borrowings , respectively . the provision of $ 8.5 million for the year ended december 31 , 2019 increased $ 1.3 million as compared to $ 7.2 million for the year ended december 31 , 2018 . the primary driver for the increased provision was the $ 262.2 million increase in portfolio loans during the twelve month period ended december 31 , 2019 , as compared to the $ 141.3 million increase in portfolio loans during the same period in 2018. noninterest income of $ 82.2 million for the year ended december 31 , 2019 increased $ 6.2 million , or 8.2 % , as compared to $ 76.0 million for the year ended december 31 , 2018 . the increase was primarily due to increases of $ 6.4 million and $ 2.1 million in capital markets revenue and fees for wealth management services , respectively , partially offset by decreases of $ 1.3 million and $ 941 thousand in other operating income and net gain on sale of loans , respectively . the increase in capital markets revenue was primarily due to increased volume and size of interest rate swap transactions with commercial loan customers for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 driven by the continued organic growth of our capital markets group . story_separator_special_tag the increase in fees for wealth management services was primarily related to the $ 3.12 billion increase in wealth assets under management , administration , supervision and brokerage from $ 13.43 billion at december 31 , 2018 to $ 16.55 billion at december 31 , 2019 , and was comprised of a $ 1.7 million increase from accounts whose fees are charged on a flat or fixed basis , primarily due to a $ 1.91 billion increase in fixed rate flat-fee account balances , and a $ 328 thousand increase in fees derived from market-value based fee accounts . the decrease in other operating income was primarily due to the $ 4.3 million decrease in recoveries of purchase accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the rbpi merger , partially offset by increases of $ 1.5 million and $ 1.2 million in gain on trading investments and miscellaneous other income , respectively . noninterest expense of $ 146.5 million for the year ended december 31 , 2019 increased $ 6.2 million , or 4.4 % , as compared to $ 140.3 million for the year ended december 31 , 2018 . the increase was primarily due to a $ 7.7 million increase in salaries and wages . during the first quarter of 2019 , the corporation adopted a voluntary years of service incentive program ( the “ incentive program ” ) which offered certain benefits to eligible employees who met the incentive program requirements and voluntarily exited from service with the corporation during 2019. the increase in salaries and wages was largely driven by a pre-tax , non-recurring , charge of $ 4.5 million related to the incentive program recognized during the first quarter of 2019 , and to a lesser extent , additional recruiting efforts and increases in our incentive accruals . also contributing to the increase were increases of $ 1.4 million , $ 1.3 million , $ 1.2 million and $ 992 thousand in other operating expenses , furniture , fixtures and equipment expenses , professional fees , and occupancy and bank premises expenses , respectively . partially offsetting these increases in noninterest expense was a decrease of $ 7.8 million in due diligence , merger-related and merger integration expenses for the year ended december 31 , 2019 as compared to the same period in 2018. balance sheet asset quality as of december 31 , 2019 remained stable , with nonperforming loans and leases comprising 0.29 % of portfolio loans and leases as compared to 0.37 % of portfolio loans and leases as of december 31 , 2018. the allowance of $ 22.6 million was 0.61 % of portfolio loans and leases as of december 31 , 2019 , as compared to $ 19.4 million , or 0.57 % of portfolio loans and leases at december 31 , 2018. total portfolio loans and leases of $ 3.69 billion as of december 31 , 2019 increased by $ 262.2 million from december 31 , 2018 , an increase of 7.6 % . increases of $ 256.0 million , $ 20.5 million , $ 13.7 million , and $ 10.3 million in commercial mortgages , leases , commercial and industrial loans , and consumer loans , respectively , were offset by decreases of $ 21.2 million , $ 12.7 million , and $ 4.5 million in construction loans , home equity loans and lines , and residential mortgages , respectively . investment securities available for sale of $ 1.01 billion as of december 31 , 2019 increased $ 268.5 million , or 36.4 % , from $ 737.4 million as of december 31 , 2018. the increase was primarily due to the purchase of $ 500.0 million of short-term u.s. treasury securities included on the balance sheet as of december 31 , 2019 , an increase of $ 300.0 million as compared to a 35 similar purchase of $ 200.0 million of short-term u.s. treasury securities included on the balance sheet as of december 31 , 2018. this increase in u.s. treasury securities coupled with a $ 76.1 million increase in mortgage-backed securities , respectively , were partially offset by decreases of $ 93.8 million , $ 7.4 million , and $ 6.0 million in u.s. government and agency securities , collateralized mortgage obligations , and state & political subdivision securities , respectively . total deposits of $ 3.84 billion as of december 31 , 2019 increased $ 243.2 million , or 6.8 % , from $ 3.60 billion as of december 31 , 2018. increases of $ 280.2 million , $ 243.8 million , and $ 122.8 million in interest-bearing demand accounts , money market accounts , and wholesale non-maturity deposits , respectively , were offset by decreases of $ 236.0 million , $ 137.6 million , $ 26.6 million , and $ 3.4 million in wholesale time deposits , retail time deposits , savings accounts , and noninterest bearing deposits , respectively . wealth assets wealth assets under management , administration , supervision and brokerage of $ 16.55 billion as of december 31 , 2019 increased $ 3.12 billion , or 23.22 % , from $ 13.43 billion as of december 31 , 2018 . wealth assets consisted of $ 9.57 billion of wealth assets where fees are set at fixed amounts and $ 6.98 billion of wealth assets where fees are predominantly determined based on the market value of the assets held in their accounts as of december 31 , 2019 , an increase of $ 1.91 billion and $ 1.21 billion , respectively , from december 31 , 2018. recent developments crusader servicing corporation ( “ crusader ” ) , which was an 80 % owned subsidiary of royal bank america that was acquired by the bank in the rbpi merger , along with the bank as successor-in-interest to royal bank america , are defendants in the case captioned snyder v. crusader servicing corporation et al. , case no . 2007-01027 , in the court of common pleas of montgomery county , pennsylvania .
| non-rate-sensitive assets and liabilities are spread over time periods to reflect management 's view of the maturity of these funds . non-maturity deposits ( demand deposits in particular ) are recognized by the industry to have different sensitivities to interest rate environments . consequently , it is an accepted practice to spread non-maturity deposits over defined time periods to capture that sensitivity . commercial demand deposits are often in the form of compensating balances , and fluctuate inversely to the level of interest rates ; the maturity of these deposits is reported as having a shorter life than typical retail demand deposits . additionally , the industry practice has suggested distribution limits for non-maturity deposits . however , management has taken a more conservative approach than these limits would suggest by forecasting these deposit types with a shorter maturity . these assumptions are also reflected in the above interest rate simulation . 42 the following table presents the corporation 's gap analysis as of as of december 31 , 2019 : replace_table_token_9_th ( 1 ) investment securities include available for sale , held to maturity and trading . ( 2 ) loans include portfolio loans and leases and loans held for sale . the table above indicates that the corporation is asset-sensitive in the immediate 90-day time frame and may experience an increase in net interest income during that time period if rates rise . conversely , if rates decline , net interest income may decline . it should be noted that the gap analysis is only one tool used to measure interest rate sensitivity and should be used in conjunction with other measures such as the interest rate simulation discussed above . the gap analysis measures the timing of changes in rate , but not the true weighting of any specific component of the corporation 's balance sheet . the asset-sensitive position reflected in this gap analysis is similar to the corporation 's position at december 31 , 2018 . 43 < span
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these services include , among others , advertising , brand consulting , content marketing , corporate social responsibility consulting , crisis communications , custom publishing , data analytics , database management , digital/direct marketing , digital transformation , entertainment marketing , experiential marketing , field marketing , financial/corporate business-to-business advertising , graphic arts/digital imaging , healthcare marketing and communications , in-store design , interactive marketing , investor relations , marketing research , media planning and buying , merchandising and point of sale , mobile marketing , multi-cultural marketing , non-profit marketing , organizational communications , package design , product placement , promotional marketing , public affairs , public relations , retail marketing , sales support , search engine marketing , shopper marketing , social media marketing and sports and event marketing . we continually evaluate our portfolio of businesses to identify areas for investment and acquisition opportunities , as well as to identify non-strategic or underperforming businesses for disposition . in the first and second quarters of 2019 , we disposed of certain businesses , primarily in our crm execution & support discipline . given our size and breadth , we manage our business by monitoring several financial indicators . the key indicators that we focus on are revenue and operating expenses . we analyze revenue growth by reviewing the components and mix of the growth , including growth by principal regional market and marketing discipline , the impact from foreign currency exchange rate changes , growth from acquisitions , net of dispositions , and growth from our largest clients . operating expenses are comprised of cost of services , selling , general and administrative expenses , or sg & a , and depreciation and amortization . in 2020 , our revenue decreased 11.9 % compared to 2019. changes in foreign exchange rates reduced revenue 0.4 % , acquisition revenue , net of disposition revenue , reduced revenue 0.4 % , and organic growth decreased revenue 11.1 % as all our markets were negatively impacted by the covid-19 pandemic . the change in revenue across our principal regional markets were : north america decreased 10.6 % , europe decreased 12.2 % , asia-pacific decreased 8.8 % and latin america decreased 31.7 % . the change in revenue in 2020 , compared to 2019 , in our fundamental disciplines was : advertising decreased 13.1 % , crm consumer experience decreased 15.6 % , crm execution & support decreased 16.7 % , public relations decreased 5.6 % and healthcare increased 3.4 % . we measure cost of services in two distinct categories : salary and service costs and occupancy and other costs . as a service business , salary and service costs make up the significant portion of our operating expenses and substantially all these costs comprise the essential components directly linked to the delivery of our services . salary and service costs include employee compensation and benefits , freelance labor and third-party service costs , which include third-party supplier costs and client-related travel costs . occupancy and other costs consist of the indirect costs related to the delivery of our services , including office rent and other occupancy costs , equipment rent , technology costs , general office expenses and other expenses . 9 sg & a expenses , which decreased year-over-year , primarily consist of third-party marketing costs , professional fees and compensation and benefits and occupancy and other costs of our corporate and executive offices , which includes group-wide finance and accounting , treasury , legal and governance , human resource oversight and similar costs . in 2020 , salary and service costs , which tend to fluctuate with changes in revenue , decreased $ 1,399.4 million , or 12.8 % , compared to 2019. salary and related service costs in 2020 decreased $ 644.3 million , or 9.3 % , year-over-year , primarily as a result of the severance and furlough actions we took in the second quarter of 2020. also , during 2020 , we reduced salary and service costs by $ 162.6 million related to reimbursements and tax credits under government programs in several countries ( see note 1 to the consolidated financial statements ) . third-party service costs , which include expenses incurred with third-party vendors primarily when we act as a principal when performing services for our clients , decreased $ 755.1 million , or 18.5 % , year-over-year reflecting the decrease in revenue and the impact of actions we took to align our cost structure . occupancy and other costs , which are less directly linked to changes in revenue than salary and service costs , decreased $ 83.3 million , or 6.8 % , in 2020 as compared to 2019. operating profit decreased $ 523.5 million to $ 1,598.8 million . operating margin decreased to 12.1 % from 14.2 % , and ebita margin decreased to 12.8 % from 14.8 % year-over-year . in 2020 , operating profit , operating margin and ebita margin included a net decrease aggregating $ 171.1 million related to the covid-19 repositioning costs recorded in the second quarter and asset impairment charges recorded in the fourth quarter , partially offset by an increase related to reimbursements and tax credits under government programs in several countries ( see note 1 to the consolidated financial statements ) . in 2020 , net interest expense increased $ 5.5 million year-over-year to $ 189.5 million . interest expense on debt decreased $ 27.6 million to $ 199.6 million , primarily reflecting a reduction in interest expense from our refinancing activity at lower interest rates in the second half of 2019 and the first quarter of 2020 , partially offset by a loss of $ 7.7 million on the early redemption of the remaining $ 600 million principal amount of the 2020 notes in the first quarter of 2020 and the interest expense from the issuance of the 4.20 % notes in april 2020 ( see note 7 to the consolidated financial statements ) . interest income in 2020 decreased $ 28.0 million year-over-year to $ 32.3 million primarily due to lower rates . story_separator_special_tag our effective tax rate for 2020 increased year-over-year to 27.1 % from 26.0 % . the non-deductibility in certain jurisdictions of a portion of the covid-19 repositioning costs recorded in the second quarter of 2020 had the effect of increasing our effective tax rate for 2020. this increase was substantially offset by a lower effective tax rate on our foreign earnings resulting from a change in legislation . in 2019 , income tax expense was reduced by $ 10.8 million primarily from the net favorable settlements of uncertain tax positions in certain jurisdictions . after considering these items , our effective rate for 2020 would have approximated the rate for 2019. net income - omnicom group inc. in 2020 decreased $ 393.7 million to $ 945.4 million from $ 1,339.1 million in 2019. the year-over-year decrease is due to the factors described above . diluted net income per share - omnicom group inc. decreased to $ 4.37 in 2020 , compared to $ 6.06 in 2019 , due to the factors described above , as well as the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock through march 2020 , net of shares issued for restricted stock awards , stock option exercises and the employee stock purchase plan during the year . as discussed above and in note 1 to the consolidated financial statements , our results of operations for 2020 included covid-19 repositioning costs and asset impairment charges , which were partially offset by an increase attributable to reimbursements and tax credits under government programs in several countries . the after-tax impact of these items on net income - omnicom group inc. was $ 146.8 million . critical accounting policies the following summary of our critical accounting policies provides a better understanding of our financial statements and the related discussion in this md & a . we believe that the following policies may involve a higher degree of judgment and complexity in their application than most of our accounting policies and represent the critical accounting policies used in the preparation of our financial statements . readers are encouraged to consider this summary together with our financial statements and the related notes , including note 2 , for a more complete understanding of the critical accounting policies discussed below . estimates we prepare our financial statements in conformity with u.s. gaap and are required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . we use a fair value approach in testing goodwill for impairment and when evaluating our equity method investments to determine if an other-than-temporary impairment has occurred . actual results could differ from those estimates and assumptions . acquisitions and goodwill the evaluation of potential acquisitions is based on various factors , including specialized know-how , reputation , geographic coverage , competitive position and service offerings of the target businesses , as well as our experience and judgment . our acquisition strategy is focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our various strategic business platforms and agency brands through the expansion of their geographic 10 reach or their service capabilities to better serve our clients . additional key factors we consider include the competitive position and specialized know-how of the acquisition targets . accordingly , as is typical in most service businesses , a substantial portion of the assets we acquire are intangible assets primarily consisting of the know-how of the personnel , which is treated as part of goodwill and is not required to be valued separately under u.s. gaap . for each acquisition , we undertake a detailed review to identify other intangible assets that are required to be valued separately . a significant portion of the identifiable intangible assets acquired is derived from customer relationships , including the related customer contracts , as well as trade names . in valuing these identified intangible assets , we typically use an income approach and consider comparable market participant measurements . we evaluate goodwill for impairment at least annually at the end of the second quarter of each fiscal year and whenever events or circumstances indicate the carrying value may not be recoverable . under fasb asc topic 350 , intangibles - goodwill and other , we have the option of either assessing qualitative factors to determine whether it is more-likely-than-not that the carrying value of our reporting units exceeds their respective fair value or proceeding directly to the goodwill impairment test . we performed the annual impairment test and compared the fair value of each of our reporting units to its respective carrying value , including goodwill . we identified our regional reporting units as components of our operating segments , which are our five global agency networks . the regional reporting units of each agency network are responsible for the agencies in their region . they report to the segment managers and facilitate the administrative and logistical requirements of our key client matrix organization structure for delivering services to clients in their regions . we have concluded that for each of our operating segments , their regional reporting units have similar economic characteristics and should be aggregated for purposes of testing goodwill for impairment at the operating segment level . our conclusion was based on a detailed analysis of the aggregation criteria set forth in fasb asc topic 280 , segment reporting , and in fasb asc topic 350. consistent with our fundamental business strategy , the agencies within our regional reporting units serve similar clients in similar industries , and in many cases the same clients . in addition , the agencies within our regional reporting units have similar economic characteristics . the main economic components of each agency are employee compensation and related costs and direct service costs and occupancy and other costs , which include rent and occupancy costs , technology costs that are generally limited to personal computers , servers and off-the-shelf software and other overhead expenses .
| as a result , we recorded a pre-tax charge of $ 277.9 million , which is comprised of incremental severance of $ 150.0 million , real estate operating lease right-of-use , or rou , asset and other asset impairment charges of $ 55.8 million , other exit costs of $ 47.0 million and dispositions and other charges of $ 25.1 million ( see note 1 to the consolidated financial statements ) . these actions reduced headcount by over 6,000 and reduced the related facility requirements , which should result in significant reductions in future operating expenses . in addition , during 2020 , we reduced salary and service costs by $ 162.6 million related to reimbursements and tax credits under government programs in several countries , including the coronavirus aid , relief , and economic security act , or the cares act , in the united states , the kurzarbeit program in germany , and other government reimbursement programs in the u.k. , france , canada and other jurisdictions ( see note 1 to the consolidated financial statements ) . further , in the fourth quarter of 2020 , we recorded asset impairment charges of $ 55.8 million associated with underperforming assets , which is included in salary and service costs . the covid-19 pandemic negatively impacted most of our clients ' businesses . as a result , clients have cut costs , including postponing or reducing marketing communication expenditures . while certain industries such as healthcare and pharmaceuticals , technology and telecommunications , financial services and consumer products have been less affected , as long as the covid-19 7 pandemic remains a threat , global economic conditions continue to be volatile and such uncertainty cuts across all clients , industries and geographies . overall , while we have a diversified portfolio of service offerings , clients and geographies , demand for our services can be expected to continue to be adversely affected as marketers reduce expenditures in the short term due to the uncertain impact of the pandemic on the global economy . we expect global economic performance and our performance to vary by
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as a result of the tax cuts and jobs act of 2017 and the recording of tax benefits from the resolution of certain tax examinations in 2017 , we expect our annual effective income tax rate for 2018 to be comparable to 2017. in addition , as a result of the legislation , we intend to repatriate approximately $ 0.5 billion of cash held in our foreign subsidiaries back to the u.s. and use this cash to reduce debt . in november 2017 , the company 's board of directors , together with management , announced that it is conducting a process to explore and evaluate strategic alternatives to further enhance shareholder value . there can be no assurance that the exploration of strategic alternatives will result in any particular outcome . 19 story_separator_special_tag support services support services revenue decreased 7 % in 2017 compared to 2016 primarily due to : 6 % from a decline in installed mailing equipment worldwide ; and 1 % from lower maintenance revenue on production mail equipment as some in-house mailers in the prior year moved their mail processing to third-party service bureaus who service their own equipment . cost of support services as a percentage of support services revenue increased to 60.4 % in 2017 primarily due to the decline in support services revenue . support services revenue decreased 8 % in 2016 compared to 2015. on a constant currency basis , revenue decreased 7 % , primarily due to : 2 % from lower maintenance revenue on production mail equipment as some in-house mailers moved their mail processing to third-party service bureaus who service some of their own equipment ; 2 % from the worldwide decline in the number of mailing machines in service and shift to less-featured , lower cost machines ; and 2 % from market exits . cost of support services as a percentage of support services revenue improved to 57.7 % in 2016 primarily due to expense reductions and productivity initiatives . business services business services revenue increased 29 % in 2017 compared to 2016 primarily due to : 17 % from the acquisition of newgistics ; 9 % from growth in global ecommerce due to higher cross-border and retail volumes ; and 3 % from higher volumes of mail processed in presort services . cost of business services as a percentage of business services revenue increased to 72.4 % in 2017 primarily due to continued investment in our global ecommerce business and the additional costs of newgistics . business services revenue increased 3 % in 2016 compared to 2015. on a constant currency basis , revenue increased 4 % . business services revenue for 2016 was impacted by the sale of imagitas in may 2015 and the acquisition of borderfree in june 2015. excluding the impacts of these transactions , business services revenue increased 11 % primarily due to : 10 % from growth in our ecommerce business from the expansion of our u.s. and u.k. cross-border marketplace business and retail network , including a full year of operations of borderfree ; and 1 % from higher shipping solutions services . cost of business services as a percentage of business services revenue increased to 68.7 % in 2016 , primarily due higher mail processing costs in presort services . selling , general and administrative ( sg & a ) sg & a expense increased 3 % , or $ 37 million , in 2017 compared to 2016. contributing to this increase was higher compensation-related costs of $ 28 million due to the reinstatement of our annual variable compensation program and higher stock-based compensation expense . each of these programs are tied to our performance against pre-established targets and costs in 2016 were significantly lower than in 2017. additionally , expenses in global ecommerce were $ 21 million higher as we continue to invest in the growth of this business , we incurred $ 17 million of additional expense from newgistics , $ 9 million of higher marketing expenses , $ 9 million of higher residual losses on leased equipment due to the timing of trade-up activity and $ 9 million of transaction costs , primarily related to the acquisition of newgistics . offsetting these increases was approximately $ 63 million of benefits from productivity initiatives and a $ 6 million pre-tax gain from the sale of technology . additionally , 2016 included loan forgiveness income of $ 10 million and a favorable state sales tax adjustment of $ 5 million . sg & a expense decreased 6 % in 2016 compared to 2015 primarily due to lower salaries and benefits expense from our prior restructuring actions , lower annual variable compensation costs of $ 36 million , benefits from the new enterprise business platform of $ 28 million , loan forgiveness income of $ 10 million , a favorable sales tax adjustment of $ 5 million and other productivity and cost-saving initiatives . sg & a expense in 2015 also included a one-time compensation charge of $ 10 million related to the acquisition of borderfree . 22 restructuring charges and asset impairments , net restructuring charges and asset impairments were $ 59 million in 2017 , consisting of $ 55 million of restructuring related charges and $ 4 million of asset impairment charges . restructuring charges and asset impairments were $ 63 million in 2016. during the year , we recorded restructuring charges of $ 48 million related to restructuring actions and pension settlement charges due to prior restructuring actions . asset impairment charges consisted primarily of a loss of $ 5 million from the sale of a facility and an impairment charge of $ 4 million related to another facility . goodwill impairment in 2016 , we recorded a non-cash pre-tax goodwill impairment charge of $ 171 million associated with our software solutions reporting unit . other ( income ) expense , net other income , net for 2017 includes a loss on the early extinguishment of debt . see note 11 to the consolidated financial statements . story_separator_special_tag other income , net for 2015 includes the gain on the sale of imagitas of $ 111 million , transaction costs of $ 10 million incurred in connection with the acquisitions of borderfree and rtc and a charge of $ 7 million associated with the settlement of a legal matter . income taxes we recorded a net provisional one-time non-cash benefit of $ 39 million in our provision for income taxes related to the enactment of the tax cuts and jobs act of 2017. the net benefit is comprised of a provisional $ 130 million benefit from the remeasurement of net u.s. deferred tax liabilities arising from a lower u.s. corporate tax rate , offset by a provisional $ 91 million charge related primarily to a u.s. tax on unremitted earnings of our foreign subsidiaries . see note 13 to the consolidated financial statements . discontinued operations loss from discontinued operations in 2016 was due to an additional expense related to our management services business sold in 2013. income from discontinued operations in 2015 was due to a favorable tax adjustment related to our document imaging solutions business sold in 2014. preferred stock dividends of subsidiaries attributable to noncontrolling interests we redeemed all of the pbih preferred stock in november 2016 . 23 business segments effective january 1 , 2017 , we revised our segment reporting to reflect a change in how we manage and report office shipping solutions , which were previously reported within the global ecommerce segment . the needs of retail and ecommerce clients differ from those of office shipping clients . accordingly , we now report the results for office shipping solutions within small & medium business solutions and the retail and ecommerce shipping solutions remain in global ecommerce . the principal products and services of each of our reportable segments are as follows : small & medium business solutions : north america mailing : includes the revenue and related expenses from mailing and office solutions , financing services and supplies for small and medium businesses to efficiently create physical and digital mail , evidence postage and help simplify and save on the sending , tracking and receiving of letters , parcels and flats in the u.s. and canada . international mailing : includes the revenue and related expenses from mailing and office solutions , financing services and supplies for small and medium businesses to efficiently create physical and digital mail , evidence postage and help simplify and save on the sending , tracking and receiving of letters , parcels and flats in areas outside the u.s. and canada . enterprise business solutions : production mail : includes the worldwide revenue and related expenses from the sale of production mail inserting and sortation equipment , high-speed production print systems , supplies and related support services to large enterprise clients to process inbound and outbound mail . presort services : includes revenue and related expenses from presort services for large enterprise clients to qualify large mail volumes for postal worksharing discounts . digital commerce solutions : software solutions : includes the worldwide revenue and related expenses from the licensing of customer engagement , customer information , and location intelligence software solutions and related support services . global ecommerce : include the worldwide revenue and related expenses from cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions , including fulfillment and returns . we determine segment ebit by deducting from segment revenue the related costs and expenses attributable to the segment . segment ebit excludes interest , taxes , general corporate expenses , restructuring charges and other items , which are not allocated to a particular business segment . management uses segment ebit to measure profitability and performance at the segment level and believes that it provides a useful measure of operating performance and underlying trends of the businesses . segment ebit may not be indicative of our overall consolidated performance and therefore , should be read in conjunction with our consolidated results of operations . see note 2 to the consolidated financial statements for a reconciliation of segment ebit to net income . revenue and ebit by business segment are presented in the tables below . the sum of the individual segments in the tables above may not equal the totals due to rounding . replace_table_token_6_th 24 replace_table_token_7_th small & medium business solutions north america mailing north america mailing revenue decreased 5 % in 2017 compared to 2016 primarily due to : 3 % from declines in rentals and support services revenue due to a decline in installed mailing equipment and lower postage volumes ; and 2 % from lower financing revenue primarily due to a declining lease portfolio and lower fee income . ebit decreased 16 % primarily due to the decline in revenue and margins . north america mailing revenue decreased 7 % in 2016 compared to 2015 primarily due to : 2 % from lower financing revenue primarily from declining equipment sales in prior periods and lower fees resulting from proactive waivers to allow clients to adjust to new billing formats and delayed timing of invoices resulting from the platform cutover ; 1 % from lower sales of supplies due to lower demand and sales productivity issues from the platform cutover ; 1 % from lower rentals revenue and 1 % from lower support services revenue , primarily reflecting continuing decline in installed meters and shift to less-featured lower-cost machines ; and 1 % from lower equipment sales which were impacted by sales productivity issues from the platform cutover . ebit decreased 11 % primarily due to the decline in higher margin recurring revenue streams and higher costs due in part to the sales productivity issues from the platform cutover . international mailing international mailing revenue declined 7 % ( 6 % on a constant currency basis ) in 2017 compared to 2016 primarily due to : 3 % from lower equipment sales particularly in europe ; and 3 % from declines in rentals , financing and support services revenue resulting from a decline in installed mailing equipment and the lease portfolio .
| cost of equipment sales as a percentage of equipment sales revenue increased to 49.1 % primarily due to product mix . 20 supplies supplies revenue decreased 4 % in 2017 compared to 2016 primarily from the decline in installed mailing equipment and postage volumes in north america mailing . cost of supplies as a percentage of supplies revenue increased to 32.8 % in 2017 primarily due to higher mix of lower margin products . supplies revenue decreased 9 % in 2016 compared to 2015. on a constant currency basis , supplies revenue decreased 7 % primarily due to : 4 % from lower north america mailing supplies sales ; 1 % from lower international mailing supplies , primarily in the u.k. and france ; 1 % from lower sales in our production mail business ; and 1 % from market exits . cost of supplies as a percentage of supplies revenue increased slightly to 31.0 % primarily due to lower revenue and sales productivity issues . software software revenue increased 1 % ( 2 % on a constant currency basis ) in 2017 compared to 2016 primarily due to higher software licensing , data and saas revenue . cost of software as a percentage of software revenue decreased to 28.9 % in 2017 primarily due to the increase in high margin licensing revenue and cost reduction initiatives . software revenue decreased 10 % in 2016 compared to 2015. on a constant currency basis , software revenue decreased 7 % in primarily due to a worldwide decline in licensing revenue . license revenue from our customer engagement and our location intelligence software offerings declined , but were partly offset by growth in our customer information management offerings . cost of software as a percentage of software revenue increased to 30.4 % primarily due to the decline in high margin licensing revenue . rentals rentals revenue decreased 6 % ( 7 % on a constant currency basis ) in 2017 compared to 2016 and 7 % ( 6 % on a constant currency basis ) in 2016 compared to 2015. both of these declines were primarily due to a declining meter
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our operating expense analysis also includes a review of origination and servicing costs to assist us in managing overall profitability . because loan volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings , we also closely monitor origination volume and annual percentage rate . 2013 initiatives in october 2013 , springleaf became a public company listed on the nyse . in january 2013 , we expanded our business model and began originating personal loans on a centralized basis through our iloan division . in april 2013 , we built up our loan portfolio beyond our branch and internet businesses by acquiring over 415,000 new customer accounts from hsbc through a newly formed joint venture . to complement our evansville , indiana servicing operations , we added two servicing facilities in 2013 and welcomed over 400 new employees to our springleaf servicing solutions division . in february 2013 , we demonstrated the ability to attract capital markets funding for our personal loans by completing our first securitization of personal loans , a first for our industry in 15 years . during 2013 , we continued to replace our maturing unsecured debt with lower-cost , non-recourse securitization debt backed by our legacy real estate loan portfolio by effecting three mortgage loan securitizations . in may 2013 , we re-entered the unsecured debt market , our first unsecured note issuance in six years . further information on springleaf 's accomplishments during 2013 are discussed below . iloan division our extensive network of branches and expert personnel is complemented by our iloan division . formed at the beginning of 2013 , the iloan division allows us to more effectively process applications from customers within our branch footprint who prefer the convenience of online transactions and to reach customers located outside our branch footprint . during 2013 , we expanded our iloan efforts using e-signature and ach funding capabilities . 47 springcastle portfolio on april 1 , 2013 , we acquired the springcastle portfolio from hsbc for a purchase price of $ 3.0 billion , through a newly formed joint venture in which we own a 47 % equity interest . at the time of purchase , the portfolio consisted of over 415,000 finance receivable accounts with an aggregate upb of $ 3.9 billion . the portfolio included both unsecured loans and loans secured by subordinate residential real estate mortgages ( which we service as unsecured loans due to the fact that the liens are subordinated to superior ranking security interests ) . springleaf servicing solutions we have expanded our loan servicing capabilities to include centralized servicing of our legacy real estate loans and centralized servicing of acquired loan portfolios , such as the springcastle portfolio , as well as our internet-originated loans . in september 2013 , our springleaf servicing solutions division assumed direct servicing of the springcastle portfolio for which we earn a fee from the joint venture . we believe this servicing capability , in addition to efforts to expand our organic centralized servicing capabilities , will enable us to further improve efficiencies in our servicing operations , improve our ability to make future acquisitions of loan portfolios and attract fee-based servicing opportunities . securitizations in february 2013 , we demonstrated the ability to attract capital markets funding for our personal loan business by completing our first consumer loan securitization , a first for our industry in 15 years . subsequent to our inaugural consumer loan securitization , we completed nine additional securitizations in 2013 , including two additional consumer loan securitizations effected in june and september 2013 , three mortgage loan securitizations effected in april , july , and october 2013 , the springcastle portfolio securitization effected in april 2013 , and three conduit securitizations effected in the last half of 2013. see note 11 of the notes to consolidated financial statements in item 8 for further information on our securitizations . sfc 's offerings of senior notes on may 29 , 2013 , sfc issued $ 300 million aggregate principal amount of 6.00 % senior notes due 2020. on september 24 , 2013 , sfc issued $ 650 million aggregate principal amount of 7.75 % senior notes due 2021 ( the 7.75 % senior notes ) and $ 300 million aggregate principal amount of 8.25 % senior notes due 2023 ( the 8.25 % senior notes ) . sfc issued $ 500 million aggregate principal amount of the 7.75 % senior notes and $ 200 million aggregate principal amount of the 8.25 % senior notes in exchange for $ 700 million aggregate principal amount of sfc 's outstanding 6.90 % medium term notes due 2017. sfc used a portion of the proceeds from this offering to repurchase $ 183.7 million aggregate principal amount of its 6.90 % medium term notes due 2017. repayments of long-term debt in 2013 , we repaid $ 6.4 billion of long-term debt consisting of $ 3.0 billion of the secured term loan ( net of the new loan tranche of $ 750.0 million ) , $ 1.7 billion of securitizations , $ 848.3 million ( 668.5 million ) of euro denominated notes , $ 689.7 million of medium-term notes ( net of $ 700.0 million exchange of sfc 's medium-term notes discussed above ) , and $ 159.5 million of retail notes . 48 initial public offering on october 21 , 2013 , we completed our initial public offering of common stock . the company , together with certain selling stockholders , sold 24,201,920 shares ( including 3,156,772 shares sold in connection with the exercise by the underwriters of their over-allotment option ) of common stock , par value $ 0.01 per share , at a price of $ 17.00 per share , less an underwriting discount of $ 1.105 per share . story_separator_special_tag as a result of the offering , we received net proceeds of $ 230.8 million , after deducting underwriting discounts and commissions of $ 15.8 million and additional offering-related expenses of $ 4.8 million , for total expenses to us of $ 20.6 million . we used the proceeds of the offering to repay a portion of our indebtedness as well as for other general corporate purposes , including originations of new personal loans , and to satisfy working capital obligations . 2014 developments and outlook securitization on march 26 , 2014 , we completed a private securitization transaction in which a wholly owned special purpose vehicle of sfc sold $ 559.3 million of notes backed by personal loans held by springleaf funding trust 2014-a ( the 2014-a trust ) , at a 2.62 % weighted average yield . we sold the asset-backed notes for $ 559.2 million , after the price discount but before expenses and a $ 6.4 million interest reserve requirement . we initially retained $ 32.9 million of the 2014-a trust 's subordinate asset-backed notes . repayment of 2013-bac trust notes on september 25 , 2013 , we completed a private securitization transaction in which springleaf funding trust 2013-bac ( the 2013-bac trust ) , a wholly owned special purpose vehicle of sfc , issued $ 500 million of notes backed by an amortizing pool of personal loans acquired from subsidiaries of sfc . on march 27 , 2014 , we repaid the entire $ 231.3 million outstanding principal balance of the notes , plus accrued and unpaid interest . sale of 2009-1 retained certificates on july 30 , 2009 , we completed a private securitization transaction in which a wholly owned special purpose vehicle sold $ 1.2 billion of certificates backed by real estate loans of the american general mortgage loan trust 2009-1 ( the 2009-1 trust ) . we initially retained $ 786.3 million of the 2009-1 trust 's subordinate mortgage-backed certificates ( the 2009-1 retained certificates ) . in february 2014 , third street funding llc , an affiliate of sfc and the owner of the 2009-1 retained certificates , offered the certificates for sale in a competitive auction . on march 6 , 2014 , merrill lynch , pierce , fenner and smith incorporated ( mlpfs ) was declared the winning bidder and we entered into an agreement to sell , subject to certain closing conditions , all of our interest in the 2009-1 retained certificates to mlpfs for a price of $ 738.0 million . concurrently , new residential investment corp. and mlpfs entered into an agreement pursuant to which new residential investment corp. agreed to purchase approximately 75 % of the 2009-1 retained certificates . new residential investment corp. is managed by an affiliate of fortress . on march 31 , 2014 , we completed the sale of the 2009-1 retained certificates , some of which were sold through an unaffiliated initial purchaser pursuant to a separate certificate purchase agreement . the real estate loans included in this transaction had a carrying value of $ 780.7 million as of december 31 , 2013 and are included within net finance receivables . we retained no interest in the certificates issued by , or the real estate loans included in , the 2009-1 trust . this transaction reflects an acceleration of the 49 liquidation of our legacy real estate portfolio , which we plan to effect through continued runoff and opportunistic sales . while we continue to manage the runoff of the portfolio , we will continue to consider opportunistic sales of additional portions of the portfolio as market conditions allow . sale of real estate loans on march 7 , 2014 , we entered into an agreement to sell , subject to certain closing conditions , performing and non-performing real estate loans totaling $ 70.2 million in carrying value included within net finance receivables as of december 31 , 2013. we completed this transaction on march 31 , 2014. prepayment of secured term loan on march 31 , 2014 , sffc prepaid , without penalty or premium , the entire $ 750.0 million outstanding principal balance of the secured term loan , plus accrued and unpaid interest . effective upon the prepayment , all obligations of sffc , sfc , and the subsidiary guarantors under the secured term loan ( other than contingent reimbursement obligations and indemnity obligations ) were terminated and all guarantees and security interests were released . outlook assuming the u.s. economy continues to experience slow to moderate growth , we expect to continue our long history of strong credit performance . during 2012 and much of 2013 , we experienced unusually low charge-off ratios as a result of tightening underwriting practices in 2010-2011. the personal loan portfolio typically exhibited charge-off ratios in the range of 4.75-5.75 % prior to the start of the recession in 2008. we would expect the charge-off ratios of the personal loan portfolio to return to these levels . we believe the strong credit quality of our personal loan portfolio is the result of our disciplined underwriting practices and ongoing collection efforts . we also continue to see growth in the volume of personal loan originations driven by the following factors : · declining competition from banks , thrifts , and credit unions as these institutions have retreated from the non-prime market in the face of regulatory scrutiny and in the aftermath of the housing crisis . this reduction in competition has occurred concurrently with the exit of sub-prime credit card providers from the industry . as a result of the reduced lending of these competitors , access to credit has fallen substantially for the non-prime segment of customers , which , in turn , has increased our potential customer base . · slow but sustained economic growth . · migration of customer activity from traditional channels such as direct mail to online channels ( served by our iloan division ) where we are well suited to capture volume due to our scale , technology , and deployment of advanced analytics .
| the unsecured debt is allocated to the segments based on the remaining balance of debt by segment . provision for finance receivable losses directly correlated with a specific segment except for allocations to other , which are based on the remaining delinquent accounts as a percentage of total delinquent accounts . insurance revenues directly correlated with a specific segment . investment revenues directly correlated with a specific segment . net gain ( loss ) on repurchases and repayments of debt allocated to the segments based on the interest expense allocation of unsecured debt . net gain ( loss ) on fair value adjustments on debt directly correlated with a specific segment . other revenues other directly correlated with a specific segment except for gains and losses on foreign currency exchange and derivatives . these items are allocated to the segments based on the interest expense allocation of unsecured debt . salaries and benefits directly correlated with a specific segment . other salaries and benefits not directly correlated with a specific segment are allocated to each of the segments based on services provided . other operating expenses directly correlated with a specific segment . other operating expenses not directly correlated with a specific segment are allocated to each of the segments based on services provided . insurance losses and loss adjustment expenses directly correlated with a specific segment . 60 we evaluate the performance of each of our segments based on its pretax operating earnings . core consumer operations pretax operating results for consumer and insurance ( which are reported on a historical accounting basis ) , and acquisitions and servicing are presented in the table below on an aggregate basis : replace_table_token_10_th 61 selected financial statistics for consumer ( which are reported on a historical accounting basis ) and acquisitions and servicing were as follows : replace_table_token_11_th ( a ) the gross charge-off ratio and charge-off ratio in 2013 reflect $ 14.5 million of additional charge-offs recorded in march 2013 ( on a historical accounting basis ) related to our change
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due to the nature of our customer relationships , which have been very stable with relatively few customer losses over the past years , and the subscription nature of our financial model , we believe that our current investment in growth should lead to substantially increased revenue , which will allow us to achieve profitability in the relatively near future . of course , our ability to achieve profitability will continue to be subject to many factors beyond our control . key financial and operating performance metrics we regularly monitor a number of financial and operating metrics in order to measure our current performance and project our future performance . these metrics help us develop and refine our growth strategies and make strategic decisions . we discuss revenue , gross margin , and the components of operating loss , as well as segment revenue and components of segment loss from operations , in management 's discussion and analysis of financial condition and results of operationscomponents of operating results . in addition , we utilize other key metrics as described below . number of large employer and carrier customers we believe the number of large employer and carrier customers is a key indicator of our market penetration , growth , and future revenue . we have aggressively invested in and intend to continue to invest in our direct sales force to grow our customer base . we generally define a customer as an entity with an active software services contract as of the measurement date . the following table sets forth the number of large employer and carrier customers for the periods indicated : replace_table_token_8_th 52 software services revenue retention rate we believe that our ability to retain our customers and expand the revenue they generate for us over time is an important component of our growth strategy and reflects the long-term value of our customer relationships . we measure our performance on this basis using a metric we refer to as our software services revenue retention rate . we calculate this metric for a particular period by establishing the group of our customers that had active contracts for a given period . we then calculate our software services revenue retention rate by taking the amount of software services revenue we recognized for this group in the subsequent comparable period ( for which we are reporting the rate ) and dividing it by the software services revenue we recognized for the group in the prior period . for 2013 , 2012 , 2011 , and 2010 our software services revenue retention rate exceeded 95 % . adjusted gross profit and adjusted ebitda adjusted gross profit represents our gross profit before depreciation and amortization , as well as stock-based compensation expense . adjusted ebitda represents our earnings before net interest and other expense , taxes , and depreciation and amortization expense , adjusted to eliminate stock-based compensation and impairment of goodwill and intangible assets . adjusted gross profit and adjusted ebitda are not measures calculated in accordance with united states generally accepted accounting principles , or gaap . please refer to selected consolidated financial dataadjusted gross profit and adjusted ebitda in this report for a discussion of the limitations of adjusted gross profit and adjusted ebitda and reconciliations of adjusted gross profit to gross profit and adjusted ebitda to net loss , the most comparable gaap measurements , respectively , for 2013 , 2012 , 2011 , and 2010. components of operating results revenue we derive the majority of our revenue from software services fees , which consist primarily of monthly subscription fees paid to us by our employer and carrier customers for access to , and usage of , our cloud-based benefits software solutions for a specified contract term . we also derive revenue from professional services fees , which primarily include fees related to the implementation of our customers onto our platform . our professional services typically include discovery , configuration and deployment , integration , testing , and training . the following table sets forth a breakdown of our revenue between software services and professional services for the periods indicated ( in thousands ) : replace_table_token_9_th we generally recognize software services fees monthly based on the number of employees covered by the relevant benefits plans at contracted rates for a specified period of time , provided that an enforceable contract has been signed by both parties , access to our software has been granted to the customer and is available for their use , the fee for the software services is fixed or determinable , and collection is reasonably assured . we defer recognition of our professional services fees paid by customers in connection with implementation of our software services , or implementation fees , and 53 recognize them , beginning once the software services have commenced , ratably over the longer of the contract term or the estimated expected life of the customer relationship . we will periodically evaluate the term over which revenue is recognized for most professional services as we gain more experience with customer contract renewals . in the first quarter of 2011 , we increased the estimated expected life of our customer relationships for both employer and carrier customers . this change in estimate was a result of growing demand for our software services , reduced uncertainties in the regulatory environment , and increased confidence in customer retention . this change extends the term over which we recognize our deferred revenue . most of our deferred revenue relates to professional services performed for our carrier customers , which require a more extensive and lengthy implementation . further , prior to 2012 , we generally did not charge implementation fees to our large employer customers . we will continue to periodically evaluate the term over which revenue is recognized for most professional services as we gain more experience with customer contract renewals . we generally invoice our employer and carrier customers for software services in advance , in monthly installments . story_separator_special_tag we invoice our employer customers for implementation fees at the inception of the arrangement . we generally invoice our carrier customers for implementation fees at various contractually defined times throughout the implementation process . implementation fees that have been invoiced are initially recorded as deferred revenue until recognized as described above . overhead allocation expenses associated with our facilities , it costs , and depreciation and amortization , are allocated between cost of revenue and operating expenses based on employee headcount determined by the nature of work performed . cost of revenue cost of revenue primarily consists of salaries and other personnel-related costs , including benefits , bonuses , and stock-based compensation , for associates providing services to our customers and supporting our saas platform infrastructure . additional expenses in cost of revenue include co-location facility costs for our data centers , depreciation expense for computer equipment directly associated with generating revenue , infrastructure maintenance costs , amortization expenses associated with capitalized software development costs , allocated overhead , and other direct costs . our cost of revenue is expensed as we incur the costs . however , the related revenue from fees we receive for our implementation services performed before a customer is operating on our platform is deferred until the commencement of the monthly subscription and recognized as revenue ratably over the longer of the related contract term or the estimated expected life of the customer relationship . therefore , the cost incurred in providing these services is expensed in periods prior to the recognition of the corresponding revenue . our cost associated with providing implementation services has been significantly higher as a percentage of revenue than our cost associated with providing our monthly subscription services due to the labor associated with providing implementation services . we plan to continue to expand our capacity to support our growth , which will result in higher cost of revenue in absolute dollars . however , we expect cost of revenue as a percentage of revenue to decline and gross margins to increase primarily from the growth of the percentage of our revenue from large employers and the realization of economies of scale driven by retention of our customer base . 54 operating expenses operating expenses consist of sales and marketing , research and development , and general and administrative expenses . salaries and personnel-related costs are the most significant component of each of these expense categories . we expect to continue to hire new associates in these areas in order to support our anticipated revenue growth . as a result , we expect our operating expenses to increase in both aggregate dollars and as a percentage of revenue in the near term , but to decrease over the longer term as we achieve economies of scale . sales and marketing expense . sales and marketing expense consists primarily of salaries and other personnel-related costs , including benefits , bonuses , stock-based compensation , and commissions for our sales and marketing associates . we record expense for commissions at the time of contract signing . additional expenses include advertising , lead generation , promotional event programs , corporate communications , travel , and allocated overhead . for instance , our most significant promotional event is one place , which we hold annually in the second quarter . we expect our sales and marketing expense to increase in both absolute dollars and as a percentage of revenue in the foreseeable future as we further increase the number of our sales and marketing professionals and expand our marketing activities in order to continue to grow our business . research and development expense . research and development expense consists primarily of salaries and other personnel-related costs , including benefits , bonuses , and stock-based compensation for our research and development associates . additional expenses include costs related to the development , quality assurance , and testing of new technology , and enhancement of our existing platform technology , consulting , travel , and allocated overhead . we believe continuing to invest in research and development efforts is essential to maintaining our competitive position . we expect our research and development expense to increase in absolute dollars and as a percentage of revenue for the near term , but decrease as a percentage of revenue over the longer term as we achieve economies of scale . general and administrative expense . general and administrative expense consists primarily of salaries and other personnel-related costs , including benefits , bonuses , and stock-based compensation for administrative , finance and accounting , information systems , legal , and human resource associates . additional expenses include consulting and professional fees , insurance and other corporate expenses , and travel . we expect our general and administrative expenses to increase in absolute terms as a result of operating as a public company and will include costs associated with compliance with the sarbanes-oxley act and other regulations governing public companies , increased costs of directors ' and officers ' liability insurance , increased professional services expenses , and costs associated with an enhanced investor relations function . impairment of goodwill . on august 3 , 2010 , we acquired 100 % of the net assets of beninform holdings , inc. and recorded $ 3.3 million of goodwill in connection with the acquisition . during the year ended december 31 , 2011 , we recorded an impairment of goodwill of $ 1.7 million due to lower than expected sales forecast at the october 31 , 2011 impairment testing date . other income and expense other income and expense consists primarily of interest income and expense , accretion of contingent consideration , and gain ( loss ) on disposal of fixed assets . interest income represents interest received on our cash and cash equivalents . interest expense consists primarily of the interest incurred on outstanding borrowings under our financing obligations , existing notes and credit facilities . 55 income tax expense income tax expense consists of u.s. federal and state income taxes .
| of revenue for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 was primarily attributable to a $ 10.7 million increase in salaries and personnel-related costs and a $ 4.6 million increase in professional fees . customer services salaries and personnel-related costs increased $ 6.8 million and professional fees increased by $ 2.6 million to support a growing number of customers and to prepare for and assist with an open enrollment period 58 at a large customer . engineering salaries and personnel-related costs increased $ 3.4 million and professional fees increased by $ 1.8 million to perform customer implementations for a certain large employer customer and for our marketplace product at carrier customers . in addition , we experienced a $ 0.4 million increase in telecommunications and other expense related to increased open enrollment volume and $ 0.6 million increase in travel expenses to client sites . further , we experienced a $ 1.3 million increase in infrastructure maintenance costs to support our products and platform and a $ 0.8 million increase in facilities expenses as a result of adding office space . additional hiring led to a $ 0.2 million increase in recruiting costs . these increases were partially offset by a net decrease of $ 0.5 million in amortization expense primarily due to an impairment charge during the year ended december 31 , 2012 related to capitalized software development costs offset by additions to property and equipment related to our growth . gross profit replace_table_token_17_th the increase in software services gross profit for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 was driven by a $ 21.8 million , or 28.7 % , increase in software services revenue , partially offset by a $ 7.3 million , or 25.5 % , increase in software services cost of revenue . software services cost of revenue included $
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our ophthalmology products are sold in the united states predominantly through a direct sales force and internationally through approximately 70 independent distributors into over 100 countries . we manage and evaluate our business in one segment - ophthalmology . we break down this segment by geography - domestic ( u.s. ) and international ( the rest of the world ) . in addition , we review trends by laser system sales ( consoles and durable delivery devices ) and recurring sales ( single use consumable laser probes and other associated instrumentation ( consumables ) , service and support ) . our ophthalmology revenues arise primarily from the sale of our iq and oculight laser systems , consumables and service and support activities . our current family of iq products includes iq 532 , iq 577 and iq 810 laser photocoagulation systems and our oculight products include oculight tx , oculight symphony ( laser delivery system ) , oculight sl , oculight slx , oculight gl and oculight glx laser photocoagulation systems . sales to international distributors are made on open credit terms or letters of credit and are currently denominated in u.s. dollars and accordingly , are not subject to risks associated with currency fluctuations . cost of revenues consists primarily of the cost of purchasing components and sub-systems , assembling , packaging , shipping and testing components at our facility , direct labor and associated overhead ; warranty , royalty and amortization of intangible assets ; and depot service costs . research and development expenses consist primarily of personnel costs , materials to support new product development and research support provided to clinicians at medical institutions developing new applications which utilize our products ; and regulatory expenses . research and development costs have been expensed as incurred . sales and marketing expenses consist primarily of costs of personnel , sales commissions , travel expenses , advertising and promotional expenses . general and administrative expenses consist primarily of costs of personnel , legal , accounting and other public company costs , insurance and other expenses not allocated to other departments . results of operations - 2011 , 2010 and 2009 our fiscal year ends on the saturday closest to december 31. fiscal 2011 ended on december 31 , 2011 , fiscal 2010 ended on january 1 , 2011 , and fiscal 2009 ended on january 2 , 2010. consequently , fiscal years 2011 , 2010 and 2009 included 52 weeks of operations . 25 the following table sets forth certain data from continuing operations as a percentage of revenue from continuing operations for the periods included . replace_table_token_3_th comparison of 2011 and 2010 revenues . total revenues from continuing operations for 2011 were $ 33.2 million compared with $ 32.3 million in 2010 , an increase of $ 0.9 million or 2.8 % . our ophthalmology system revenues grew as a result of a resurgence in appreciation of the benefits of laser photocoagulation as a treatment modality amongst physicians and a recovery in capital spending particularly in the u.s. competition for consumable products remains strong with increased price sensitivities amongst customers . our oem revenue is generated from a long standing relationship , the product is now in end of life and demand has and will continue to decline . replace_table_token_4_th gross profit . gross profit increased $ 0.1 million from $ 16.2 million in 2010 to $ 16.3 million in 2011. the increase in gross profits was driven by increased revenues offset by a reduction in gross margins from 50.1 % to 49.1 % . the reduction in gross margin was primarily attributable to a decrease in direct margins as a result of increased sales of lower margin systems . research and development . research and development expenses increased $ 0.1 million or 2.6 % , from $ 3.8 million in 2010 to $ 3.9 million in 2011. the increase is attributable to increases in headcount and therefore personnel costs incurred in engineering development projects as the company continues to focus on new product introductions . 26 sales and marketing . sales and marketing expenses increased $ 0.4 million or 5.6 % , from $ 7.1 million in 2010 to $ 7.5 million in 2011. the increase is primarily attributable to increased personnel costs associated with increased headcount and marketing programs . story_separator_special_tag which was generated from net income from continuing operations of $ 1.7 million with non cash items added back of $ 0.8 million less changes in working capital of $ 1.4 million . this compares to net cash provided by continuing operating activities in 2009 of $ 3.0 million which was generated from net income from continuing operations of $ 1.7 million with non cash items added back of $ 0.8 million and changes in working capital provided an additional $ 0.6 million . 28 contractual payment obligations our contractual payment obligations that were fixed and determinable as of december 31 , 2011 were as follows ( in thousands ) : replace_table_token_6_th critical accounting policies our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , net sales and expenses , and the related disclosures . we base our estimates on historical experience , our knowledge of economic and market factors and various other assumptions we believe to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies are affected by significant estimates , assumptions , and judgments used in the preparation of our consolidated financial statements . story_separator_special_tag discontinued operations . discontinued operations are presented and accounted for in accordance with asc 360 , impairment or disposal of long-lived assets , ( asc 360 ) . when a qualifying component of the company is disposed of or has been classified as held for sale , the operating results of that component are removed from continuing operations for all periods presented and displayed as discontinued operations if : ( a ) elimination of the component 's operations and cash flows from the company 's ongoing operations has occurred ( or will occur ) and ( b ) significant continuing involvement by the company in the component 's operations does not exist after the disposal transaction . on december 30 , 2011 we entered into an agreement to sell our aesthetics business to cutera , inc. the sale of the aesthetics business was completed on february 2 , 2012. the operating results of our aesthetics business were therefore classified as discontinued operations , and the associated assets and liabilities were classified as held for sale for all periods presented under the requirements of asc 360. revenue recognition . our revenues arise from the sale of laser consoles , delivery devices , consumables and service and support activities . revenue from product sales is recognized upon receipt of a purchase order and product shipment provided that no significant obligations remain and collection of the receivables is reasonably assured . shipments are generally made with free-on-board ( fob ) shipping point terms , whereby title passes upon shipment from our dock . any shipments with fob receiving point terms are recorded as revenue when the shipment arrives at the receiving point . cost is recognized as product sales revenue is recognized . the company 's sales may include post-sales obligations for training or other deliverables . for revenue arrangements such as these , we recognize revenue in accordance with the revenue recognition , multiple-element arrangements section of subtopic 605-25 of the accounting standards codification ( asc ) . when the company has objective and reliable evidence of fair value of the undelivered elements , it defers revenue attributable to the post-sale obligations and recognizes such revenue when the obligation is fulfilled . otherwise , the company defers all revenue related to the transaction until all elements are delivered . revenue relating to extended warranty contracts is recognized on a straight line basis over the period of the applicable warranty contract . we recognize repair service revenue upon completion of the work . inventories . inventories are stated at the lower of cost or market and include on-hand inventory physically held at the company 's facility , sales demo inventory and service loaner inventory . cost is determined on a standard cost basis which approximates actual cost on a first-in , first-out ( fifo ) method . lower of cost or market is evaluated by considering obsolescence , excessive levels of inventory , deterioration and other factors . adjustments to reduce the cost of inventory to its net realizable value , if required , are made for estimated excess , obsolete or impaired inventory and are charged to cost of revenues . factors influencing these adjustments include changes in demand , product life cycle and development plans , component cost trends , product pricing , physical deterioration and quality issues . revisions to these adjustments would be required if these factors differ from our estimates . sales returns allowance and allowance for doubtful accounts . the company estimates future product returns related to current period product revenue . we analyze historical returns , and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns allowance . significant 29 management judgment and estimates must be made and used in connection with establishing the sales returns allowance in any accounting period . material differences may result in the amount and timing of our revenue for any period if management made different judgments or utilized different estimates . our provision for sales returns is recorded net of the associated costs . similarly management must make estimates regarding the uncollectability of accounts receivable . we are exposed to credit risk in the event of non-payment by customers to the extent of amounts recorded on the balance sheet . as sales levels increase the level of accounts receivable would likely also increase . in addition , in the event that customers were to delay their payments to us , the levels of accounts receivable would likely also increase . we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . the allowance for doubtful accounts is based on past payment history with the customer , analysis of the customer 's current financial condition , the aging of the accounts receivable balance , customer concentration and other known factors . warranty . the company accrues for estimated warranty costs upon shipment of products . actual warranty costs incurred have not materially differed from those accrued . the company 's warranty policy is applicable to products which are considered defective in their performance or fail to meet the product specifications . warranty costs are reflected in the statement of operations as cost of revenues . income taxes . we account for income taxes in accordance with asc 740 , income taxes , which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities . under asc 740 , the liability method is used in accounting for income taxes .
| we recorded a provision for income taxes on continuing operations of $ 0.3 million and an effective tax rate of 12 % for fiscal year 2011 similar to a provision for income taxes of $ 0.3 million and an effective tax rate of 16 % for fiscal year 2010. our tax rate is benefiting from a reduction in the valuation allowance we currently have booked against our deferred tax asset . ultimately , assuming we remain profitable , the entire valuation reserve will be released and our tax rate will return to more normal levels . at the end of 2011 the valuation allowance totaled $ 11.7 million . comparison of 2010 and 2009 revenues . total revenues from continuing operations for 2010 were $ 32.3 million compared with $ 31.0 million in 2009 , an increase of $ 1.3 million or 4.2 % . our ophthalmology system revenues grew as a result in a resurgence in appreciation of the benefits of laser photocoagulation as a treatment modality amongst physicians and a recovery in capital spending worldwide . competition for consumable products remains strong with increased price sensitivities amongst customers . our oem revenue is generated from a long standing relationship , the product is now in end of life and demand has and will continue to decline . replace_table_token_5_th gross profit . gross profit increased $ 0.8 million from $ 15.4 million in 2009 to $ 16.2 million in 2010. the increase in gross profit was attributable to increased revenues and an improvement in gross margins from 49.8 % to 50.1 % . 27 research and development . research and development expenses increased $ 0.5 million or 15.2 % , from $ 3.3 million in 2009 to $ 3.8 million in 2010. the increase was primarily attributable to an increase in material costs consumed in engineering development projects and an increase in salary and employee benefits associated with a headcount increase . sales and marketing . sales and marketing expenses increased $ 0.5 million or 7.6 % , from $ 6.6 million in 2009 to $ 7.1 million in 2010. the increase was primarily attributable to increased commission expenses resulting from higher sales , and increased
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performance measures we believe revenue per available room ( “ revpar ” ) , which we calculate by dividing room sales for comparable properties by room nights available for the period , is a meaningful indicator of our performance because it measures the period-over-period change in room revenues for comparable properties . revpar may not be comparable to similarly titled measures , such as revenues , and should not be viewed as necessarily correlating with our fee revenue . we also believe occupancy and average daily rate ( “ adr ” ) , which are components of calculating revpar , are meaningful indicators of our performance . occupancy , which we calculate by dividing occupied rooms by total rooms available ( including rooms in hotels temporarily closed due to issues related to covid-19 ) , measures the utilization of a property 's available capacity . adr , which we calculate by dividing property room revenue by total rooms sold , measures average room price and is useful in assessing pricing levels . comparisons to the prior year period are on a constant u.s. dollar basis . we calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period . we define our comparable properties as our properties that were open and operating under one of our brands since the beginning of the last full calendar year ( since january 1 , 2019 for the current period ) and have not , in either the current or previous year : ( 1 ) undergone significant room or public space renovations or expansions , ( 2 ) been converted between company-operated and franchised , or ( 3 ) sustained substantial property damage or business interruption , with the exception of properties closed or otherwise experiencing interruptions related to covid-19 , which we continue to classify as comparable . for 2020 compared to 2019 , we had 4,641 comparable u.s. & canada properties and 1,340 comparable international properties . 26 impact of covid-19 covid-19 continues to have a material impact on our business , our company , and our industry . covid-19 first impacted our business in greater china beginning in january 2020 , moved quickly into the rest of asia pacific and the european markets , and spread globally by march 2020. as the pandemic accelerated around the world , worldwide comparable systemwide constant dollar revpar fell sharply . global occupancy levels and revpar have since improved compared to the extremely low levels reached in april 2020 , but the pace of recovery generally slowed in most regions in the 2020 fourth quarter and into january 2021 due to the sharp rise in covid-19 cases . as a result , our fee revenue and revenue from owned and leased properties declined significantly during 2020 , and we expect that there will not be a significant rebound in travel and lodging demand until there is widespread distribution of effective vaccines . worldwide comparable systemwide constant dollar revpar declined 23 percent in the 2020 first quarter , 84 percent in the 2020 second quarter , 66 percent in the 2020 third quarter , and 64 percent in the 2020 fourth quarter , compared to the same periods in 2019. worldwide , approximately six percent of our hotels were closed as of february 15 , 2021 , compared to the peak of more than 25 percent closed on april 26 , 2020. however , the progress of recovery is uneven . the spread of covid-19 has constrained and continues to constrain the speed of recovery and will continue to have a dampening impact on demand . demand is still being primarily driven by leisure travelers , and we have not seen meaningful demand return from business and group travelers . of our geographic regions , greater china experienced the greatest improvement in demand compared to the 2020 second quarter , driven initially by domestic leisure travel with business transient and group business improving through the year , while demand in the rest of asia pacific has generally improved at a much slower pace . in our europe , middle east , and africa region , leisure demand drove revpar improvements in the 2020 third quarter compared to the 2020 second quarter , though increases in covid-19 cases in europe and resulting increases in government restrictions began anew in september 2020 , which negatively impacted the recovery in the 2020 fourth quarter . in u.s. & canada , demand improved during the remainder of 2020 from the lows seen in april 2020 , primarily driven by leisure travel and by travelers within driving range of their destinations . we continue to take substantial measures to mitigate the negative financial and operational impacts for our hotel owners and our own business . business contingency plans have been implemented around the world , and we continue to adjust these in response to the global situation . at the corporate level , our actions to date have substantially reduced the monthly run rate of corporate general and administrative costs compared to the monthly costs initially budgeted for 2020 , excluding our provision for credit losses . we reduced spending on capital expenditures and other investments , and as previously announced , we suspended share repurchases and cash dividends . we have taken a number of steps to reorganize the company in response to the decline in lodging demand caused by covid-19 . we implemented temporary furloughs and reduced work week schedules for both above-property and on-property associates , most of which ended in september 2020 for above-property associates . as part of the realignment of our organization , we implemented a voluntary transition program for certain associates , and we eliminated a significant number of positions . while we have substantially completed the programs related to our above-property organization , we are continuing to develop restructuring plans , which could result in additional on-property position eliminations , to achieve cost savings specific to each of our company-operated properties . see note 3 for more information about our restructuring activities . story_separator_special_tag at the property level , we continue to work with owners and franchisees to lower their cash outlays . the steps we have taken to date include deferring renovations , certain hotel initiatives and brand standard audits for hotel owners and franchisees ; reducing the amount of certain charges for systemwide programs and services ; offering a delay in payment terms for certain charges in the 2020 second quarter ; supporting owners and franchisees who are working with their lenders to utilize furniture , fixtures , and equipment ( ff & e ) reserves to meet working capital needs ; and waiving required ff & e funding through 2021. we have significantly lowered the reimbursed expenses we incur on behalf of our owners and franchisees to provide centralized programs and services such as the loyalty program , reservations , marketing and sales , which we generally collect through cost reimbursement revenue on the basis of hotel revenue or program usage . in 2020 , we applied for employee retention tax credit refunds from the u.s. treasury under the coronavirus aid , relief , and economic security act ( “ cares act ” ) totaling $ 164 million . in the 2020 fourth quarter , we received $ 119 million , $ 94 million of which we passed through to the related hotels that we manage on behalf of owners . we expect to receive the remaining refund in 2021 , the majority of which we expect will inure to the benefit of our hotel owners . we continue to evaluate the availability of credits and benefits under the cares act and other legislation . the impact of covid-19 on the company remains fluid , as does our corporate and property-level response , and we expect to continue to assess and may implement additional measures to adapt our operations and plans as we continue to evaluate the implications of covid-19 on our business . the overall operational and financial impact is highly dependent on 27 the breadth and duration of covid-19 , including the availability and distribution of effective vaccines or treatments , and could be affected by other factors we are not currently able to predict . system growth and pipeline in 2020 , our system grew from 7,349 properties ( 1,380,921 rooms ) at year-end 2019 to 7,642 properties ( 1,423,044 rooms ) at year-end 2020 , reflecting the addition of 399 properties ( 62,776 rooms ) and the exit of 106 properties ( 20,416 rooms ) . approximately 45 percent of added rooms are located outside u.s. & canada , and 13 percent are conversions from competitor brands . at year-end 2020 , we had more than 498,000 rooms in our development pipeline , which includes hotel rooms under construction , hotel rooms under signed contracts , and roughly 20,000 hotel rooms approved for development but not yet under signed contracts . over 229,000 rooms in our development pipeline were under construction at year-end 2020. over half of the rooms in our development pipeline are outside u.s. & canada . in 2020 , we signed management and franchise agreements for 1,575 properties ( 248,660 rooms ) . in 2021 , we expect gross rooms growth of approximately 6.0 percent ( 3.0 to 3.5 percent , net of deletions ) . properties and rooms at year-end 2020 , we operated , franchised , and licensed the following properties and rooms : replace_table_token_4_th 28 lodging statistics the following tables present revpar , occupancy , and adr statistics for comparable properties for 2020 and 2020 compared to 2019. systemwide statistics include data from our franchised properties , in addition to our company-operated properties . replace_table_token_5_th ( 1 ) includes europe and middle east & africa . ( 2 ) includes asia pacific , cala , and emea . ( 3 ) includes u.s. & canada and international - all . story_separator_special_tag impairment charges ( $ 77 million ) , primarily as a result of covid-19 . income taxes replace_table_token_11_th our tax benefit in 2020 , compared to our tax provision in 2019 , primarily reflected the decrease in operating income ( $ 336 million ) , the tax benefit from the release of tax reserves due to audit closures during 2020 ( $ 100 million ) , the tax benefit from the sheraton grand chicago put option reserve ( $ 61 million ) , the year-over-year tax benefit from impairment charges ( $ 39 million ) , and the prior year tax expense incurred for u.s. tax on global intangible low-taxed income ( $ 35 million ) . the decrease was partially offset by a shift in earnings to jurisdictions with higher tax rates ( $ 36 million ) . business segments our segment results declined in 2020 compared to 2019 primarily due to the impact of covid-19 . see the “ impact of covid-19 ” section above for more information about the impact to our business during 2020 and the discussion below for additional analysis of the operating results of our reportable business segments . segment revenues and profits for emea , a new reportable segment in 2020 , did not change significantly in 2019 compared to 2018. replace_table_token_12_th replace_table_token_13_th u.s. & canada u.s. & canada segment profits decreased primarily due to the following : $ 1,351 million of lower gross fee revenues ( primarily reflecting lower comparable systemwide revpar and net house profits driven by decreases in both occupancy and adr due to lower demand resulting from covid-19 , partially offset by unit growth of $ 32 million ) ; $ 60 million of higher contract investment amortization costs ( primarily reflecting higher contract impairment charges ) ; $ 158 million of lower owned , leased , and other revenue , net of direct expenses ( including $ 19 million from hotels sold in the 2019 fourth and 2020 first quarters ) ; $ 22 million of higher general , administrative , and other expenses ( primarily reflecting $ 75 million of higher provision for credit losses and reserves for guarantee funding , partially offset by $ 48 million of lower administrative costs due to our
| cost reimbursements replace_table_token_8_th cost reimbursements , net ( cost reimbursement revenue , net of reimbursed expenses ) varies due to timing differences between the costs we incur for centralized programs and services and the related reimbursements we receive from hotel owners and franchisees , primarily driven by our loyalty program . over the long term , our centralized programs and services are not designed to impact our economics , either positively or negatively . see note 2 for more information about the accounting for our loyalty program . the increase in cost reimbursements , net in 2020 primarily reflects the performance of the loyalty program , which had lower program expenses and redemptions . other operating expenses replace_table_token_9_th depreciation , amortization , and other expenses increased , primarily due to higher operating lease impairment charges ( $ 16 million ) . see note 9 for more information about the operating lease impairment charges . general , administrative , and other expenses decreased primarily due to lower administrative costs due to our cost reduction measures and $ 20 million of lower legal expenses . the decrease was partially offset by a higher provision for credit losses and higher guarantee reserves primarily due to the negative current and expected economic impact of covid-19 ( $ 105 million ) . restructuring and merger-related charges increased primarily due to the increased put option liability discussed in note 8 ( $ 243 million ) and 2020 restructuring charges ( $ 56 million ) , partially offset by the ico fine discussed in note 8 ( $ 104 million , representing the 2019 accrual and the 2020 reversal ) , the 2019 impairment charge of a legacy-starwood office building ( $ 34 million ) , and lower integration costs ( $ 19 million ) . non-operating income ( expense ) replace_table_token_10_th 30 gains and other income , net decreased primarily due to the 2019 gains on our property sales ( $ 134 million ) . interest expense increased primarily due to higher interest on senior note issuances , net of maturities ( $ 93 million ) , partially offset by
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as part of the sale , we agreed to transfer our rights to elelyso in israel to pfizer while gaining full rights to elelyso in brazil . under the amended pfizer agreement , pfizer is responsible for 100 % of expenses , and entitled to all of the revenues , globally , for elelyso , excluding brazil where we are responsible for all expenses and retain all revenues . the amended pfizer agreement eliminated pfizer 's entitlement to annual payments of up to $ 12.5 million in relation to commercialization of elelyso in brazil . for further details please see notes 2 and 12 to the financial statements . we accounted for the sale of our share in the collaboration created under the initial pfizer agreement , including the transfer of our rights to elelyso in israel , in accordance with asu no . 2014-08. certain of our assets and liabilities associated with our share in the former collaboration , including our rights to elelyso in israel , have been segregated and classified as assets and liabilities of discontinued operations , as appropriate , in our consolidated balance sheets as of december 31 , 2016 and 2017. in addition , certain financial information related to our share in the former collaboration , including our rights to elelyso in israel , have been segregated from continuing operations and have been reported as discontinued operations in our consolidated statements of operations . see note 12 to the financial statements . research and development expense we expect our research and development expense to remain our primary expense in the near future as we continue to develop our product candidates . research and development expense consists of : · internal costs associated with research and development activities ; · payments made to third party contract research organizations , investigative/clinical sites and consultants ; 61 · manufacturing development costs ; · personnel-related expenses , including salaries , benefits , travel , and related costs for the personnel involved in research and development ; · activities relating to the advancement of product candidates through preclinical studies and clinical trials ; and · facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , as well as laboratory and other supplies . the following table identifies our current major research and development projects : project status expected near term milestones prx-102 – pegunigalsidase alfa phase iii clinical trial , ongoing completion of enrollment in trial and interim data analysis prx-110 – alidornase alfa phase iia completed design of next clinical trial oprx-106 – oral antitnf phase iia completed f ull results for the study we anticipate incurring increasing costs in connection with the continued development of all of the product candidates in our pipeline . our internal resources , employees and infrastructure are not tied to any individual research project and are typically deployed across all of our projects . we currently do not record and maintain research and development costs per project . the costs and expenses of our projects are partially funded by grants we have received from nati . each grant is deducted from the related research and development expenses as the costs are incurred . for additional information regarding the grant process , see “ business—israeli government programs— encouragement of industrial research , development and technology innovation , 1984 ” in item 1 of this annual report . there can be no assurance that we will continue to receive grants from nati in amounts sufficient for our operations , if at all . in addition , under the chiesi agreement , protalix ltd. is entitled to payments of up to $ 25 million to cover development costs for pegunigalsidase alfa , capped at $ 10 million per year . at this time , due to the inherently unpredictable nature of preclinical and clinical development processes and given the early stage of our preclinical product development programs , we are unable to estimate with any certainty the costs we will incur in the continued development of the product candidates in our pipeline for potential commercialization . clinical development timelines , the probability of success and development costs can differ materially from expectations . the current focus of our product development efforts are on pegunigalsidase alfa . our future research and development expenses for pegunigalsidase alfa and the other product candidates will depend on the clinical success of each product candidate , as well as ongoing assessments of each product candidate 's commercial potential . in addition , we can not forecast with any degree of certainty which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . see “ risk factors—if we are unable to develop and commercialize our product candidates , our business will be adversely affected ” and “ —we may not obtain the necessary u.s. , ema or other worldwide regulatory approvals to commercialize our drug candidates in a timely manner , if at all , which would have a material adverse effect on our business , results of operations and financial condition. ” we expect our research and development expenses to continue to be our primary expense in the future as we continue the advancement of our clinical trials and preclinical product development programs for our product candidates , particularly with respect to the development of pegunigalsidase alfa . the lengthy process of completing clinical trials and seeking regulatory approvals for our product candidates requires expenditure of substantial resources . any failure or delay in completing clinical trials , or in obtaining regulatory approvals , could cause a delay in generating product revenue and cause our research and development expense to increase and , in turn , have a material adverse effect on our operations . due to the factors set forth above , we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects . story_separator_special_tag see “ risk factors—clinical trials are very expensive , time-consuming and difficult to design and implement and may result in unforeseen costs which may have a material adverse effect on our business , results of operations and financial condition. ” 62 share-based compensation the discussion below regarding share-based compensation relates to our share-based compensation . in accordance with the guidance , we record the benefit of any grant to a non-employee and remeasure the benefit in any future vesting period for the unvested portion of the grants , as applicable . in addition , we use the straight-line accounting method for recording the benefit of the entire grant , unlike the graded method we use to record grants made to employees . we measure share-based compensation cost for all share-based awards at the fair value on the grant date and recognition of share-based compensation over the service period for awards that we expect will vest . the fair value of stock options is determined based on the number of shares granted and the price of our ordinary shares , and calculated based on the black-scholes valuation model . we recognize such value as expense over the service period , net of estimated forfeitures , using the accelerated method . the guidance requires companies to estimate the expected term of the option rather than simply using the contractual term of an option . because of lack of data on past option exercises by employees , the expected term of the options could not be based on historic exercise patterns . accordingly , we adopted the simplified method , according to which companies may calculate the expected term as the average between the vesting date and the expiration date , assuming the option was granted as a “ plain vanilla ” option . in performing the valuation , we assumed an expected 0 % dividend yield in the previous years and in the next years . we do not have a dividend policy and given the lack of profitability , dividends are not expected in the foreseeable future , if at all . the guidance stipulates a number of factors that should be considered when estimating the expected volatility , including the implied volatility of traded options , historical volatility and the period that the shares of the company are being publicly traded . the risk-free interest rate used in the valuation of the options is based on the implied yield of u.s. federal reserve zero–coupon government bonds . the remaining term of the bonds used for each valuation was equal to the expected term of the grant . this methodology has been applied to all grants valued by us . the guidance requires the use of a risk–free interest rate based on the implied yield currently available on zero–coupon government issues of the country in whose currency the exercise price is expressed , with a remaining term equal to the expected life of the option being valued . this requirement has been applied for all grants valued as part of this report . convertible notes all outstanding convertible notes are accounted for using the guidance set forth in the financial accounting standards board , or fasb , accounting standards codification ( asc ) 815 requiring that we determine whether the embedded conversion option must be separated and accounted for separately . asc 470-20 regarding debt with conversion and other options requires the issuer of a convertible debt instrument that may be settled in cash upon conversion to separately account for the liability ( debt ) and equity ( conversion option ) components of the instrument in a manner that reflects the issuer 's nonconvertible debt borrowing rate . we account for the 4.5 % convertible notes as liability , on an aggregated basis , in their entirety . the conversion feature for our 7.5 % convertible notes is accounted for as a derivative which is bifurcated from the debt host contract and is measured at fair value through the statement of operations . issuance costs regarding the issuance of our 7.5 % convertible notes were allocated to the liability , equity component , derivative and shares of common stock based on their relative fair values . issuance costs that were allocated to liability will be amortized using the effective interest rate , other than issuance costs that were allocated to derivative , which were expensed immediately . the debt discount and debt issuance costs regarding the issuance of 4.5 % convertible notes are deferred and amortized over the applicable convertible period ( 5 years ) . 63 year ended december 31 , 2017 compared to the year ended december 31 , 2016 revenues we recorded revenues of $ 19.2 million for the year ended december 31 , 2017 , an increase of approximately $ 10.0 million , or 109 % , compared to revenues of $ 9.2 million for the year ended december 31 , 2016. revenues include $ 7.1 million of products sold in brazil and $ 12.1 million of drug substance sold to pfizer the increase resulted from an increase in the amount of $ 3.1 million of product sold to brazil and $ 7.0 million of drug substance sold to pfizer . cost of revenues cost of revenues was $ 15.2 million for the year ended december 31 , 2017 , an increase of $ 6.8 million or 81 % , compared to the cost of revenues of $ 8.4 million for the year ended december 31 , 2016. the increase resulted primarily from costs related to the production of drug substance for sale to pfizer , and of drug product for sale to brazil . research and development expenses research and development expenses were $ 32.2 million for the year ended december 31 , 2017 , an increase of $ 1.8 million , or 6 % from $ 30.4 million for the year ended december 31 , 2016. the increase resulted primarily from an increase of $ 2.4 million in clinical trial related costs , which was partially offset by a decrease of $ 0.7
| protalix ltd. agreed to manufacture all of the prx-102 needed for all purposes under the agreement , subject to certain exceptions , and chiesi will purchase pegunigalsidase alfa from protalix , subject to certain terms and conditions . chiesi is required to make tiered payments of 15 % to 35 % of its net sales , depending on the amount of annual sales , as consideration for the supply of pegunigalsidase alfa . the chiesi agreement also provides for reimbursement by chiesi of certain costs to be incurred by protalix ltd. in december 2017 , the european commission granted orphan drug designation for pegunigalsidase alfa for the treatment of fabry disease . the designation was granted after the comp issued a positive opinion supporting the designation noting that we had established that there was medically plausible evidence that pegunigalsidase alfa will provide a significant benefit over existing approved therapies in the european union for the treatment of fabry disease . the comp cited clinical and non-clinical justifications we provided to establish the significant benefit of pegunigalsidase alfa , noting that the comp considered the justifications to constitute a clinically relevant advantage . orphan drug designation for pegunigalsidase alfa qualifies protalix ltd. for access to a centralized marketing authorization procedure , including applications for inspections and for protocol assistance . if the orphan drug designation is maintained at the time pegunigalsidase alfa is approved for marketing in the european union , if at all , we expect that prx-102 will benefit from 10 years of market exclusivity within the european union . the market exclusivity will not have any effect on fabry disease treatments already approved at that time . in january 2018 , the fda granted fast track designation to prx-102 . fast track designation is a process designed to facilitate the development and expedite the review of drugs and vaccines for serious conditions that fill an unmet medical need . on may 1 , 2012 , the fda approved for sale our first commercial product , taliglucerase alfa
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our general partner , our investment manager and their affiliates , including securities in its capacity as our selling agent and certain non-affiliates ( namely , selling dealers ) received fees and compensation from the offering of our units , including the following , with any and all compensation paid to our general partner solely in cash . we paid an underwriting fee of 3 % of the gross proceeds of this offering ( excluding proceeds , if any , we received from the sale of our units to our general partner or its affiliates ) to our selling agent or selling agents . our general partner receives an organizational and offering expense allowance of up to 2 % of our offering proceeds to reimburse it for expenses incurred in preparing us for registration or qualification under federal and state securities laws and subsequently offering and selling our units . the organizational and offering expense allowance will be paid out of the proceeds of this offering . the organizational and offering expense allowance will not exceed the actual fees and expenses incurred by our general partner and its affiliates . because organizational and offering expenses will be paid as and to the extent they are incurred , organizational and offering expenses may be drawn disproportionately to the gross proceeds of each closing . 18 during our operating period and our liquidation period , our investment manager receives a management fee in an amount equal to the greater of ( i ) 2.5 % per annum of the aggregate offering proceeds , or ( ii ) $ 125,000 , payable monthly , until such time as an amount equal to at least 15 % of our limited partners ' capital contributions has been returned to them , after which the monthly management fee will equal 100 % of the management fee as initially calculated above , less 1 % for each additional 1 % of our limited partners ' capital contributions returned to them , such amounts to be measured on the last day of each month . our general partner will initially receive 1 % of all distributed distributable cash . our general partner has a promotional interest in us equal to 20 % of all distributed distributable cash after we have provided a return to our limited partners of their respective capital contributions plus an 8 % per annum , compounded annually , cumulative return on their capital contributions . current business environment and outlook we believe that 2019 will continue to present attractive opportunities for equipment lease and asset finance investments . the federal reserve board increased its benchmark interest rate several times in 2018 , and is expected to further increase rates in 2019 making our financing more cost competitive with banks . while we expect interest rates to increase further during 2019 , increases in interest rates generally result in increased returns on asset based investments . as lending institutions , such as banks , raise the interest rates they charge borrowers , the financing provided by us will become more cost competitive , and our market for potential investments will broaden . although increase in interest rates will increase the cost of leverage , we do not expect a significant net effect on our gross margins because we do not plan on utilizing significant leverage in our portfolio . our single investor leases and loans should benefit from any increase in interest rates over the long term . the competitive environment is firming up with a few large participants exiting the market , but with a growing number of well capitalized new participants prepared to absorb market share . as the market settles , we believe there is more opportunity than there has been in years to acquire seasoned portfolios of equipment leases and loans . we also believe that there may be opportunity for consolidation in the next year or two . overall we think that businesses have a positive outlook for growth in 2019 and we anticipate capital asset and equipment acquisition will be an essential part of that growth . current industry trends according to the equipment leasing and finance foundation 's “ 2019 equipment leasing and financing u.s. economic outlook ” the u.s. economy 's growth in 2019 is poised to experience moderately strong growth of 2.3 % while equipment and software investment should expand by about 4.1 % . we believe that the u.s. economy appears to be back on solid footing and that credit market conditions are healthy and are not expected to inhibit business investment or the equipment finance industry . we also believe that u.s. manufacturing activity will increase over the near term with support from the current administration , that materials handling equipment investment growth and medical equipment investment growth will remain stable and that all other industrial equipment investment growth will likely rebound . we anticipate that railroad , aircraft and ship equipment investment growth will continue to strengthen , that trucks investment growth is poised to accelerate and that computers investment growth is likely to improve . while we do not anticipate making significant investment in these asset classes , we believe that the anticipated increases in investment growth in these classes will tie up a substantial amount of capital of other asset finance companies . equipment and software investment increased at a robust rate in the first half of 2018 , driven by more preferable tax treatment and a general upswing in the u.s. economy . however , growth slowed in the third and fourth quarter of 2018. the economy remains generally healthy , and business conditions in the equipment finance industry remain favorable , and investment in the majority of equipment verticals should post moderate growth for at least the first half of 2019.we believe that the rebound in the energy sector is a key contributing factor towards the rebound in equipment investment , and that the rebound in the energy sector will benefit several equipment verticals . story_separator_special_tag after a breakout year in 2018 during which equipment and software investment posted its fastest growth since 2012 , the economy is on good footing heading into 2019. business and consumer confidence remain elevated and the labor market is strong . we also believe that most other verticals are exhibiting positive signs and appear primed to improve during 2019 . 19 recent significant transactions loan note in july 2018 , juliet entered into an assignment agreement with a third party whereby juliet purchased a $ 2,000,000 promissory note . the promissory note accrues interest at the rate of 9 % per annum and matures on july 31 , 2019. during august 2018 , the partnership and juliet advanced a total of $ 1,715,500 ( 85 % of principal plus accrued interest ) for this note . on march 28 , 2019 , juliet advanced the remaining $ 300,000 of this promissory note . loan note on may 30 , 2018 , the partnership entered into a loan agreement and a $ 5,000,000 promissory note with a borrower . on june 21 , 2018 , the partnership assigned $ 3,400,000 of this note to juliet . on that same date , the partnership and juliet funded the $ 5,000,000 promissory note . the promissory note accrues interest at the rate of 9 % per annum , payable quarterly in arrears beginning on september 30 , 2018 , and matures on may 30 , 2028. on december 31 , 2018 , juliet assigned $ 3,400,000 of this note to the partnership . international leasing company during the year ended december 31 , 2018 , the partnership funded an additional total of $ 3,953,126 under this wholesale financing arrangement . the loans accrue interest at rate of 10 % per annum and are secured by industrial and manufacturing equipment subject to equipment leases . during the year ended december 31 , 2018 , the partnership received total payments of principal and interest of $ 6,688,653 from this wholesale financing arrangement . in june 2018 , juliet sold a portion of this loan facility to sqn afif in the form of a senior participation interest for total cash proceeds of $ 5,568,262. sqn afif 's principal balance is $ 6,125,700 and accrues interest at 10.75 % per annum . sqn afif 's participation interest is senior to juliet 's interest . critical accounting policies an understanding of our critical accounting policies is necessary to understand our financial results . the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the united states of america requires our general partner and our investment manager to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . significant estimates will primarily include the determination of allowance for notes and leases , depreciation and amortization , impairment losses and the estimated useful lives and residual values of the leased equipment we acquire . actual results could differ from those estimates . lease classification and revenue recognition each equipment lease we enter into is classified as either a finance lease or an operating lease , which is determined at lease inception , based upon the terms of each lease , or when there are significant changes to the lease terms . we capitalize initial direct costs associated with the origination and funding of lease assets . initial direct costs include both internal costs ( e.g. , labor and overhead ) , if any , and external broker fees incurred with the lease origination . costs related to leases that are not consummated are not eligible for capitalization as initial direct costs and are expensed as incurred as acquisition expense . for a finance lease , initial direct costs are capitalized and amortized over the lease term using the effective interest rate method . for an operating lease , the initial direct costs are included as a component of the cost of the equipment and depreciated over the lease term . for finance leases , we record , at lease inception , the total minimum lease payments receivable from the lessee , the estimated unguaranteed residual value of the equipment at lease termination , the initial direct costs related to the lease , if any , and the related unearned income . unearned income represents the difference between the sum of the minimum lease payments receivable , plus the estimated unguaranteed residual value , minus the cost of the leased equipment . unearned income is recognized as finance income over the term of the lease using the effective interest rate method . for operating leases , rental income is recognized on the straight-line basis over the lease term . billed operating lease receivables are included in accounts receivable until collected . accounts receivable is stated at its estimated net realizable value . deferred revenue is the difference between the timing of the receivables billed and the income recognized on the straight-line basis . 20 our investment manager has an investment committee that approves each new equipment lease and other project financing transaction . as part of its process , the investment committee determines the residual value , if any , to be used once the investment has been approved . the factors considered in determining the residual value include , but are not limited to , the creditworthiness of the potential lessee , the type of equipment considered , how the equipment is integrated into the potential lessee 's business , the length of the lease and the industry in which the potential lessee operates . residual values are reviewed for impairment in accordance with our impairment review policy . the residual value assumes , among other things , that the asset will be utilized normally in an open , unrestricted and stable market .
| 22 results of operations for the year ended december 31 , 2018 ( “ 2018 ” ) as compared to the year ended december 31 , 2017 ( “ 2017 ” ) our offering period terminated on april 2 , 2016 , after which time we no longer accepted limited partner capital contributions . during the offering period the majority of our cash inflows were from limited partners purchasing our units . after the termination of our offering period , the majority of our cash inflows are expected to come from rental payments , interest payments , and sales proceeds from our various equipment investments . we are currently in the liquidation period . during the operating period , we invested most of the net proceeds from our offering in business-essential , revenue-producing ( or cost-saving ) equipment , other physical assets with substantial economic lives and , in many cases , associated revenue streams and project financings . through april 2 , 2016 , we admitted 1,508 limited partners with total capital contributions of $ 74,965,064 resulting in the sale of 74,965.07 units . we received cash contributions of $ 72,504,327 and applied $ 2,460,737 which would have otherwise been paid as sales commission to the purchase of 2,460.74 additional units . for the years ended december 31 , 2018 and 2017 , we paid or accrued an underwriting fee to securities totaling $ 0. our revenue for the years ended december 31 , 2018 and 2017 is summarized as follows : replace_table_token_1_th for the year ended december 31 , 2018 , we earned $ 1,008,000 in rental income primarily from three operating leases of aircraft rotable parts equipment . we also recognized $ 4,790,233 in interest income , the majority of which was generated by the equipment notes and collateralized loans receivable . we recognized $ 1,272,374 in finance income from various finance leases . we also recognized income of $ 17,598,435 from our equipment investment through spv . we also incurred a provision for lease , note , and loan losses of $
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revenue from land sales is recognized when a significant down payment is received , the earnings process is relatively complete , title passes and collectability of the receivable is reasonably assured . although there is limited subjectivity in this accounting policy , we have designated revenue recognition as a critical accounting policy due to the significance of this balance in our statements of operations . real estate real estate is stated at cost unless the community or land is determined to be impaired , at which point the inventory is written down to fair value as required by financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 360-10 , property , plant and equipment . inventory includes the costs of land acquisition , land development and home construction , capitalized interest , real estate taxes , direct overhead costs incurred during development and home construction that benefit the entire community , less impairments , if any . land and development costs are typically allocated and transferred to homes under construction when home construction begins . home construction costs are accumulated on a per-home basis . cost of home closings includes the specific construction costs of the home and all related allocated land acquisition , land development and other common costs ( both incurred and estimated to be incurred ) based upon the total number of homes expected to be closed in each community or phase . any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in the community or phase . when a home closes , we may have incurred costs for goods and services that have not yet been paid . therefore , an accrual to capture such obligations is recorded in connection with the home closing and charged directly to cost of sales . we rely on certain estimates to determine our construction and land development costs . construction and land costs are comprised of direct and allocated costs , including estimated future costs . in determining these costs , we compile project budgets that are based on a variety of assumptions , including future construction schedules and costs to be incurred . actual results can differ from these budgeted amounts for various reasons , including construction delays , labor or material shortages , slower absorptions , increases in costs that have not yet been committed , changes in governmental requirements , or other unanticipated issues encountered during construction and development and other factors beyond our control . to address uncertainty in these budgets , we assess , update and revise project budgets on a regular basis , utilizing the most current information available to estimate construction and land costs . typically , an entitled community 's life cycle ranges from three to five years , commencing with the acquisition of the land , continuing through the land development phase and concluding with the sale , construction and closing of the homes . actual community lives will vary based on the size of the community , the absorption rates and whether the land purchased was raw land or finished lots . master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be significantly shorter . all of our land inventory and related real estate assets are reviewed for recoverability , as our inventory is considered “ long-lived ” in accordance with gaap . impairment charges are recorded to write down an asset to its estimated fair value if the undiscounted cash flows expected to be generated by the asset are lower than its carrying amount . our determination of fair value is based on projections and estimates . changes in these expectations may lead to a change in the outcome of our impairment analysis , and actual results may also differ from our assumptions . our analysis is conducted if indicators of a decline in value of our land and real estate assets exist . if an asset is deemed to be impaired , the impairment recognized is measured as the amount by which the assets ' carrying amount exceeds their fair value . the impairment of a community is allocated to each lot on a straight-line basis . 29 goodwill goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business combinations . goodwill was $ 33.0 million as of december 31 , 2017 and december 31 , 2016. in accordance with asc 350 , intangibles , goodwill and other ( `` asc 350 '' ) , we analyze goodwill on an annual basis ( or whenever indicators of impairment exist ) through a qualitative assessment to determine whether it is necessary to perform a two-step goodwill impairment test . asc 350 states that an entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . such qualitative factors include : ( 1 ) macroeconomic conditions , such as a deterioration in general economic conditions , ( 2 ) industry and market considerations such as deterioration in the environment in which the entity operates , ( 3 ) cost factors such as increases in raw materials , labor costs , etc. , and ( 4 ) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings . if the qualitative analysis determines that additional impairment testing is required , the two-step impairment testing in accordance with asc 350 would be initiated . we continually evaluate our qualitative inputs to assess whether events and circumstances have occurred that indicate the goodwill balance may not be recoverable . warranty reserves we use subcontractors for nearly all aspects of home construction . story_separator_special_tag although our subcontractors are generally required to repair and replace any product or labor defects , we are , during applicable warranty periods , ultimately responsible to the homeowner for making such repairs . as such , warranty reserves are recorded to cover our exposure to costs for materials and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims subsequent to the delivery of a home to the homeowner . reserves are reviewed on a regular basis and , with the assistance of an actuary for the structural warranty , we determine their sufficiency based on our and industry-wide historical data and trends . these reserves are subject to variability due to uncertainties regarding structural defect claims for the products we build , the markets in which we build , claim settlement history , insurance , legal interpretations and expected recoveries , among other factors . at december 31 , 2017 , our warranty reserve was $ 23.3 million , reflecting an accrual of 0.1 % to 0.6 % of a home 's sale price depending on our loss history in the geographic area in which the home was built . a 10 % increase in our warranty reserve rate would have increased our accrual and corresponding cost of sales by approximately $ 1.7 million in 2017. we recorded net favorable adjustments to our reserve of $ 1.6 million in 2017 and $ 1.0 million in 2016. these adjustments were based on historical trends of actual claims paid combined with our success in recovery of expended amounts and the composition of the homes covered under warranty . while we believe that the warranty reserve is sufficient to cover our projected costs , there can be no assurances that historical data and trends will accurately predict our actual warranty costs . furthermore , there can be no assurances that future economic or financial developments might not lead to a significant change in the reserve . valuation of deferred tax assets we account for income taxes using the asset and liability method , which requires that deferred tax assets and liabilities be recognized based on future tax consequences of both temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted . on december 22 , 2017 , the president signed into law the tax act . in accordance with asc 740-10-25-47 , we recognized the effects of the new legislation in the period that included the date of enactment . the tax act 's impact on 2017 was to reduce the value of our net deferred tax balances by $ 19.7 million at december 31 , 2017 , which was estimated due to the change in the federal tax rate and has been reflected in our financial statements . in accordance with asc 740-10 , income taxes , we evaluate our deferred tax assets by tax jurisdiction , including the benefit from nols by tax jurisdiction , to determine if a valuation allowance is required . companies must assess , using significant judgments , whether a valuation allowance should be established based on the consideration of all available evidence using a “ more likely than not ” standard with significant weight being given to evidence that can be objectively verified . this assessment considers , among other matters , the nature , frequency and severity of current and cumulative losses , forecasts of future profitability , the length of statutory carryforward periods , experience with operating losses and experience of utilizing tax credit carryforwards and tax planning alternatives . we have no valuation allowance on our deferred tax assets and nol carryovers at december 31 , 2017 . 30 share-based payments we have both time-based restricted stock awards and units ( `` time-based awards '' ) and performance-based restricted stock awards ( `` performance awards '' ) outstanding under our stock compensation plan . compensation cost related to time-based awards is measured as of the closing price on the date of grant and is expensed on a straight-line basis over the vesting period of the award . compensation cost related to the performance awards is also measured as of the closing price on the date of grant but is expensed in accordance with asc 718-10-25-20 , compensation – stock compensation ( `` asc 718 '' ) , which requires an assessment of probability of attainment of the performance target . as our performance targets are dependent on performance over a specified measurement period , once we determine that the performance target outcome is probable , the cumulative expense is recorded immediately with the remaining expense and recorded on a straight-line basis through the end of the vesting periods of the awards . among our performance awards , we have grants that contain market conditions as defined by asc 718. in accordance with asc 718 , compensation cost related to these market awards is based on a derived fair value analysis and is expensed straight line over the service period of the awards . our time- based awards generally vest on a pro-rata basis over either three or five years , and our performance awards cliff vest at the end of the third year . 31 home closing revenue , home orders and order backlog - segment analysis the composition of our closings , home orders and backlog is constantly changing and is based on a dissimilar mix of communities between periods as new projects and product lines open and existing projects wind down . further , individual homes within a community can range significantly in price due to differing square footage , option selections , lot sizes and quality and location of lots ( e.g .
| net income for the year ended december 31 , 2017 was $ 143.3 million compared to $ 149.5 million in 2016 and $ 128.7 million in 2015. companywide , we experienced 4.8 % and 9.1 % increases in closing and order units , respectively , in 2017 over 2016. order dollars increased by 9.8 % to $ 3.3 billion in 2017 compared to $ 3.0 billion in the prior year primarily related to the increase in units but also assisted by a slight increase in average sales price . at december 31 , 2017 , our backlog of $ 1.2 billion increased by 9.7 % compared to december 31 , 2016 , and was up 9.5 % from $ 1.1 billion at december 31 , 2015. our average sales price for homes in backlog was relatively flat compared to prior year at $ 433,300 from $ 432,300 at december 31 , 2016 and increased 2.5 % from $ 422,600 at december 31 , 2015. the steadiness of our year-over-year average sales price in a generally increasing sales price market in 2017 compared to 2016 is representative of a shift in the mix of our backlog being comprised of more entry-level product . our cancellation rate on sales orders as a percentage of gross sales in 2017 remained low at 13.4 % as compared to 13.1 % and 12.1 % for the years ended december 31 , 2016 and 2015 , respectively , reflecting a high quality backlog . company positioning we believe that the investments in our new communities and markets , particularly those designed for the first-time homebuyer , and our industry-leading innovation in energy-efficient product offerings and automation create a differentiated strategy that has aided our growth in the highly competitive new home market . we remain focused on our primary goals of growing our orders , revenue and profit , community count and maintaining a strong balance sheet . to help meet these goals , we continue to focus on the following initiatives : 27 continuing to actively acquire and develop land in key markets in order to maintain and grow our lot supply and active community count ; expanding the number of live.now ® communities that target the growing first-time homebuyer segment ; introducing newly designed plan offerings to meet homebuyers changing preferences in our markets ; most recently an entire new plan library in our east region ;
| 13,902 |
the utilities ' principal regulatory assets and liabilities are listed in note b to the financial statements in item 8. the utilities are each receiving or being credited with a return on all regulatory assets for which a cash outflow has been made . the utilities are each paying or being charged with a return on all regulatory liabilities for which a cash inflow has been received . the regulatory assets and liabilities will be recovered from customers , or applied for customer benefit , in accordance with rate provisions approved by the applicable public utility regulatory commission . 46 in the event that regulatory assets of the utilities were no longer probable of recovery , as required by the accounting rules for regulated operations , these regulatory assets would be charged to earnings . at december 31 , 2011 , the regulatory assets for con edison and cecony were $ 9,501 million and $ 8,801 million , respectively . accounting for pensions and other postretirement benefits the utilities provide pensions and other postretirement benefits to substantially all of their employees and retirees . con edison 's competitive energy businesses also provide such benefits to certain of their employees . the companies account for these benefits in accordance with the accounting rules for retirement benefits . in addition , the utilities apply the accounting rules for regulated operations to account for the regulatory treatment of these obligations ( which , as described in note b to the financial statements in item 8 , reconciles the amounts reflected in rates for the costs of the benefit to the costs actually incurred ) . in applying these accounting policies , the companies have made critical estimates related to actuarial assumptions , including assumptions of expected returns on plan assets , discount rates , health care cost trends and future compensation . see notes a , e and f to the financial statements in item 8 for information about the companies ' pension and other postretirement benefits , the actuarial assumptions , actual performance , amortization of investment and other actuarial gains and losses and calculated plan costs for 2011 , 2010 and 2009. the cost of pension and other postretirement benefits in future periods will depend on actual returns on plan assets , assumptions for future periods , contributions and benefit experience . con edison 's and cecony 's current estimates for 2012 are increases , compared with 2011 , in their pension and other postretirement benefits cost of $ 243 million and $ 228 million , respectively . the discount rates used to determine 2012 pension and other postretirement benefit accounting costs are 4.70 percent and 4.55 percent , respectively , and the expected return on plan assets ( tax-exempt assets for postretirement benefit accounting costs ) is 8.00 percent . the discount rate for determining the present value of future period benefit payments is determined using a model to match the durations of highly-rated ( aa and aaa , by moody 's ) corporate bonds with the projected stream of benefit payments . in determining the health care cost trend rate , the companies review actual recent cost trends and projected future trends . the following table illustrates the effect on 2012 pension and other postretirement costs of changing the critical actuarial assumptions discussed above , while holding all other actuarial assumptions constant : replace_table_token_25_th a 5.0 percentage point variation in the actual annual return in 2012 , as compared with the expected annual asset return of 8.00 percent , would change pension and other postretirement benefit costs for both con edison and cecony by approximately $ 19 million and $ 18 million , respectively , in 2013. pension benefits are provided through a pension plan maintained by con edison to which cecony , o & r and the competitive energy businesses make contributions for their participating employees . pension accounting by the utilities includes an allocation of plan assets . 47 the companies ' policy is to fund their pension and other postretirement benefit accounting costs to the extent tax deductible , and for the utilities , to the extent these costs are recovered under their rate agreements . the companies were not required to make cash contributions to the pension plan in 2011 under funding regulations and tax laws . however , cecony and o & r made discretionary contributions to the plan in 2011 of $ 509 million and $ 44 million , respectively . in 2012 , cecony and o & r expect to make contributions of $ 707 million and $ 52 million , respectively . see expected contributions in notes e and f to the financial statements in item 8. accounting for contingencies the accounting rules for contingencies apply to an existing condition , situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur . known material contingencies , which are described in the notes to the financial statements , include the utilities ' responsibility for hazardous substances , such as asbestos , pcbs and coal tar that have been used or generated in the course of operations ( note g ) ; certain tax matters ( notes j and l ) ; and other contingencies ( note h ) . in accordance with the accounting rules , the companies have accrued estimates of losses relating to the contingencies as to which loss is probable and can be reasonably estimated and no liability has been accrued for contingencies as to which loss is not probable or can not be reasonably estimated . the utilities generally recover costs for asbestos lawsuits , workers ' compensation and environmental remediation pursuant to their current rate plans . changes during the terms of the rate plans to the amounts accrued for these contingencies would not impact earnings . story_separator_special_tag accounting for long-lived assets the accounting rules for property , plant and equipment require that certain long-lived assets must be tested for recoverability whenever events or changes in circumstances indicate their carrying amounts may not be recoverable . the carrying amount of a long-lived asset is deemed not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset . under the accounting rules , an impairment loss is recognized if the carrying amount is not recoverable from such cash flows , and exceeds its fair value , which approximates market value . accounting for goodwill in accordance with the accounting rules for goodwill and intangible assets , con edison is required to test goodwill for impairment annually . see notes k and t to the financial statements in item 8. goodwill is tested for impairment using a two-step approach . the first step of the goodwill impairment test compares the estimated fair value of a reporting unit with its carrying value , including goodwill . if the estimated fair value of a reporting unit exceeds its carrying value , goodwill of the reporting unit is considered not impaired . if the carrying value exceeds the estimated fair value of the reporting unit , the second step is performed to measure the amount of impairment loss , if any . the second step requires a calculation of the implied fair value of goodwill . goodwill was $ 429 million at december 31 , 2011. the most recent test , which was performed during 2011 , did not require any second-step assessment and did not result in any impairment . the company 's most significant assumptions surrounding the goodwill impairment test relate to the estimates of reporting unit fair values . the company estimated fair values based primarily on discounted cash flows and on market values for a proxy group of companies . accounting for derivative instruments the companies apply the accounting rules for derivatives and hedging to their derivative financial instruments . the companies use derivative financial instruments to hedge market price fluctuations in related underlying transactions for the physical purchase and sale of electricity and gas and interest rate risk on certain debt securities . the utilities are permitted by their respective regulators to reflect in rates all reasonably incurred gains and losses on these instruments . see financial and commodity market risks , below and note o to the financial statements in item 8. where the companies are required to make mark-to-market estimates pursuant to the accounting 48 rules , the estimates of gains and losses at a particular period end do not reflect the end results of particular transactions , and will most likely not reflect the actual gain or loss at the conclusion of a transaction . substantially all of the estimated gains or losses are based on prices supplied by external sources such as the fair value of exchange-traded futures and options and the fair value of positions for which price quotations are available through or derived from brokers or other market sources . accounting for leases the companies apply the accounting rules for leases and other related pronouncements to their leasing transactions . see note j to the financial statements in item 8 for information about con edison development 's lease in/lease out or lilo transactions , a disallowance of tax losses by the irs and the appeal by the irs of a favorable court decision in the company 's litigation with the irs . in accordance with the accounting rules , con edison accounted for the two lilo transactions as leveraged leases . accordingly , the company 's investment in these leases , net of non-recourse debt , is carried as a single amount in con edison 's consolidated balance sheet and income is recognized pursuant to a method that incorporates a level rate of return for those years when net investment in the lease is positive , based upon the after-tax cash flows projected at the inception of the leveraged leases . liquidity and capital resources the companies ' liquidity reflects cash flows from operating , investing and financing activities , as shown on their respective consolidated statement of cash flows and as discussed below . the principal factors affecting con edison 's liquidity are its investments in the utilities , the dividends it pays to its shareholders and the dividends it receives from the utilities and cash flows from financing activities discussed below . the principal factors affecting cecony 's liquidity are its cash flows from operating activities , cash used in investing activities ( including construction expenditures ) , the dividends it pays to con edison and cash flows from financing activities discussed below . the companies generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements . the companies repay their short-term borrowings using funds from long-term financings and operating activities . the utilities ' cost of capital , including working capital , is reflected in the rates they charge to their customers . each of the companies believes that it will be able to meet its reasonably likely short-term and long-term cash requirements . see the companies require access to capital markets to satisfy funding requirements and the companies also face other risks that are beyond their control in item 1a , application of critical accounting policies accounting for contingencies , above , and utility regulation in item 1. changes in the companies ' cash and temporary cash investments resulting from operating , investing and financing activities for the years ended december 31 , 2011 , 2010 and 2009 are summarized as follows : con edison replace_table_token_26_th 49 cecony replace_table_token_27_th cash flows from operating activities the utilities ' cash flows from operating activities reflect principally their energy sales and deliveries and cost of operations .
| a discussion of the results of operations by principal business segment for the years ended december 31 , 2011 , 2010 and 2009 follows . for additional business segment financial information , see note n to the financial statements in item 8. year ended december 31 , 2011 compared with year ended december 31 , 2010 the companies ' results of operations ( which were discussed above under results of operations summary ) in 2011 compared with 2010 were : replace_table_token_31_th ( a ) includes inter-company and parent company accounting . ( b ) represents the consolidated financial results of con edison and its businesses . 55 cecony replace_table_token_32_th electric cecony 's results of electric operations for the year ended december 31 , 2011 compared with the year ended december 31 , 2010 is as follows : replace_table_token_33_th cecony 's electric sales and deliveries , excluding off-system sales , in 2011 compared with 2010 were : replace_table_token_34_th ( a ) residential/religious generally includes single-family dwellings , individual apartments in multi-family dwellings , religious organizations and certain other not-for-profit organizations . cecony 's electric operating revenues decreased $ 96 million in 2011 compared with 2010 due primarily to lower purchased power ( $ 369 million ) and fuel costs ( $ 57 million ) , offset by higher revenues from the electric rate plan ( $ 330 million , which reflects among other things , reconciliations of costs for municipal 56 infrastructure support and capital expenditures ( $ 10 million ) ) . cecony 's revenues from electric sales are subject to a revenue decoupling mechanism , as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved . other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the revenue decoupling mechanism and other provisions of the company 's rate plans . see note b to the financial statements in item 8. electric delivery volumes in cecony 's service area decreased 1.5 percent in 2011 compared with 2010. after adjusting for variations , principally weather and billing days , electric delivery volumes in cecony 's service
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while the federal reserve increased short-term interest rates during that period , market deposit rates paid on client cash balances were not impacted to as great a degree , resulting in an increase in fees the company earned from fdic insured deposits of clients offered by the company . during the last two years , the federal reserve reduced short-term interest rates resulting in a decrease in fees the company earned from fdic insured deposits of clients through a program offered by the company . decreases in short-term interest rates , increases in deposit rates paid to clients , and or a significant decline in our clients ' cash balances have a negative impact on our earnings . the federal reserve reduced its benchmark rate significantly during two separate unscheduled meetings in march 2020 by a total of 1.50 % . accordingly , the company 's earnings during the full year of 2020 were negatively impacted by such decreases . recently , clients ' domestic cash sweep balances have increased to levels that we have not seen since around april 2017. the impact of low interest rates will continue to be significant for the foreseeable future as the federal reserve has stated that these lower rates are likely to persist for the next several years . coronavirus disease 2019 ( `` covid-19 pandemic '' ) the company continues to monitor the effects of the covid-19 pandemic both on a national level as well as regionally and locally and is responding accordingly . in addition , we continue to provide frequent communications to clients , employees , and regulators . we have adopted enhanced cleaning practices and other health protocols in our offices , taken measures to significantly restrict non-essential business travel and have practices in place to mandate that employees who may have been exposed to covid-19 , or show any relevant symptoms , self-quarantine . in early march 2020 , the company executed on its business continuity plan whereby the vast majority of our employees began to work remotely with only `` essential '' employees reporting to our offices . we accomplished this by significantly expanding the use of technology infrastructure that facilitates remote operations . our ability to avoid significant business disruptions is reliant on the continued ability to have the vast majority of employees work remotely . to date , there have been no significant disruptions to our business or control processes as a result of this dispersion of employees . recent outbreaks in various states indicate that covid-19 will continue to impact the economy and , by extension , our business , well into 2021. we currently anticipate that a large number of our employees will continue to work remotely for the indefinite future until vaccinations are more widely administered . executive summary the results for the fourth quarter and full year 2020 were outstanding and really showcased the strength of the platform and the dedication and commitment from our employees throughout this covid-19 impacted year . the combination of a low interest rate environment , high volatility , and a robust rally in equities over the last nine months provided the impetus for extremely favorable results for the year . our capital markets business continued to outperform with a record quarter and year for revenue and earnings , while the wealth management business continued to produce solid operating returns based on increased commission activity and higher fee income from assets under management . the wealth management business got a significant boost from the record performance of the hedge funds that we sponsor which led to an increase in incentive fees from alternative investments in the fourth quarter of 2020 which are measured and earned at the end of each year . investment banking had its best quarter ever as the firm increased its market share during a robust period for equities issuance in the u.s. capital markets . m & a activity also picked up significantly during the fourth quarter with several notable advisory and placement fees . equities and fixed income sales and trading activity continued to be brisk as volatility remained elevated during the period . the broader equities markets finished the year at record levels and were up 11.7 % during the fourth quarter contributing to record assets under management at december 31 , 2020 , which will drive our advisory fee revenue for the first quarter of 2021. non-compensation expenses remained under close control and we were able to manage our operating environment throughout this year of remote work . at year-end we continued to operate with about 90 % of our employees working from home amid the increase in the reported infection rate from covid-19 . we look forward to the return to some level of normalcy by the third quarter of 2021 as the rate of vaccination increases in the u.s. and around the world . 38 story_separator_special_tag investment banking revenue was $ 126.2 million for the year ended december 31 , 2019 , an increase of 9.4 % compared with $ 115.4 million for the year ended december 31 , 2018 due to higher merger and acquisition advisory fees offset by lower equities underwriting revenue during the 2019 year . bank deposit sweep income was $ 117.4 million for the year ended december 31 , 2019 , an increase of 1.2 % compared with $ 116.1 million for the year ended december 31 , 2018. interest revenue was $ 50.7 million for the year ended december 31 , 2019 , a decrease of 3.4 % compared with $ 52.5 million in 2018. principal transactions revenue was $ 30.1 million for the year ended december 31 , 2019 , an increase of 108.1 % compared with $ 14.5 million for the year ended december 31 , 2018. during the third quarter of 2018 , the company participated in tender offers by issuers of ars which resulted in recognized losses totaling $ 8.1 million . story_separator_special_tag the recognized losses were comprised of realized losses of $ 4.6 million related to tendering ars holdings at prices below par and unrealized losses of $ 3.5 million related to revaluing the remaining affected ars owned and commitments to purchase at the tender offer prices . additionally , the increase was due to higher trading profits in fixed income during the 2019 year . other revenue was $ 35.1 million for the year ended december 31 , 2019 , an increase of 122.6 % compared to $ 15.8 million for the year ended december 31 , 2018 primarily due to an increase in the cash surrender value of company-owned life insurance during 2019 . 40 expenses compensation and related expenses totaled $ 657.7 million during the year ended december 31 , 2019 , an increase of 8.3 % compared with the year ended december 31 , 2018. the increase was due to higher salaries , producer , incentive , share-based , and deferred compensation expenses during the year ended december 31 , 2019. the company recorded compensation and related expenses of $ 3.7 million related to its oars plan during the year ended december 31 , 2019 compared with $ 0.7 million during the year ended december 31 , 2018. compensation and related expenses as a percentage of revenue was 63.6 % for the year ended december 31 , 2019 compared with 63.4 % for the year ended december 31 , 2018. non-compensation expenses were $ 300.8 million during the year ended december 31 , 2019 , a decrease of 1.7 % compared with $ 306.1 million during the year ended december 31 , 2018 due primarily to lower legal and regulatory costs partially offset by higher communication and technology costs and underwriting deal-related costs during the year ended december 31 , 2019. the effective income tax rate for the year ended december 31 , 2019 was 29.3 % compared with 35.6 % for the year ended december 31 , 2018. the elevated effective tax rate for the year ended december 31 , 2018 was partially due to the establishment of a valuation allowance for the deferred tax asset related to net operating losses of the company 's operations in europe . business segments the table below presents information about the reported revenue and pre-tax income ( loss ) of the company 's reportable business segments for the three months and year ended december 31 , 2020 and 2019 : ( expressed in thousands ) for the three months ended december 31 , for the years ended december 31 , 2020 2019 % change 2020 2019 % change revenue private client $ 217,743 $ 175,900 23.8 $ 642,083 $ 653,409 ( 1.7 ) asset management 72,851 35,179 107.1 130,274 88,755 46.8 capital markets 131,651 83,982 56.8 426,752 290,830 46.7 corporate/other 663 820 ( 19.1 ) ( 442 ) 385 * total 422,908 295,881 42.9 1,198,667 1,033,379 16.0 pre-tax income ( loss ) private client 39,362 42,416 ( 7.2 ) 122,844 163,917 ( 25.1 ) asset management 56,911 19,114 197.7 71,625 31,606 126.6 capital markets 41,894 ( 2,891 ) * 83,442 ( 13,724 ) * corporate/other ( 24,372 ) ( 23,666 ) ( 3.0 ) ( 108,911 ) ( 106,887 ) ( 1.9 ) total $ 113,795 $ 34,973 225.4 $ 169,000 $ 74,912 125.6 * percentage not meaningful 41 private client private client reported revenue of $ 642.1 million for the year ended december 31 , 2020 , 1.7 % lower compared with a year ago . pre-tax income of $ 122.8 million in the year end resulted in a pre-tax profit margin of 19.1 % . financial advisor headcount declined amid increased retirements to 1,002 at the end of 2020 compared to 1,032 at the end of 2019 , although the productivity of our financial advisors increased significantly reflecting higher individual production levels . replace_table_token_5_th retail commissions were $ 209.4 million for the year ended december 31 , 2020 , an increase of 11.0 % from a year ago as a result of increased volatility and client participation in active equities-related markets including options . advisory fees increased 23.4 % due to increases in management fees from advisory programs and incentive fees from alternative investments during the year . incentive fees allocated to this segment were $ 61.7 million for the current year versus $ 20.8 million last year . bank deposit sweep income decreased 70.3 % from a year ago due to lower short-term interest rates partially offset by higher average cash sweep balances . interest revenue declined 29.8 % from a year ago due to lower short-term interest rates partially offset by higher average margin balances . other revenue decreased 1.8 % primarily due to decreases in the cash surrender value of company-owned life insurance policies . compensation expenses increased 13.6 % primarily due to increased production and share-based compensation costs partially offset by lower deferred compensation . non-compensation expenses decreased 15.5 % primarily due to lower interest , legal and regulatory costs as well as travel and entertainment costs . 42 asset management asset management reported revenue of $ 130.3 million for the year ended december 31 , 2020 , 46.8 % higher compared with a year ago . pre-tax income was $ 71.6 million , an increase of 126.6 % compared with a year ago . replace_table_token_6_th advisory fee revenue on traditional and alternative managed products was $ 130.3 million for the year ended december 31 , 2020 , an increase of 44.5 % due to higher assets under management during the year as well as higher incentive fees from alternative investments . incentive fees allocated to this segment were $ 49.4 million for the 2020 year versus $ 16.7 million last year . aum hit a record level of $ 38.8 billion at december 31 , 2020 , which is the basis for advisory fee billings for the first quarter of 2021. the increase in aum was comprised of higher asset values of $ 6.0 billion on existing client holdings and a net contribution of assets of $ 0.7 billion .
| 39 other revenue was $ 29.8 million for the year ended december 31 , 2020 , a decrease of 15.1 % compared to $ 35.1 million for the year ended december 31 , 2019 primarily due to a decrease in the cash surrender value of company-owned life insurance during 2020. expenses compensation and related expenses totaled $ 771.0 million during the year ended december 31 , 2020 , an increase of 17.2 % compared with the year ended december 31 , 2019. the increase was due to increased production and incentive compensation tied to increases in revenue during the year ended december 31 , 2020. compensation and related expenses as a percentage of revenue was 64.3 % for the year ended december 31 , 2020 compared with 63.6 % for the year ended december 31 , 2019. non-compensation expenses were $ 258.7 million during the year ended december 31 , 2020 , a decrease of 14.0 % compared with $ 300.8 million during the year ended december 31 , 2019 due to decreased interest costs , lower legal and regulatory costs and reduced costs associated with business travel and entertainment and conferences during the year ended december 31 , 2020. the effective income tax rate for the year ended december 31 , 2020 was 27.2 % compared with 29.3 % for the year ended december 31 , 2019. the lower effective tax rate for 2020 was primarily due to lower state and local income taxes , valuation allowance on foreign operations and other non-deductible expenses over higher pre-tax income in the current year compared to 2019. fiscal 2019 compared to fiscal 2018 revenue commission revenue was $ 320.1 million for the year ended december 31 , 2019 , a decrease of 2.9 % compared with $ 329.7 million for the year ended december 31 , 2018. advisory fees were $ 353.7 million for the year ended december 31 , 2019 , an increase of 12.5 % compared with $ 314.3 million for the year ended december 31 , 2018 due to an increase
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the cost of short and long-term funding decreased 49 bp to 0.67 % for 2014 , with short-term funding level at 0.15 % , while long-term funding decreased 234 bp primarily due to increased federal home loan bank ( fhlb ) advances at favorable rates . average earning assets of $ 22.8 billion in 2014 were $ 1.8 billion ( 8 % ) higher than 2013. average loans increased $ 1.2 billion ( 8 % ) , including a $ 971 million increase in commercial loans and a $ 488 million increase in residential mortgage loans , partially offset by a $ 283 million decrease in retail loans . average securities and short-term investments increased $ 604 million , primarily in mortgage-related securities . average interest-bearing liabilities of $ 17.8 billion in 2014 were up $ 1.9 billion ( 12 % ) versus 2013. on average , interest-bearing deposits increased $ 246 million , while average noninterest-bearing demand deposits ( a principal component of net free funds ) decreased by $ 37 million . average short and long-term funding increased $ 1.6 billion , consisting of a $ 2.1 billion increase in long-term funding offset partially by a $ 505 million decrease in short-term funding , reflecting a shift from short-term to long-term fhlb advances to leverage favorable interest rates . table 3 : rate/volume analysis ( 1 ) replace_table_token_7_th 37 ( 1 ) the change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar amounts of the change in each . ( 2 ) the yield on tax-exempt loans and securities is computed on a fully taxable equivalent basis using a tax rate of 35 % for all periods presented and is net of the effects of certain disallowed interest deductions . table 4 : interest rate spread and interest margin ( on a taxable equivalent basis ) replace_table_token_8_th * source : bloomberg provision for credit losses the provision for credit losses ( which includes the provision for loan losses and the provision for unfunded commitments ) in 2014 was $ 16 million , compared to $ 10 million in 2013. net charge offs were $ 15 million ( representing 0.09 % of average loans ) for 2014 , compared to $ 39 million ( representing 0.25 % of average loans ) for 2013. the allowance for loan losses was $ 266 million and $ 268 million at december 31 , 2014 and december 31 , 2013 , respectively . the allowance for unfunded commitments was $ 25 million and $ 22 million at december 31 , 2014 and december 31 , 2013 , respectively . the ratio of the allowance for loan losses to total loans was 1.51 % and 1.69 % at december 31 , 2014 , and 2013 , respectively . nonaccrual loans at december 31 , 2014 , were $ 177 million , compared to $ 185 million at december 31 , 2013 , representing 1.01 % and 1.17 % of total loans , respectively . the provision for credit losses is predominantly a function of the corporation 's reserving methodology and judgments as to other qualitative and quantitative factors used to determine the appropriate level of the allowance for loan losses and the allowance for unfunded commitments , which focuses on changes in the size and character of the loan portfolio , changes in levels of impaired and other nonaccrual loans , historical losses and delinquencies in each portfolio category , the level of loans sold or transferred to held for sale , the risk inherent in specific loans , concentrations of loans to specific borrowers or industries , existing economic conditions , the fair value of underlying collateral , and other factors which could affect potential credit losses . see additional discussion under sections , loans , allowance for credit losses , nonaccrual loans , potential problem loans , and other real estate owned , and credit risk. 38 noninterest income table 5 : noninterest income replace_table_token_9_th n/m = not meaningful * fee income ratio is fee income , per the above table , divided by total revenue ( defined as taxable equivalent net interest income plus fee income ) . notable contributions to the change in 2014 noninterest income were : core fee-based revenue was $ 227 million , an increase of $ 3 million ( 1 % ) compared to 2013. trust service fees were $ 48 million for 2014 , up $ 3 million ( 6 % ) from 2013. the market value of assets under management at december 31 , 2014 and 2013 was $ 8.0 billion and $ 7.4 billion , respectively . insurance commissions were minimally changed ; however , 2014 included a $ 2 million increase to the reserve for legacy insurance products provided by third parties ( a $ 5 million reserve was established in 2014 for remediation on legacy debt protection products , compared to a $ 3 million reserve established in 2013 related to third party insurance products sold in prior years ) . see note 15 , commitments , off-balance sheet arrangements , and contingent liabilities , of the notes to consolidated financial statements for additional information concerning this reserve . net mortgage banking income for 2014 was $ 21 million , down $ 28 million ( 56 % ) compared to 2013. net mortgage banking consists of gross mortgage banking income less mortgage servicing rights expense . gross mortgage banking income includes servicing fees , the gain or loss on sales of mortgage loans to the secondary market , changes to the mortgage loan repurchase reserve , and the fair value adjustments on the mortgage derivatives . story_separator_special_tag gross mortgage banking income decreased $ 17 million ( 34 % ) compared to 2013. this decrease was primarily attributable to lower gains on sales and related income ( down $ 28 million due to the decline in secondary mortgage production ) partially offset by a $ 7 million reduction in the repurchase reserve provision for losses related to repurchases and loss reimbursements on previously sold mortgage loans ( see section contractual obligations , commitments , off-balance sheet arrangements , and contingent liabilities , and note 15 , commitments , off-balance sheet arrangements , and contingent liabilities , of the notes to consolidated financial statements for additional information 39 concerning this repurchase reserve ) and a $ 4 million decrease in the fair value of the mortgage derivative . secondary mortgage production was $ 1.1 billion for 2014 , compared to $ 2.3 billion for 2013. mortgage servicing rights expense includes both the amortization of the mortgage servicing rights asset and changes to the valuation allowance associated with the mortgage servicing rights asset . mortgage servicing rights expense is affected by the size of the servicing portfolio , as well as the changes in the estimated fair value of the mortgage servicing rights asset . mortgage servicing rights expense was $ 11 million for 2014 compared to $ 1 million for 2013 , an increase of $ 10 million ; attributable to a $ 15 million lower recovery of the valuation reserve ( as 2013 included a $ 15 million recovery of the valuation reserve versus minimal change to the valuation reserve in 2014 ) , partially offset by a $ 5 million reduction in amortization due to slower prepayments . mortgage servicing rights are considered a critical accounting policy given that estimating their fair value involves a discounted cash flow model and assumptions that involve judgment , particularly of estimated prepayment speeds of the underlying mortgages serviced and the overall level of interest rates . see section critical accounting policies , as well as note 1 , summary of significant accounting policies , for the corporation 's accounting policy for mortgage servicing rights , note 4 , goodwill and intangible assets , and note 17 , fair value measurements , of the notes to consolidated financial statements for additional disclosure . net asset gains of $ 10 million for 2014 were primarily attributable to gains of $ 11 million on the sale of real estate and miscellaneous assets , partially offset by losses of $ 1 million on the sales and other write-downs of other real estate owned . net asset gains of $ 5 million for 2013 were primarily attributable to a $ 2 million gain on the sale of branches , and a $ 3 million net gain on the sale of real estate and miscellaneous assets . net capital market fees decreased $ 3 million ( 24 % ) primarily due to a $ 2 million reduction in fees on interest rate risk related services provided to our customers due to lower demand and a $ 3 million lower contribution from favorable changes in the credit risk of interest-rate related derivative instruments , partially offset by a $ 2 million increase in fee income from foreign currency transactions . noninterest expense table 6 : noninterest expense replace_table_token_10_th 40 notable contributions to the change in 2014 noninterest expense were : personnel expense ( which includes salary-related expenses and fringe benefit expenses ) was $ 390 million for 2014 , down $ 7 million ( 2 % ) from 2013. salary-related expenses increased $ 3 million ( 1 % ) . this increase was primarily the result of higher compensation and performance based incentives . fringe benefit expenses decreased $ 10 million ( 14 % ) , primarily due to a decrease in health insurance costs reflecting changes in employee health care selections and lower pension plan expense due to a $ 21 million pension contribution in september . nonpersonnel noninterest expenses on a combined basis were $ 289 million , up $ 5 million ( 2 % ) compared to 2013. technology was up $ 6 million ( 12 % ) as we continue to invest in solutions that will drive operational efficiency . fdic expense of $ 24 million was $ 4 million ( 22 % ) higher compared to 2013 reflecting growth in risk-weighted assets . business development and advertising expenses increased $ 3 million ( 12 % ) from 2013 as the corporation increased advertising related to various campaigns during 2014. foreclosure / oreo expenses of $ 7 million decreased $ 3 million ( 33 % ) , primarily attributable to a decline in legal and collection expenses related to the improvement in credit quality . legal and professional fees decreased $ 3 million ( 14 % ) due to a decrease in consultant costs related to certain bsa compliance issues . all remaining noninterest expense categories on a combined basis decreased $ 2 million ( 1 % ) compared to 2013. income taxes the corporation recognized income tax expense of $ 86 million for 2014 compared to income tax expense of $ 79 million for 2013. the change in income tax expense was primarily due to the increase in the level of pretax income between the years . the effective tax rate was 31.0 % for 2014 , compared to an effective tax rate of 29.6 % for 2013. during 2014 , the corporation recorded a $ 2 million net increase in the reserve for uncertain tax positions . during 2013 , the corporation recorded a $ 6 million net decrease in the reserve for uncertain tax positions related to the settlement of a tax issue and the expiration of various statutes of limitation . income tax expense is also impacted by ongoing federal and state income tax audits and changes in tax law and rates .
| noninterest income was $ 290 million for 2014 , down $ 23 million ( 7 % ) from 2013. net mortgage banking was $ 21 million , down $ 28 million from $ 49 million in 2013. core fee-based revenues were up slightly in 2014 as increases in trust , insurance , and retail brokerage fees ( up $ 4 million ) more than offset declines in service charges and card income ( down $ 2 million ) . for additional discussion concerning noninterest income see section , noninterest income. for 2015 , the corporation expects mid to upper single digit noninterest income growth based on additional noninterest income from the pending ahmann & martin co. acquisition . see section , recent developments , for additional information on the pending ahmann & martin co. acquisition . noninterest expense of $ 679 million decreased $ 1 million from 2013. technology was $ 55 million , up $ 6 million ( 12 % ) versus 2013 , offset by reduced personnel expense of $ 7 million ( 2 % ) compared to 2013. the efficiency ratio was 68.95 % for 2014 and 69.56 % for 2013 , respectively . for additional discussion regarding noninterest expense see section , noninterest expense. for 2015 , the corporation expects noninterest expense to be up in the low single digits due to the pending ahmann & martin co. acquisition , with a continued focus on efficiency initiatives . 34 income tax expense for 2014 was $ 86 million , compared to income tax expense of $ 79 million for 2013. the effective tax rate was 31.0 % for 2014 , compared to an effective tax rate of 29.6 % for 2013. for additional discussion concerning income tax see section , income taxes. income statement analysis net interest income table 2 : average balances and interest rates ( interest and rates on a taxable equivalent basis ) replace_table_token_6_th ( 1 ) the yield on tax-exempt loans and securities is computed on a taxable equivalent basis using a tax rate of 35 % for all periods presented and is net of the effects of certain disallowed interest deductions . ( 2 ) nonaccrual loans and loans held for sale have been included in the average balances . ( 3 ) interest income includes net loan fees . 35 net interest income is the primary source of the corporation 's revenue . net interest income is the difference between interest
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similar to north america , without significant increases in the price of crude oil , we anticipate global activity levels to also decline during 2015 and into 2016 , although not as dramatically as in north america . subsequent to year-end , the price of brent crude has increased approximately 3 % , but has shown volatility during the period with prices down as much as 18 % . the worldwide rig count has fallen approximately 16 % since the end of the year . we anticipate international activity levels will decrease slightly , with the middle east region continuing at a relatively higher level of activity . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > depreciation and amortization expense of $ 26.7 million increased by $ 1.2 million in 2014 compared to 2013 , after increasing by $ 2.6 million in 2013 compared to 2012 . the increase during 2014 is a result of growth in our client-directed capex program . other income , net the components of other income , net , were as follows ( in thousands ) : replace_table_token_4_th we incurred property losses due to hurricane isaac in 2012. during 2013 , our insurance claim for property losses and business interruption was fully settled for a gain of $ 1.6 million . as a result of a supply disruption in 2011 from a key vendor that provided certain high performance specialty steel tubulars used with the company 's perforating systems , we filed a claim under our business interruption insurance policy which was fully settled during 2012 for $ 4.4 million . during 2012 , we incurred legal , accounting and other fees in connection with the realignment of certain of our legal entities into a more cost effective structure and the listing of our shares on the euronext amsterdam . 20 foreign exchange gains and losses are summarized in the following table ( in thousands ) : replace_table_token_5_th interest expense interest expense increased by $ 1.3 million in 2014 compared to 2013 primarily due to increased borrowings on our revolving credit facility . income tax expense income tax expense decreased $ 3.6 million in 2014 compared to 2013 due primarily to a decrease in the effective tax rate in 2014 , which was driven by the mix of taxable income in various jurisdictions . income tax expense increased $ 9.1 million in 2013 compared to 2012 due primarily to an increase in taxable income in 2013. the effective tax rate was 23.0 % , 25.0 % , and 24.9 % for 2014 , 2013 , and 2012 , respectively . segment analysis the following charts and tables summarize the annual revenue and operating results for our three complementary business segments . segment revenue 21 segment revenue replace_table_token_6_th segment operating income for the years ended december 31 , ( dollars in thousands ) 2014 % change 2013 % change 2012 reservoir description $ 143,624 ( 1.9 ) % $ 146,338 1.3 % $ 144,502 production enhancement 165,204 6.8 % 154,715 20.3 % 128,602 reservoir management 37,220 18.0 % 31,555 19.4 % 26,428 corporate and other ( 1 ) 483 nm 811 nm ( 2,252 ) operating income $ 346,531 3.9 % $ 333,419 12.2 % $ 297,280 ( 1 ) “ corporate and other '' represents those items that are not directly relating to a particular segment . `` nm '' means not meaningful . segment operating income margins ( 1 ) for the years ended december 31 , 2014 2013 2012 margin margin margin reservoir description 27.7 % 28.0 % 29.2 % production enhancement 35.3 % 34.2 % 31.8 % reservoir management 37.7 % 31.9 % 32.3 % total company 31.9 % 31.1 % 30.3 % ( 1 ) calculated by dividing `` operating income '' by `` revenue . '' reservoir description revenue for our reservoir description segment decreased by 1 % , to $ 519.0 million in 2014 compared to $ 522.3 million in 2013 , which was an increase of 5.4 % compared to $ 495.5 million in 2012 . as oil prices plummeted during the final months of 2014 , international and global deepwater activities and opportunities declined as well . this led to a decrease in revenue in 2014 compared to 2013. this segment 's operations , however , which focus on international crude-oil related products , continued to benefit from large-scale core analyses and reservoir fluids characterization studies in the asia-pacific areas , offshore west and east africa , the eastern mediterranean region and the middle east , including kuwait and the united arab emirates . operating income decreased to $ 143.6 million in 2014 from $ 146.3 million in 2013 and $ 144.5 million in 2012 . as 2014 revenues declined , we also saw a corresponding decrease in operating income ; however , operating margins remained at approximately 28 % in 2014 . this segment emphasizes technologically demanding services on internationally-based development and production-related crude oil projects over the more cyclical exploration-related projects . the increase in operating income in 2013 over 2012 was the result of higher sales , including a better mix of projects aimed at more complex reservoirs , over the fixed cost structure . operating margins were 28 % in 2013 , down slightly from 29 % in 2012 . production enhancement revenue for our production enhancement segment increased by $ 15.2 million , or 3.4 % , in 2014 compared to 2013 , and increased 12 % in 2013 compared to 2012 primarily due to the continued success of core 's flowprofiler tm service , our new completion diagnostic service for optimizing completions and stimulations of horizontal wells , and our new kodiak tm propellant booster coupled with our hero tm perforating charges . 22 operating income for this segment increased 6.8 % to $ 165.2 million in 2014 from $ 154.7 million in 2013 . operating income for this segment increased 20.3 % to $ 154.7 million in 2013 from $ 128.6 million in 2012 . story_separator_special_tag operating margins increased to 35.3 % in 2014 from 34.2 % and 31.8 % in 2013 and 2012 , respectively . the increases in operating income and operating margin were primarily driven by increased demand for the company 's proprietary and patented hydraulic fracture and field-flood diagnostic technologies and services such as flowprofiler , spectrachem ® , zero wash ® , and spectraflood diagnostic tracers in north america and internationally . reservoir management revenue for our reservoir management segment was flat at $ 98.7 million in 2014 compared to 2013 and increased from $ 81.8 million in 2012 . our existing multi-client reservoir studies such as the duvernay shale project in canada and the tight oil reservoirs of the midland basin study as well as our new joint-industry projects in the williston basin targeting the tight oil of the entire three forks sections and a study in the appalachian basin of the emerging devonian shales in the liquids window continue to provide a solid revenue stream . operating income for this segment increased to $ 37.2 million in 2014 compared to $ 31.6 million in 2013 and $ 26.4 million in 2012 . operating margins increased to 37.7 % in 2014 , from 31.9 % and 32.3 % in 2013 and 2012 , respectively . the increase in operating income was primarily a result of additional participants in our joint industry projects , including the utica , duvernay , and mississippi lime studies and the marcellus , niobrara , wolfcamp and eagle ford plays , as well as sales of fully completed studies , which generate significant incremental margins . liquidity and capital resources general we have historically financed our activities through cash on hand , cash flows from operations , bank credit facilities , equity financing and the issuance of debt . cash flows from operating activities provides the primary source of funds to finance operating needs , capital expenditures and our dividend and share repurchase programs . if necessary , we supplement this cash flow with borrowings under bank credit facilities to finance some capital expenditures and business acquisitions . as we are a netherlands holding company , we conduct substantially all of our operations through subsidiaries . our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us . our financial statements are prepared in conformity with generally accepted accounting principles in the u.s. ( `` u.s. gaap '' or `` gaap '' ) . we utilize the non-gaap financial measure of free cash flow to evaluate our cash flows and results of operations . free cash flow is defined as net cash provided by operating activities ( which is the most directly comparable gaap measure ) less cash paid for capital expenditures . management believes that free cash flow provides useful information to investors regarding the cash that was available in the period that was in excess of our needs to fund our capital expenditures and operating activities . free cash flow is not a measure of operating performance under gaap , and should not be considered in isolation nor construed as an alternative to operating profit , net income ( loss ) or cash flows from operating , investing or financing activities , each as determined in accordance with gaap . free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure . moreover , since free cash flow is not a measure determined in accordance with gaap and thus is susceptible to varying interpretations and calculations , free cash flow , as presented , may not be comparable to similarly titled measures presented by other companies . the following table reconciles this non-gaap financial measure to the most directly comparable measure calculated and presented in accordance with u.s. gaap for the years ended december 31 , 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_7_th free cash flow has increased each year primarily due to the growth of the company , with the increases in net income leading to the increases in cash provided by operations . during these periods of growth , capital expenditures also increased each year . 23 cash flows the following table summarizes cash flows for the years ended december 31 , 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_8_th the increase in cash flow from operating activities in 2014 compared to 2013 was primarily attributable to the timing of income tax installment payments and changes in working capital while the increase in 2013 compared to 2012 was attributable to an increase in net income and a decrease in income tax receivables . cash flow used in investing activities in 2014 was comparable to 2013 and increased $ 9.2 million in 2013 over 2012 as a result of an increase in capital expenditures and an increase in the premiums on life insurance policies . cash flow used in financing activities in 2014 increased $ 14.0 million compared to 2013 . cash flow used in financing activities in 2013 increased $ 35.8 million compared to 2012 . during 2014 , we spent $ 264.4 million to repurchase our common shares and $ 89.1 million to pay dividends , offset by a net increase in our debt balance of $ 89 million . during 2013 , we spent $ 227.2 million to repurchase our common shares and $ 58.6 million to pay dividends , offset by a net increase in our debt balance of $ 33 million . during 2012 , we spent $ 175.7 million to repurchase our common shares and $ 52.9 million to pay dividends , offset by a net increase in our debt balance of $ 11 million . during the year ended december 31 , 2014 , we repurchased 1,680,800 shares of our common stock for an aggregate amount of $ 264.4 million , or an average price of $ 157.29 per share .
| this improved sales revenue mix was a result of increasing market penetration of new technologies such as our new completion systems for optimizing completion and stimulations of horizontal wells , including our htd-blast tm and kodiak tm enhanced perforating systems and our permanent reservoir monitoring systems , primarily in the canadian oil sands market . these new higher margin products replaced higher volume , low margin perforating products in our revenue mix . the increase in revenue from 2012 to 2013 was driven primarily by the continued successful introduction of new technologies such as our new completion systems for optimizing completions and stimulations of horizontal wells , including our htd-blast tm and kodiak tm enhanced perforating systems , and our permanent reservoir monitoring systems , primarily in the canadian market . 19 cost of services , excluding depreciation cost of services increased to $ 449.5 million for 2014 from $ 445.0 million for 2013 and $ 413.1 million for 2012 . as a percentage of services revenue , cost of services decreased to 57.6 % in 2014 from 58.1 % in 2013 and 59.5 % in 2012 . the margin improvements are the result of a better mix of projects aimed at more complex reservoirs , over the fixed cost structure . cost of product sales , excluding depreciation cost of product sales decreased to $ 215.8 million for 2014 from $ 218.0 million for 2013 which had increased from $ 208.7 million for 2012 . as a percentage of product sales revenue , cost of sales remained at 71 % for 2014 and 2013 but was down from 72.7 % for 2012 . the decrease in cost of sales as a percentage of product sales revenue as compared to 2012 was primarily due to the substantial increase in the cost of raw materials , especially specialty steel , in the second half of 2011 which increased our cost of product sales in 2012 as these raw materials were converted to finished goods which were subsequently sold . general and administrative
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revenue is allocated to each separate unit of accounting based on relative selling price using a selling price hierarchy : vendor specific objective evidence ( “ vsoe ” ) , if available , third-party evidence ( “ tpe ” ) if vsoe is not available , or estimated selling price if vsoe nor tpe is available . vsoe is established based on the services normal selling price and discounts for the specific services when sold separately . tpe is established by evaluating similar competitor services in standalone arrangements . if neither exists for a deliverable , the best estimate of the selling price ( “ esp ” ) is used for that deliverable based on list price , representing a component of management 's market strategy , and an analysis of historical prices for bundled and standalone arrangements . revenue allocated to an element is limited to revenue that is not subject to refund or otherwise represents contingent revenue . vsoe , tpe , and esp are periodically adjusted to reflect current market conditions . these adjustments are not expected to differ significantly from historical results . valuation of goodwill and identifiable intangible assets intangible assets include customer relationships , trade names , technology , non-compete agreements and goodwill . intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable . the company reviews intangible assets with indefinite lives for impairment annually as of october 1 and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . 19 when performing the impairment assessment , the company first assesses qualitative factors to determine whether it is necessary to recalculate the fair value of our intangible assets with indefinite lives . if the company believes , as a result of the qualitative assessment , that it is more likely than not that the fair value of the indefinite-lived intangibles is less than their carrying amount , the company calculates the fair value using a market approach . if the carrying value of an intangible asset with an indefinite life exceeds its fair value , then the intangible asset is written-down to their fair values . the company did not recognize any impairment related to our indefinite-lived intangible assets during 2016 , 2015 or 2014. goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized . all of the company 's goodwill is allocated to its reporting units , which are the same as its operating segments . goodwill is reviewed for impairment at least annually as of october 1 and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable . the company reviews for goodwill impairment by first assessing qualitative factors to determine whether any impairment may exist . if we believe , as a result of the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , a quantitative two-step test is required ; otherwise , no further testing is required . under the first step of the quantitative test , the fair value of the reporting unit is compared with its carrying value ( including goodwill ) . if the fair value of the reporting unit exceeds its carrying value , step two is not performed . if the fair value of the reporting unit is less than its carrying value , an indication of goodwill impairment exists for the reporting unit and the company performs step two of the impairment test ( measurement ) . under step two , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the fair value of that goodwill . the fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the fair value of the reporting unit goodwill . in instances when a step two is required , the f air value of the reporting unit is determined using an income approach and comparable market multiples . under the income approach , there are a number of inputs used to calculate the fair value using a discounted cash flow model , including operating results , business plans , projected cash flows and a discount rate . discount rates , growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment . discount rates are determined by using a weighted average cost of capital , which considers market and industry data . management develops growth rates and cash flow projections for each reporting unit considering industry and company-specific historical and projected information . terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant weighted average cost of capital and low long-term growth rates . under the market approach , the company considers its market capitalization , comparisons to other public companies ' data , and recent transactions of similar businesses within the company 's industry . the company performed a qualitativ e analysis as of october 1 , 2016 , which did not indicate that it was more likely than not that the carrying values of the reporting units exceeded fair value . no impairments were recorded during the years ended december 31 , 2016 , 2015 or 2014 . 20 income taxes the company uses the asset and liability method of accounting for income taxes . story_separator_special_tag under that method , deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . valuation allowances , if any , are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized . the company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained . recognized income tax positions are measured at the largest amount that is greater than 50 % likely of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . management judgment is required to determine the provision for income taxes and to determine whether deferred income taxes will be realized in full or in part . such judgments include , but are not limited to , the likelihood we would realize the benefits of net operating loss carryforwards , the adequacy of valuation allowances , the election to capitalize or expense costs incurred , and the probability of outcomes of uncertain tax positions . it is possible that the various taxing authorities could challenge those judgments or positions and reach conclusions that would cause us to incur tax liabilities in excess of , or realize benefits less than , those currently recorded . in addition , changes in the geographical mix or estimated amount of annual pretax income could impact our overall effective tax rate . business combinations the company uses the acquisition method of accounting for acquired businesses . under the acquisition method , the financial statements reflect the operations of an acquired business starting from the completion of the acquisition . the assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition . any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill . significant judgment is required in estimating the fair value of assets acquired , especially intangible assets . as a result , in the case of significant acquisitions we typically engage third-party valuation specialists in estimating fair values of tangible and intangible assets . the fair value estimates are based on available historical information and on expectations and assumptions about the future , considering the perspective of marketplace participants . while management believes those expectations and assumptions are reasonable , they are inherently uncertain . unanticipated market or macroeconomic events and circumstances may occur , which could impact the accuracy or validity of the estimates and assumptions . story_separator_special_tag which was driven primarily by a combination of continued gains in market share and vertical growth in our existing client base . revenue from subscription-based agreements comprised 86.6 % of the total revenue in 2015 , compared to 82.3 % of total revenue in 2014. direct expenses . direct expenses increased 6.9 % to $ 44.6 million in 2015 , compared to $ 41.7 million in 2014. variable expenses increased $ 1.1 million primarily from increased postage and printing of $ 989,000 , and contracted survey-related costs of $ 416,000 , partially offset by a reduction in labor costs of $ 334,000. fixed expenses increased $ 1.8 million primarily due to increased salary and benefit costs from the digital assent acquisition in 2014 and staffing additions in the customer service area , and increased equipment lease costs from the acquisition . direct expenses increased as a percentage of revenue to 43.6 % in 2015 from 42.2 % in 2014 primarily due to the staffing additions from the acquisition and growth in customer service support . selling , general and administrative expenses . selling , general and administrative expenses increased 8.6 % to $ 27.2 million in 2015 , compared to $ 25.0 million in 2014 , primarily due to increased salary and benefit costs of $ 1.1 million ( which includes $ 581,000 of increased share-based compensation expense ) , the $ 657,000 write-off of the purchase option for a potential acquisition in 2015 , increased contracted service costs of $ 328,000 , increased maintenance and repairs expense of $ 278,000 ( primarily due to repairs to the company 's headquarters building ) , and higher software license and computer supplies fees of $ 247,000. these were partially offset by decreased recruiting and bad debt expenses . selling , general , and administrative expenses increased as a percentage of revenue to 26.6 % in 2015 , from 25.3 % in 2014 , due to expense growth of 8.6 % while revenue grew at 3.5 % . depreciation and amortization . depreciation and amortization expenses increased 8.0 % to $ 4.1 million in 2015 compared to $ 3.8 million in 2014 due to increased customer relationship and technology intangible amortization from the acquisition in october 2014 and increased depreciation costs from computer software investments . depreciation and amortization expenses as a percentage of revenue increased to 4.0 % in 2015 from 3.8 % during in 2014. other income ( expense ) . other income ( expense ) increased to $ 913,000 of other income in 2015 compared to ( $ 204,000 ) of other expense in 2014. this was primarily due to the $ 1.1 million gain on the sale of selected assets and liabilities related to the clinical workflow product of the former predictive analytics operating segment . provision for income taxes .
| selling , general and administrative expenses increased 4.4 % to $ 28.4 million in 2016 compared to $ 27.2 million in 2015 , primarily due to increased salary and benefits of $ 991,000 ( mainly from increased incentives and share based compensation expense ) , increased marketing expenses of $ 510,000 , higher annual incentive trip expenses of $ 348,000 , securities and exchange commission registration fees expensed in 2016 of $ 177,000 , and increased professional development costs for associates of $ 172,000. these were partially offset by a reduction of $ 238,000 in repairs and maintenance on the company 's headquarters building and the $ 657,000 write off of a purchase option in 2015 when the company chose not to exercise the option and it expired . selling , general , and administrative expenses decreased as a percentage of revenue to 25.9 % in 2016 , from 26.6 % for the same period in 2015 as expenses increased by 4.4 % while revenue increased by 6.9 % during the same period . depreciation and amortization . depreciation and amortization expenses increased 2.8 % to $ 4.2 million in 2016 compared to $ 4.1 million in 2015 primarily due to increased depreciation and amortization from increased computer software investments and computer software license expense being included in depreciation and amortization in 2016 , resulting from the adoption of accounting standards update ( “ asu ” ) 2015-05 , intangibles - goodwill and other - internal-use software ( subtopic 350-40 ) : customer 's accounting for fees paid in a cloud computing arrangement . these increases were offset by decreased amortization as a result of the sale of the clinical workflow product of the former predictive analytics operating segment in 2015 and other intangibles becoming fully amortized . depreciation and amortization expenses as a percentage of revenue decreased to 3.9 % in 2016 from 4.0 % during in 2015 . 22 other income ( expense ) . other income ( expense ) decreased to $ 159,000 in 2016 compared to $ 913,000 in 2015. this was primarily due to the $ 1.1 million
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during the quarter ended june 30 , 2014 , we considered a number of relevant factors which are potential indicators of impairment , including ( among others ) the potential impacts of the aforementioned organizational realignment of its continuing operations and our current and near-term 36 financial results as well as the fact that the market price of our common stock , taking into consideration potential control premiums , has wavered above and below our book value since the third quarter of 2013 , as previously disclosed in the company 's annual report on form 10-k for the year ended december 31 , 2013 and subsequent quarterly reports on form 10-q . based on these factors , we were required to perform impairment tests to determine whether the carrying values are fully recoverable of both our long-lived assets and goodwill . we completed the review of our long-lived assets in the quarter ended september 30 , 2014 and concluded the fair value of such assets exceeded their carrying values , thus no long-lived asset impairment was indicated . the goodwill impairment test has two steps . the first step of the goodwill impairment test , used to identify potential impairment , compares the fair value of a reporting unit with its carrying amount including goodwill . during the three months ended september 30 , 2014 , we performed step one of the goodwill impairment test for each of our three new reporting units : the northeast division , southern division and rocky mountain division . to measure the fair value of each new reporting unit , we used a combination of the discounted cash flow method and the guideline public company method . based on the results of the step-one goodwill impairment review , we concluded the fair value of the rocky mountain division exceeded our carrying amount by approximately 14 % and accordingly , the second step of the impairment test was not necessary for this reporting unit . conversely , we concluded the fair value of the northeast and southern reporting units were less than their carrying values thereby requiring us to proceed to the second step of the goodwill impairment test . the second step of the goodwill impairment test , used to measure the amount of the impairment loss , compares the implied fair value of the reporting unit goodwill with its carrying amount . for both the northeast and southern reporting units , the carrying values of the re-allocated goodwill exceeded their implied fair values . accordingly , we recognized a charge of $ 100.7 million ( $ 66.9 million in the southern division and $ 33.8 million in the northeast division ) during the three months ended september 30 , 2014 , which is characterized as `` impairment of goodwill '' in our consolidated statement of operations . due to the continued significant decline in oil and gas prices and the market price of our common stock during the three months ended december 31 , 2014 , we determined that these triggering events required us to complete further impairment tests . long-lived assets were grouped at the basin level for purposes of assessing their recoverability as we concluded the basin level is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities . in the northeast division and southern divisions , the undiscounted cash flows of the asset groups exceeded their carrying values ; therefore , no impairment was indicated . in the bakken shale basin , the carrying value of the asset group exceeded its undiscounted cash flows indicating impairment which resulted in an impairment charge of $ 112.4 million related to the customer relationship intangible asset . such amount is reported in `` impairment of long-lived assets '' in our consolidated statement of operations . the northeast division and southern divisions had no goodwill balances ; therefore , we performed step one of the goodwill impairment test only for the rocky mountain division . the rocky mountain division is comprised of the rocky mountain reporting unit . we used a combination of the discounted cash flow method and the guideline public company method to measure the fair value of the rocky mountain reporting unit . based on the results of the step-one goodwill impairment review , we concluded the fair value of the rocky mountain division was less than its carrying value thereby requiring us to proceed to the second step of the goodwill impairment test . the second step of the goodwill impairment test , used to measure the amount of the impairment loss , compares the implied fair value of the reporting unit goodwill with its carrying amount . the carrying value of the rocky mountain reporting unit goodwill exceeded its implied fair value and as such , we recognized a charge of $ 203.3 million during the three months ended december 31 , 2014 , which is characterized as `` impairment of goodwill '' in our consolidated statement of operations . the fair values of each of the reporting units as well as the related assets and liabilities utilized to determine the 2014 impairment were measured using level 2 and level 3 inputs as described in note 11 . we believe the assumptions used in our discounted cash flow analysis are appropriate and result in reasonable estimates of the implied fair value of each reporting unit . we further believe the most significant assumption used in our analysis is the revenue growth as limited by oil and gas prices . however , we may not meet our revenue targets , working capital and capital investment requirements may be higher than forecast , changes in credit or equity markets may result in changes to our discount rate and general business conditions may result in changes to our terminal value assumptions for our reporting units . in evaluating the reasonableness of our fair value estimates , we consider ( among other factors ) the relationship between our book value , the market price of our common stock and the fair value of our reporting units . story_separator_special_tag at december 31 , 2014 and march 13 , 2015 , the closing market prices of our common stock were $ 5.55 and $ 2.92 per share , respectively , compared to our book value per share of $ 5.56 as of december 31 , 2014 . if our book value per share were to continue to exceed our market price per share plus a control premium , in addition to continued downward pricing in services driven by oil and gas price depression , it would likely indicate the occurrence of events or changes that would cause us to perform additional impairment analyses which could result in further revisions to our fair value estimates . while we believe that our estimates of fair value are reasonable , we will continue to monitor and evaluate this relationship . additionally , should actual results differ materially from our projections , additional impairment would likely result . 37 trends affecting our operating results our results are driven by demand for our services , which are in turn affected by e & p trends in the shale areas in which we operate , in particular the level of drilling activity ( which impacts the amount of environmental waste products being managed ) and active wells ( which impacts the amount of produced water being managed ) . in general , drilling activity in the oil and gas drilling industry is affected by the market prices ( or anticipated prices ) for those commodities . persistent low natural gas prices have driven reduced drilling activity in “ dry ” gas shale areas such as the barnett , haynesville and marcellus shale areas where natural gas is the predominant natural resource . in addition , the low natural gas prices have in the past caused many natural gas producers to curtail capital budgets and these cuts in spending curtailed drilling programs as well as discretionary spending on well services in certain shale areas , and accordingly reduced demand for our services in these areas . while drilling and production activity in the oil and `` wet '' gas basins such as the eagle ford , permian basin , utica and bakken shale areas have been more robust when compared to the `` dry '' gas shale areas in the past few years , the dramatic decline in oil prices in the fourth quarter of 2014 has impacted drilling and completion activity in these shale areas . we anticipate our customer base to reduce their 2015 capital programs and expect lower drilling and completion activity levels in 2015 , which we expect to be somewhat mitigated by our revenues from services supporting production from oil and natural gas operations . demand for these production-related services tends to be relatively stable in moderate oil and gas price environments as these services are required to sustain production . our results are also driven by a number of other factors , including ( i ) our available inventory of equipment , which we have built through acquisitions and capital expenditures over the past several years , ( ii ) transportation costs , which are affected by fuel costs , ( iii ) utilization rates for our equipment , which are also affected by the level of our customers ' drilling and production activities and competition , and our ability to relocate our equipment to areas in which oil and gas exploration and production activities are growing , ( iv ) the availability of qualified drivers ( or alternatively , subcontractors ) in the areas in which we operate , particularly in the bakken and marcellus/utica shale areas , ( v ) labor costs , which have been generally increasing through the periods discussed due to tight labor market conditions and increased government regulation , including the affordable care act , ( vi ) developments in governmental regulations , ( vii ) seasonality and weather events and ( viii ) our health , safety and environmental performance record . our operating results are also affected by our acquisition activities , and the expenses we incur in connection with those activities , including integration costs , which can limit comparability of our results from period to period . we completed three acquisitions in the year ended december 31 , 2013 , and six acquisitions during the year ended december 31 , 2012 , including power fuels and tfi , which were among our largest to date . we may complete other acquisitions in the future that could cause our future operating results to be substantially different from our historical operating results . the following table summarizes our total revenues , loss from continuing operations before income taxes , loss from continuing operations and ebitda ( defined below ) for the years ended december 31 , 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_5_th _ ( a ) represents revenues that are derived from predominantly oil-rich areas consisting of the bakken , utica , eagle ford , mississippian and permian basin shale areas . ( b ) represents revenues that are derived from predominantly gas-rich areas consisting of the marcellus , haynesville , tuscaloosa marine and barnett shale areas ( prior to our substantial exit from this basin during the three months ended march 31 , 2014 ) . ( c ) defined as consolidated net income ( loss ) from continuing operations before net interest expense , income taxes and depreciation and amortization . ebitda is not a recognized measure under generally accepted accounting principles in 38 the united states ( “ gaap ” ) . see the reconciliation between loss from continuing operations and ebitda under “ liquidity and capital resources—ebitda ” . ( d ) the company 's debt covenants referred to in note 10 of the notes to consolidated financial statements are based on ebitda adjusted for certain items as defined . the accompanying consolidated financial statements have been prepared by management in accordance with the instructions to form 10-k and the rules and regulations of the sec .
| rental revenue rental revenue consists of fees charged to customers for use of equipment owned by us over the term of the rental as well as other fees charged to customers for items such as delivery and pickup . rental revenue for the year ended december 31 , 2014 was $ 72.9 million , down $ 11.5 million , or 13.7 % , from $ 84.4 million for the year ended december 31 , 2013 . the decrease was the result of lower utilization of the company 's rental fleet primarily in the rocky mountain division driven by increased competition and customer efficiencies . direct operating expenses direct operating expenses for the year ended december 31 , 2014 were $ 384.8 million , versus $ 379.2 million for the year ended december 31 , 2013 , an increase of less than 2 % . overall repairs and maintenance increased while fuel costs decreased . compensation and benefits costs were lower in the southern and northeast divisions offset by the rocky mountain division . additionally , we recorded a gain of $ 4.4 million related to the disposal of certain transportation assets in 2014 which was partially offset by a charge of $ 1.9 million related to a contract settlement . direct operating expenses as a percentage of revenue was down slightly to 71.8 % for the year ended december 31 , 2014 from 72.1 % in prior year period . general and administrative expenses general and administrative expenses for the year ended december 31 , 2014 amounted to $ 66.8 million , down $ 17.4 million from $ 84.3 million for the year ended december 31 , 2013 . general and administrative expenses in the year ended december 31 , 2014 include approximately $ 2.1 million of integration and rebranding costs which were completed during the year . additionally , we recorded $ 6.3 million of legal and environmental expenses , including for the texas cases and shareholder litigation described in note 16 of the notes to consolidated financial
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because we believe that direct-to-hospital sales engender closer customer relationships , and allow for higher selling prices and gross margins , we periodically enter into transactions with our distributors to transition their sales of our medical devices to our direct sales organization : in march 2013 , we began shipping directly to canadian hospitals from our sales office in mississauga , canada . in october 2013 , we terminated our existing distribution agreements in norway and australia in order to sell directly to hospitals in each country beginning january 2014. the agreements required us to pay approximately $ 0.4 million in exchange for the purchase of their customer list for our products and minimal inventory . 38 in 2014 , we entered into definitive agreements with eight former xenotis distributors in europe in order to terminate their distribution of our omniflow ii biosynthetic vascular grafts and begin selling direct to hospitals in those geographies . the agreements required us to pay approximately $ 1.3 million in exchange for the purchase of customer lists and inventory . we anticipate that the expansion of our direct sales organization in australia and our sales office in china will result in increased sales and marketing expenses during 2015. our strategy for growing our business includes the acquisition of complementary product lines and companies and occasionally the discontinuance or divestiture of products or activities that are no longer complementary : in july 2013 , we acquired substantially all of the assets of clinical instruments international , inc. ( clinical instruments ) , a manufacturer of latex and latex free shunts and catheters , for $ 1.1 million . in august 2013 , we acquired substantially all of the assets of inavein , llc ( inavein ) , a manufacturer of a varicose veins removal system . the purchase price consisted of $ 2.5 million plus potential contingent consideration of up to $ 1.4 million in 2014 and 2015 dependent on the sales performance of the acquired business and the timing of regulatory approval in china . in october 2014 , we paid $ 0.2 million related to the 2014 sales milestone . the milestone related to the timing of the regulatory approval in china was not achieved . in august 2014 , we acquired all of the capital stock of xenotis pty ltd ( xenotis ) for $ 6.7 million plus the assumption of $ 1.1 million of debt . xenotis is the parent company of bio nova international , the manufacturer and marketer of the omniflow ii biosynthetic vascular graft for lower extremity bypass and av access . in september 2014 , we acquired substantially all of the assets related to the angioscope product line from applied medical resource corporation ( applied medical ) for $ 0.4 million . in september 2014 , we terminated our non-occlusive modeling catheter product line . in addition to relying upon acquisitions to grow our business , we also rely on our product development efforts to bring differentiated technology and next-generation products to market . these efforts have led to the following recent product developments : in april 2013 , we launched the multitasc device . in may 2013 , we launched the 1.5mm expandable lemaitre valvulotome . in june 2013 , we launched the albosure vascular patch . in june 2014 , we launched the 1.5mm hydro lemaitre valvulotome . in addition to our sales growth strategies , we have also executed several operational initiatives designed to consolidate and streamline manufacturing within our burlington , massachusetts facilities . we expect that these plant consolidations will result in improved control over our production capacity as well as reduced costs over the long-term . our most recent manufacturing transitions included : in november 2012 , we initiated a project to build a clean room for the manufacturing of our biologic vascular patch and we completed this transition in the second quarter of 2014. margins on our biologic vascular patch were negatively impacted as we commenced production , but have improved as production quantities have increased . in january 2014 , we initiated a project to transfer the manufacturing of the newly acquired clinical instruments devices to our facility in burlington . we closed the clinical instruments facility in march and completed the manufacturing transfer during the second quarter of 2014 . 39 we currently expect to maintain the manufacturing operations of the recently acquired north melbourne , australia facility for the foreseeable future . our execution of these business opportunities may affect the comparability of our financial results from period to period and may cause substantial fluctuations from period to period , as we incur related restructuring and other non-recurring charges , as well as longer term impacts to revenues and operating expenditures . for example , in 2014 , we incurred $ 0.5 million of restructuring charges related to reductions in force and our clinical instruments facility closure and relocation to burlington , massachusetts . fluctuations in the rate of exchange between the u.s. dollar and foreign currencies , primarily the euro , affect our financial results . for the year ended december 31 , 2014 , approximately 39 % of our sales were from outside the americas . we expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future . selling , marketing , and administrative costs related to these sales are largely denominated in the same respective currency , thereby partially mitigating our transaction risk exposure . however , most of our foreign sales are denominated in local currency , and if there is an increase in the rate at which a foreign currency is exchanged for u.s. dollars , it will require more of the foreign currency to equal a specified amount of u.s. dollars than before the rate increase . in such cases we will receive less in u.s. dollars than we did before the rate increase went into effect . story_separator_special_tag as of march 9 , 2015 , we estimate that the strong u.s. dollar could decrease our 2015 revenues by approximately $ 4.7 million , reduce gross margin by 1.8 % , and reduce operating income by approximately $ 2.1 million as compared to the exchange rates for the year ended december 31 , 2014. however , the actual impact of fluctuations in exchange rates in 2015 may vary materially and adversely from these estimates . net sales and expense components the following is a description of the primary components of our net sales and expenses : net sales . we derive our net sales from the sale of our products , less discounts and returns . net sales include the shipping and handling fees paid for by our customers . most of our sales are generated by our direct sales force and are shipped and billed to hospitals or clinics throughout the world . in countries where we do not have a direct sales force , sales are primarily generated by shipments to distributors who , in turn , sell to hospitals and clinics . in those cases where our products are held on consignment at a hospital or clinic , we generate sales at the time the product is used in surgery rather than at shipment . cost of sales . we manufacture nearly all of the products that we sell . our cost of sales consists primarily of manufacturing personnel , raw materials and components , depreciation of property and equipment , and other allocated manufacturing overhead , as well as freight expense we pay to ship products to customers . sales and marketing . our sales and marketing expense consists primarily of salaries , commissions , stock based compensation , travel and entertainment , attendance at medical society meetings , training programs , advertising and product promotions , direct mail , and other marketing costs . general and administrative . general and administrative expense consists primarily of executive , finance and human resource expense , stock based compensation , legal and accounting fees , information technology expense , intangible amortization expense , and insurance expense . research and development . research and development expense includes costs associated with the design , development , testing , enhancement , and regulatory approval of our products , principally salaries , laboratory testing , and supply costs . it also includes costs associated with design and execution of clinical studies , regulatory submissions and costs to register , maintain , and defend our intellectual property , and royalty payments associated with licensed and acquired intellectual property . 40 restructuring . restructuring expense includes costs directly associated with distribution agreement termination expenses , severance and retention costs for terminated employees , factory relocation costs , and other expenses associated with restructuring our operations . other income ( expense ) . other income ( expense ) primarily includes interest income and expense , foreign currency gains ( losses ) , and other miscellaneous gains ( losses ) . income tax expense . we are subject to federal and state income taxes for earnings generated in the united states , which include operating losses in certain foreign jurisdictions for certain years depending on tax elections made , and foreign taxes on earnings of our wholly-owned canadian , german , and italian subsidiaries . our consolidated tax expense is affected by the mix of our taxable income ( loss ) in the united states and foreign subsidiaries , permanent items , discrete items , unrecognized tax benefits , and amortization of goodwill for u.s tax reporting purposes . story_separator_special_tag foreign exchange losses for 2014 were $ 16,000 compared to $ 0.2 million for 2013 as the exchange rates between the us dollar and euro were generally flat in 2014 and 2013. income tax expense . we recorded a provision for taxes of $ 2.4 million on pre-tax income of $ 6.3 million in 2014 compared to $ 1.1 million on pre-tax income of $ 4.3 million in 2013. the 2014 provision was comprised of federal tax in the united states of $ 1.9 million , state taxes of $ 0.2 million and foreign taxes of $ 0.3 million . the 2013 provision was comprised of federal tax in the united states of $ 2.5 million , state taxes of $ 0.1 million and a net foreign benefit of $ 1.4 million . our effective tax rate differed from the u.s. statutory tax rate in 2014 principally due to manufacturing deductions , research and development tax credits , effect of foreign taxes , stock-based compensation , other permanent differences , state taxes and subpart-f income . while it is often difficult to predict the final outcome or timing of the resolution of any particular tax matter , we believe that our tax reserves reflect the probable outcome of known contingencies . we have assessed the need for a valuation allowance against our deferred tax assets and concluded that as of december 31 , 2014 , we will continue to carry a valuation allowance against $ 3.2 million of deferred tax assets , principally foreign net operating loss and capital loss carry-forwards , which based on the weight of available evidence , we believe it is more likely than not that such assets will not be realized . of the $ 3.2 million of valuation allowance , $ 2.2 million resulted from the xenotis acquisition in australia . we expect our effective tax rate to increase in 2015 if the federal research and development tax credit is not reinstated . if the federal research and development tax credit is reinstated in 2015 , we expect our effective tax rate will be similar to our effective tax rate in 2014. we will not be able to generate federal research and development tax credits in 2015 until and if legislation is enacted .
| these increases were partially offset by a decrease in vessel closure systems of $ 0.6 million and remote endarterectomy devices of $ 0.2 million . international net sales increased $ 4.2 million to $ 27.6 million in 2014. the increase was primarily driven by higher sales of biologic vascular patches of $ 1.4 million , catheters , shunts , and valvulotomes . in addition , our newly acquired biologic vascular graft sales were primarily in europe . recently , we have 41 experienced stronger sales growth in europe as well as other non-traditional markets such as china and saudi arabia as compared to the united states and canada . this trend may continue into 2015 which could negatively impact our gross margin . replace_table_token_8_th * not applicable gross profit . gross profit increased $ 3.3 million to $ 48.4 million in 2014 from $ 45.1 million in 2013 , while our gross margin decreased 1.8 % to 68.1 % in 2014. the gross margin decrease was largely driven by unfavorable product and geographic mix , certain manufacturing cost increases , and increased inventory write-offs , primarily related to our non-occlusive modeling catheter product line . these decreases were partially offset by higher average selling prices across all product lines and the completion of the biologic vascular patch manufacturing transition in the second quarter of 2014. the gross profit increase was a result of higher sales . replace_table_token_9_th * not a meaningful percentage . sales and marketing . sales and marketing expenses were $ 22.1 million in 2014 and 2013. as a percentage of net sales , sales and marketing expenses were 31 % in 2014 , down 3 % from the prior year . selling expenses decreased $ 0.1 million while marketing expenses increased by $ 0.1 million . selling expense decreases were driven by lower travel and sales meetings and related costs of $ 0.4 million , and were partially offset by start-up costs associated with our shanghai office and increased compensation and other
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( b ) interest payments were determined using the weighted average rates for all debt outstanding as of december 31 , 2019 . ( c ) see note 2 . acquisitions for further details on our recent acquisitions . amounts remaining due to sellers , subject to certain conditions , relate to the acquisitions of proseal and prime . ( d ) in the normal course of business , we enter into agreements with our suppliers to purchase raw materials or services . these agreements include a requirement that our supplier provide products or services to our specifications and require us to make a firm purchase commitment to our supplier . as substantially all of these commitments are associated with purchases made to fulfill our customers ' orders , the costs associated with these agreements will ultimately be reflected in cost of sales on our consolidated statements of income . ( e ) this amount reflects planned contributions in 2020 to our pension plans . required contributions for future years depend on factors that can not be determined at this time . ( f ) this amount reflects the transition tax on the previously untaxed and unrepatriated current and accumulated post-1986 foreign earnings of certain foreign subsidiaries as required by the tax act . the following is a summary of other off-balance sheet arrangements at december 31 , 2019 : replace_table_token_15_th to provide required security regarding our performance on certain contracts , we provide letters of credit , surety bonds and bank guarantees , for which we are contingently liable . in order to obtain these financial instruments , we pay fees to various financial institutions in amounts competitively determined in the marketplace . our ability to generate revenue from certain contracts is dependent upon our ability to obtain these off-balance sheet financial instruments . our off-balance sheet financial instruments may be renewed , revised or released based on changes in the underlying commitment . historically , our commercial commitments have not been drawn upon to a material extent ; consequently , management believes it is 43 not likely that there will be claims against these commitments that would result in a negative impact on our key financial ratios or our ability to obtain financing . cash flows cash flows for each of the years ended december 31 , 2019 and 2018 were as follows : replace_table_token_16_th 2019 compared with 2018 cash provided by continuing operating activities in 2019 was $ 110.6 million , representing a $ 44.0 million decrease compared to 2018 . the decrease in the operating cash flows is driven by higher trade receivables and lower advance and progress payments from customers . these decreases in operating cash flows were partially offset by higher income in 2019 compared to 2018 combined with lower payments related to pension and restructuring . cash required by investing activities during 2019 was $ 401.7 million , representing a $ 307.3 million increase compared to 2018 . the change was due primarily to a higher level of investments in acquired companies , where we paid $ 365.9 million for acquisitions completed during 2019 compared to payments of $ 57.5 million in 2018. cash provided by financing activities in 2019 was $ 287.5 million , representing a $ 335.8 million increase in cash provided by financing activities compared to 2018 . the change was due primarily to higher borrowing required to fund higher investment in acquisitions , partially offset by lower deferred acquisition payments and no stock repurchases in 2019 , compared to $ 20 million in 2018. financing arrangements as of december 31 , 2019 we had $ 700.9 million drawn on and $ 288.9 million of availability under the revolving credit facility . our ability to use this availability is limited by the leverage ratio covenant described below . our credit agreement includes covenants that , if not met , could lead to a renegotiation of our credit lines , a requirement to repay our borrowings and or a significant increase in our cost of financing . as of december 31 , 2019 , we were in compliance with all covenants in our credit agreement . we expect to remain in compliance with all covenants in the foreseeable future . however , there can be no assurance that continued or increased volatility in global economic conditions will not impair our ability to meet our covenants , or that we will continue to be able to access the capital and credit markets on terms acceptable to us or at all . for additional information about our credit agreement , refer to note 6. debt of this annual report on form 10-k. we have entered into interest rate swaps to fix the interest rate applicable to certain of our variable-rate debt , with agreements for $ 175 million notional value expiring in february 2020 , and agreements for $ 50 million of notional value expiring in january 2021. these agreements swap one-month libor for fixed rates . we have designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income ( loss ) . as a result , as of december 31 , 2019 , a portion of our variable rate debt was effectively fixed rate debt , while approximately $ 475.9 million , or 68 % , remained subject to floating , or market , rates . since december 31 , 2019 , agreements for $ 175 million notional amount have expired , and as a result , approximately $ 650.9 million , or 93 % , of our outstanding debt as of december 31 , 2019 is now subject to floating interest rates . to the extent interest rates increase in future periods , our earnings could be negatively impacted by higher interest expense . 44 critical accounting estimates we prepare our consolidated financial statements in conformity with u.s. generally accepted accounting principles . as such , we are story_separator_special_tag ( b ) interest payments were determined using the weighted average rates for all debt outstanding as of december 31 , 2019 . ( c ) see note 2 . acquisitions for further details on our recent acquisitions . amounts remaining due to sellers , subject to certain conditions , relate to the acquisitions of proseal and prime . ( d ) in the normal course of business , we enter into agreements with our suppliers to purchase raw materials or services . these agreements include a requirement that our supplier provide products or services to our specifications and require us to make a firm purchase commitment to our supplier . as substantially all of these commitments are associated with purchases made to fulfill our customers ' orders , the costs associated with these agreements will ultimately be reflected in cost of sales on our consolidated statements of income . ( e ) this amount reflects planned contributions in 2020 to our pension plans . required contributions for future years depend on factors that can not be determined at this time . ( f ) this amount reflects the transition tax on the previously untaxed and unrepatriated current and accumulated post-1986 foreign earnings of certain foreign subsidiaries as required by the tax act . the following is a summary of other off-balance sheet arrangements at december 31 , 2019 : replace_table_token_15_th to provide required security regarding our performance on certain contracts , we provide letters of credit , surety bonds and bank guarantees , for which we are contingently liable . in order to obtain these financial instruments , we pay fees to various financial institutions in amounts competitively determined in the marketplace . our ability to generate revenue from certain contracts is dependent upon our ability to obtain these off-balance sheet financial instruments . our off-balance sheet financial instruments may be renewed , revised or released based on changes in the underlying commitment . historically , our commercial commitments have not been drawn upon to a material extent ; consequently , management believes it is 43 not likely that there will be claims against these commitments that would result in a negative impact on our key financial ratios or our ability to obtain financing . cash flows cash flows for each of the years ended december 31 , 2019 and 2018 were as follows : replace_table_token_16_th 2019 compared with 2018 cash provided by continuing operating activities in 2019 was $ 110.6 million , representing a $ 44.0 million decrease compared to 2018 . the decrease in the operating cash flows is driven by higher trade receivables and lower advance and progress payments from customers . these decreases in operating cash flows were partially offset by higher income in 2019 compared to 2018 combined with lower payments related to pension and restructuring . cash required by investing activities during 2019 was $ 401.7 million , representing a $ 307.3 million increase compared to 2018 . the change was due primarily to a higher level of investments in acquired companies , where we paid $ 365.9 million for acquisitions completed during 2019 compared to payments of $ 57.5 million in 2018. cash provided by financing activities in 2019 was $ 287.5 million , representing a $ 335.8 million increase in cash provided by financing activities compared to 2018 . the change was due primarily to higher borrowing required to fund higher investment in acquisitions , partially offset by lower deferred acquisition payments and no stock repurchases in 2019 , compared to $ 20 million in 2018. financing arrangements as of december 31 , 2019 we had $ 700.9 million drawn on and $ 288.9 million of availability under the revolving credit facility . our ability to use this availability is limited by the leverage ratio covenant described below . our credit agreement includes covenants that , if not met , could lead to a renegotiation of our credit lines , a requirement to repay our borrowings and or a significant increase in our cost of financing . as of december 31 , 2019 , we were in compliance with all covenants in our credit agreement . we expect to remain in compliance with all covenants in the foreseeable future . however , there can be no assurance that continued or increased volatility in global economic conditions will not impair our ability to meet our covenants , or that we will continue to be able to access the capital and credit markets on terms acceptable to us or at all . for additional information about our credit agreement , refer to note 6. debt of this annual report on form 10-k. we have entered into interest rate swaps to fix the interest rate applicable to certain of our variable-rate debt , with agreements for $ 175 million notional value expiring in february 2020 , and agreements for $ 50 million of notional value expiring in january 2021. these agreements swap one-month libor for fixed rates . we have designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income ( loss ) . as a result , as of december 31 , 2019 , a portion of our variable rate debt was effectively fixed rate debt , while approximately $ 475.9 million , or 68 % , remained subject to floating , or market , rates . since december 31 , 2019 , agreements for $ 175 million notional amount have expired , and as a result , approximately $ 650.9 million , or 93 % , of our outstanding debt as of december 31 , 2019 is now subject to floating interest rates . to the extent interest rates increase in future periods , our earnings could be negatively impacted by higher interest expense . 44 critical accounting estimates we prepare our consolidated financial statements in conformity with u.s. generally accepted accounting principles . as such , we are
| we believe the accounting estimate related to the valuation allowance is a critical accounting estimate because it is highly susceptible to change from period to period as it requires management to make assumptions about our future income over the lives of the deferred tax assets , and the impact of increasing or decreasing the valuation allowance is potentially material to our results of operations . forecasting future income requires us to use a significant amount of judgment . in estimating future income , we use our internal operating budgets and long-range planning projections . we developed our budgets and long-range projections based on recent results , trends , economic and industry forecasts influencing our segments ' performance , our backlog , planned timing of new product launches , and customer sales commitments . significant changes in the expected realization of the net deferred tax assets would require that we adjust the valuation allowance , resulting in a change to net income . defined benefit pension the measurement of pension plans ' costs requires the use of assumptions for discount rates , investment returns , employee turnover rates , retirement rates , mortality rates and other factors . the actuarial assumptions used in our pension reporting are reviewed annually and compared with external benchmarks to ensure that they appropriately account for our future pension and post-retirement benefit obligations . while we believe that the assumptions used are appropriate , differences between assumed and actual experience may affect our operating results . our accrued pension liability reflects the funded status of our worldwide plans , or the projected benefit obligation net of plan assets . our discount rate assumption is determined by developing a yield curve based on high quality corporate bonds with maturities matching the plan 's expected benefit payment streams . the plans ' expected cash flows are then discounted by the resulting year-by-year spot rates . the projected benefit obligation is sensitive to changes in our estimate of the discount rate . the discount rate used in calculating the projected benefit obligation for the u.s. pension plan , which represents 85 % of all pension plan obligations , was 3.28 % 45 in 2019 and 3.73 % in 2018 and 2017 . a decrease of 50 basis points in the discount rate used in our calculation would increase our projected benefit
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17.2 million or 110.6 % of non-performing loans and 1.14 % of gross loans at december 31 , 2016. as a result of the loans acquired in the business combination transactions being recorded at their fair value , the balances in the allowance for loan losses that were on the balance sheets of the former pamrapo bancorp , inc. , and allegiance community bank are precluded from being reported in the allowance balance previously discussed , consistent with generally accepted accounting principles . total cash and cash equivalents increased by $ 59.2 million , or 91.0 % , to $ 124.2 million at december 31 , 2017 from $ 65.0 million at d ecember 31 , 2016 , primarily related to the company 's goal of further strengthening its liquidity position . securities available for sale increased $ 27.8 million , or 29.4 % , to $ 122.6 million at december 31 , 2017 from $ 94.8 million at december 31 , 2016. as part of our growth and liquidity strategies , the bank sought to further strengthen our balance sheet by increasing our investment portfolio . deposit liabilities increased by $ 177.2 million , or 12.7 % , to $ 1.569 billion at december 31 , 2017 from $ 1.392 billion at december 31 , 2016. the increase resulted primarily from an increase of $ 123.8 million in certificates of deposit , an increase of $ 22.4 million in money market interest-bearing deposits , an increase of $ 17.2 million in non-interest-bearing deposits , an increase of $ 15.3 million in interest-bearing checking deposits , partially offset by a decrease of $ 1.5 million in savings and club deposits . recognizing this shift in the mix of our deposits , the attraction and retention of non-interest bearing commercial deposits , and longer dated maturity deposits remains a focus of our retail deposit gathering philosophy . the company had no short-term borrowings at december 31 , 2017 and $ 20.0 million at december 31 , 2016. long-term borrowings increased by $ 30.0 million , or 19.4 % , to $ 185.0 million at december 31 , 2017 from $ 155.0 million at december 31 , 2016. the purpose of the borrowings reflected the use of long term and short term fhlb advances to augment deposits as the company 's funding source for originating loans and investing in gse investment securities . stockholders ' equity increased $ 45.4 million , or 34.6 % , to $ 176.5 million at december 31 , 2017 from $ 131.1 million at december 31 , 2016 , primarily as a result of the $ 42.8 million of proceeds from company 's common stock equity raise that took place in the third quarter of the year . 35 analysis of net interest income net interest income is the difference between interest income on interest-earning assets and interest expense o n interest-bearing liabilities . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them , respectively . the following tables set forth balance sheets , average yields and costs , and certain other information for the years indicated . all average balances are daily a verage balances . the yields set forth below include the effect of deferred fees , discounts and premiums , which are included in interest income . replace_table_token_21_th _ ( 1 ) excludes allowance for loan losses . ( 2 ) includes federal home loan bank of new york stock . ( 3 ) interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . 36 analysis of net interest income ( continued ) replace_table_token_22_th _ ( 1 ) excludes allowance for loan losses . ( 2 ) includes federal home loan bank of new york stock . ( 3 ) interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . 37 rate/volume analysis the table below sets forth certain information regarding changes in our interest income and interest exp ense for the years indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( i ) changes in average volume ( changes in average volume multiplied by old rate ) ; ( ii ) changes in rate ( change in rate multiplied by old average volume ) ; ( iii ) changes due to combined changes in rate and volume ; and ( iv ) the net change . replace_table_token_23_th 38 results of operations for the years ended december 31 , 201 7 and 201 6 net income was $ 10.0 million for the year ended december 31 , 2017 , compared with $ 8.0 million for the year ended december 31 , 2016. net income increased due to higher interest income , lower interest expense , higher non-interest income , and lower non-interest expense , partially offset by an increase in the provision for loan losses and higher income tax expense for the year ended december 31 , 2017 , as compared with the year ended december 31 , 2016 . story_separator_special_tag net interest income increased by $ 6.8 million , or 12.4 % , to $ 61.9 million for the year ended december 31 , 2017 from $ 55.1 million for the year ended december 31 , 2016. the increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $ 115.4 million , or 7.0 % , to $ 1.773 billion for the year ended december 31 , 2017 from $ 1.658 billion for year ended december 31 , 2016 , as well as an increase in the average yield on interest-earning assets of 7 basis points to 4.37 % for the year ended december 31 , 2017 from 4.30 % for the year ended december 31 , 2016. the average balance of interest-bearing liabilities increased by $ 79.3 million , or 5.6 % , to $ 1.484 billion for the year ended december 31 , 2017 from $ 1.405 billion for the year ended december 31 , 2016 , and the average cost of interest bearing liabilities decreased by 10 basis points to 1.06 % for year ended december 31 , 2017 from 1.16 % for the year ended december 31 , 2016. the net interest margin was 3.49 % for the year ended december 31 , 2017 , and 3.32 % for the year ended december 31 , 2016 . interest income on loans receivable increased by $ 3.9 million , or 5.7 % , to $ 73.4 million for the year ended december 31 , 2017 from $ 69.4 million for the year ended december 31 , 2016. the increase was primarily attributable to an increase in the average balance of loans receivable of $ 141.5 million , or 9.8 % , to $ 1.591 billion for the year ended december 31 , 2017 from $ 1.450 billion for the year ended december 31 , 2016 , partially offset by a decrease in the average yield on loans receivable to 4.61 % for the year ended december 31 , 2017 from 4.79 % for the year ended december 31 , 2016. the increase in the average balance of loans receivable was the result of our comprehensive loan growth strategy . the decrease in average yield on loans reflected the competitive price environment prevalent in the company 's primary market area on loan facilities as well as the repricing downward of certain variable rate loans . interest income on securities increased by $ 1.7 million , or 138.6 % , to $ 2.9 million for the year ended december 31 , 2017 from $ 1.2 million for the year ended december 31 , 2016. this increase was primarily due to an increase in the average balance of securities of $ 65.6 million , or 168.7 % , to $ 104.5 million for the year ended december 31 , 2017 from $ 38.9 million for the year ended december 31 , 2016 , partly offset by a decrease in the average yield of securities to 2.78 % for the year ended december 31 , 2017 from 3.13 % for the year ended december 31 , 2016 . interest income on other interest-earning assets increased by $ 580,000 , or 79.2 % , to $ 1.3 million for the year ended december 31 , 2017 from $ 732,000 for the year ended december 31 , 2016. this increase was primarily due to an increase in the average yield on other interest-earning assets to 1.70 % for the year ended december 31 , 2017 from 0.43 % for the year ended december 31 , 2016 , partially offset by a decrease in the average balance of other interest-earning assets of $ 91.7 million , or 54.2 % , to $ 77.4 million for the year ended december 31 , 2017 from $ 169.1 million for the year ended december 31 , 2016 . total interest expense decreased by $ 608,000 , or 3.7 % , to $ 15.7 million for the year ended december 31 , 2017 from $ 16.3 million for the year ended december 31 , 2016. the increase resulted primarily from an increase in the average balance of interest-bearing liabilities of $ 79.3 million , or 5.6 % , to $ 1.484 billion for the year ended december 31 , 2017 from $ 1.405 billion for the year ended december 31 , 2016 as well as a decrease in the average cost of interest-bearing liabilities of 10 basis points to 1.06 % for the year ended december 31 , 2017 from 1.16 % for the year ended december 31 , 2016 . the provision for loan losses totaled $ 2.1 million and $ 27,000 for the years ended december 31 , 2017 and 2016 , respectively . the provision for loan losses is established based upon management 's review of the company 's loans and consideration of a variety of factors including , but not limited to , ( 1 ) the risk characteristics of the loan portfolio , ( 2 ) current economic conditions , ( 3 ) actual losses previously experienced , ( 4 ) the activity and fluctuating balance of loans receivable , and ( 5 ) the existing level of reserves for loan losses that are probable and estimable . during the year ended december 31 , 2017 , the company experienced $ 1.9 million in net charge-offs ( consisting of $ 2.14 million in charge-offs and $ 200,000 in recoveries ) . during the year ended december 31 , 2016 , the company experienced $ 860,000 in net charge-offs ( consisting of $ 1.08 million in charge-offs and $ 221,000 in recoveries ) . the company had non-performing loans totaling $ 13.4 million , or .
| factors that could have a material adverse effect on the operations of the company and its subsidiaries include , but are not limited to , changes in market interest rates , general economic conditions , legislation , and regulation ; changes in monetary and fiscal policies of the united states government , including policies of the united states treasury and federal reserve board ; changes in the quality or composition of the loan or investment portfolios ; changes in deposit flows , competition , and demand for financial services , loans , deposits and investment products in the company 's local markets ; changes in accounting principles and guidelines ; war or terrorist activities ; and other economic , competitive , governmental , regulatory , geopolitical and technological factors affecting the company 's operations , pricing and services . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date of this discussion . although the company believes that the expectations reflected in the forward-looking statements are reasonable , the company can not guarantee future results , levels of activit y , performance or achievements . except as required by applicable law or regulation , the company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made . 33 critical accounting policies critical accounting policies are those accounting policies that can have a significant impact on the company 's financial position and results of operations that require the use of complex and subjective estimates based upon past experiences and management 's judgment . because of the uncertainty inherent in such estimates , actual results m ay differ from these estimates . below are those policies applied in preparing the company 's consolidated financial statements that management believes are the most dependent on the applicatio n of estimates and assumptions . for additional accounting policies , see note 2 of “ notes to consolidated financial statements. ” allowance for loan losses loans receivable are presented net of an allowance for loan losses and net deferred loan fees . in determining the appropriate level of the allowance , management considers a combination of factors , such as economic and industry trends , real estate market conditions , size and type of loans in portfolio , nature and value of collateral held , borrowers ' financial strength and credit ratings , and prepayment
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our strategy is to grow guest traffic by continuing to offer innovative , high quality menu items that offer guests a wide range of options in terms of flavor , price and value . in addition , we focus on service and hospitality with the goal of delivering an exceptional guest experience . check average is impacted by menu price increases and or changes in menu mix . our philosophy with regard to menu pricing is to use price increases to help offset key operating costs in a manner that balances protecting both our margins and guest traffic levels . in fiscal 2012 , our menu mix was influenced by check management by our guests and a shifting of menu preferences as we evolve our menu and our guests try new items . over time , and as the economy strengthens , we expect menu mix to stabilize , allowing us to capture more of the menu price increases we implement . · income from operations expressed as a percentage of revenues ( operating margins ) . operating margins are subject to fluctuations in commodity costs , labor , restaurant-level occupancy expenses , general and administrative expenses ( g & a ) , and preopening expenses . our objective is to gradually increase our operating margins to return to peak levels by capturing fixed cost leverage from comparable restaurant sales increases , growth in international royalties , maximizing our purchasing power as our business grows , and operating our restaurants as productively as possible . by efficiently scaling our restaurant and bakery support infrastructure and improving our internal processes , we work toward growing g & a expenses at a slower rate than revenue growth over the long-term , which also should contribute to operating margin expansion . however , g & a as a percentage of revenues may vary from quarter to quarter and may increase on a year over year comparative basis in the near term as we ramp up our infrastructure to support our international growth . · return on investment . return on investment measures our ability to make the best decisions regarding our allocation of capital . returns are affected by the cost to build restaurants , the level of revenues that each restaurant can deliver and our ability to maximize the profitability of restaurants through operational execution and disciplined cost management . our objective is to deploy capital in a manner that will maximize our return on investment . story_separator_special_tag .0001pt ; '' > cost of sales cost of sales consists of food , beverage , retail and bakery production supply costs incurred in conjunction with our restaurant and bakery revenues , and excludes depreciation , which is captured separately in depreciation and amortization expenses . as a percentage of revenues , cost of sales decreased to 24.9 % in fiscal 2012 compared to 25.5 % in fiscal 2011. this improvement was primarily due to lower costs for dairy , produce and fish ( 40 basis point decrease ) , as well as a 20 basis point benefit from a higher mix of restaurant sales as compared to bakery sales . our restaurant menus are among the most diversified in the foodservice industry and , accordingly , are not overly dependent on a few select commodities . changes in costs for one commodity can sometimes be offset by cost changes in other commodity categories . the principal commodity categories for our restaurants include produce , poultry , meat , fish and seafood , dairy , bread and general grocery items . we attempt to negotiate short-term and long-term agreements for our principal commodity , supply and equipment requirements , depending on market conditions and expected demand . however , we are currently unable to contract for extended periods of time for certain of our commodities such as fish and many dairy items ( excluding cream cheese used in our bakery operations ) . consequently , these commodities can be subject to unforeseen supply and cost fluctuations . cream cheese is the most significant commodity used in our bakery products . we contracted for a substantial portion of our fiscal 2012 cream cheese requirements and purchased cream cheese on the spot market as necessary to supplement our contracted amounts . as has been our past practice , we will carefully consider opportunities to introduce new menu items and implement selected menu price increases to help offset any expected cost increases for key commodities and other goods and services utilized by our operations . for new restaurants , cost of sales will typically be higher during the first three to four months of operations until our management team becomes more accustomed to optimally predicting , managing and servicing the sales volumes at the new restaurant . labor expenses as a percentage of revenues , labor expenses , which include restaurant-level labor costs and bakery direct production labor , including associated fringe benefits , decreased to 32.1 % in fiscal 2012 compared to 32.3 % in fiscal 2011. this variance is primarily due to lower group medical insurance costs stemming from lower claims experience . other operating costs and expenses other operating costs and expenses consist of restaurant-level occupancy expenses ( rent , common area expenses , insurance , licenses , taxes and utilities ) , other operating expenses ( excluding food costs and labor expenses , which are reported separately ) and bakery production overhead , selling and distribution expenses . as a percentage of revenues , other operating costs and expenses were 24.3 % for both fiscal 2012 and fiscal 2011. general and administrative expenses general and administrative ( g & a ) expenses consist of the restaurant management recruiting and training program , as well as the restaurant field supervision , bakery administrative and corporate support organizations . as a percentage of revenues , g & a expenses increased to 5.7 % for fiscal 2012 versus 5.5 % for fiscal 2011 due primarily to achievement of a higher corporate bonus target in fiscal 2012 than in the prior year . story_separator_special_tag depreciation and amortization expenses as a percentage of revenues , depreciation and amortization expenses were 4.1 % for both fiscal 2012 and fiscal 2011. impairment of assets and lease terminations in fiscal 2012 , we recorded expense of $ 5.5 million , representing a reduction in the carrying value of one the cheesecake factory restaurant . in fiscal 2011 , we recorded expense of $ 1.5 million , representing reductions to the carrying values of three previously impaired locations , consisting of one grand lux cafe and two the cheesecake factory restaurants . no impairment charges were recorded in fiscal 2010. if the economic recovery remains slow and or we are unable to implement initiatives to reduce costs over time at certain of our locations , we may be required to record additional impairment charges in future periods . also in fiscal 2012 , we made the business decision to discontinue operations in three of our grand lux cafe restaurants , each of which was previously fully impaired , because they were not delivering the necessary sales volumes to drive our required returns . we incurred $ 4.0 million in the fourth quarter of fiscal 2012 for partial reimbursement to the landlords of tenant improvement allowances and broker fees on these leases . we expect to incur approximately $ 1.0 million in the first quarter of fiscal 2013 for future rent and other closing costs on these locations . 32 preopening costs preopening costs were $ 12.3 million for fiscal 2012 compared to $ 10.1 million for the prior fiscal year . we incurred preopening costs to open seven the cheesecake factory restaurants and one grand lux cafe in fiscal 2012 compared to opening seven the cheesecake factory restaurants during fiscal 2011. preopening costs include all costs to relocate and compensate restaurant management employees during the preopening period ; costs to recruit and train hourly restaurant employees ; and wages , travel and lodging costs for our opening training team and other support staff members . also included in preopening costs are expenses for maintaining a roster of trained managers for pending openings ; the associated temporary housing and other costs necessary to relocate managers in alignment with future restaurant opening and operating needs ; and corporate travel and support activities . preopening costs can fluctuate significantly from period to period , based on the number and timing of restaurant openings and the specific preopening costs incurred for each restaurant . interest and other ( expense ) /income , net interest and other ( expense ) /income , net increased to $ 4.7 million of expense for fiscal 2012 compared to $ 4.3 million of expense for fiscal 2011. this increase was primarily due to $ 0.7 million of interest income recorded in fiscal 2011 in conjunction with a partial irs settlement as described in note 13 of notes to consolidated financial statements in part iv , item 15 of this report . this was partially offset by lower interest expense associated with landlord construction allowances deemed to be financing in accordance with accounting guidance ( $ 3.2 million in fiscal 2012 compared to $ 3.8 million in fiscal 2011 ) . income tax provision our effective income tax rate was 26.5 % for fiscal 2012 compared to 25.9 % for fiscal 2011. this increase was primarily attributable to the expiration of the hiring incentives to restore employment ( hire ) act retention credit at the end of fiscal 2011 and the favorable resolution in fiscal 2011 of litigation we filed against the irs . these increases were partially offset by non-taxable gains in fiscal 2012 as compared to non-deductible losses in the prior year on our investments in variable life insurance used to support our executive savings plan , a non-qualified deferred compensation plan . the increases were further offset by a higher fica tip credit in fiscal 2012 as compared to the prior year driven by higher restaurant sales and state minimum wage increases . see note 13 of notes to consolidated financial statements in part iv , item 15 of this report for further information on our income tax provision . fiscal 2011 compared to fiscal 2010 revenues revenues increased 5.9 % to $ 1,757.6 million for fiscal 2011 , including approximately $ 43 million contributed by the 53 rd week , compared to $ 1,659.4 million for fiscal 2010 , a 52 week year . restaurant revenues increased 6.2 % to $ 1,685.0 million for fiscal 2011 compared to $ 1,586.3 million for the prior fiscal year . the 53 rd week contributed approximately $ 41 million in restaurant revenues in fiscal 2011. comparable sales at the cheesecake factory and grand lux cafe restaurants increased by 1.8 % , or $ 28.9 million , from fiscal 2010 to fiscal 2011. at january 3 , 2012 , there were eight the cheesecake factory restaurants not included in the comparable sales base . comparable sales at the cheesecake factory restaurants increased 2.0 % from fiscal 2010 on a 53 week basis driven by both improved guest traffic and average check . we implemented effective menu price increases of approximately 0.7 % and 1.3 % during the first and third quarters of fiscal 2011 , respectively . on a weighted average basis , based on the timing of our menu roll outs within each quarter , the cheesecake factory menu included a 1.6 % increase in pricing for fiscal year 2011. this increase in menu pricing was partially offset by a menu mix shift due to check management by guests , particularly related to non-alcoholic beverage purchases . 33 comparable sales at our grand lux cafe restaurants decreased 0.3 % from fiscal year 2010 on a 53 week basis driven by a decline in guest traffic , partially offset by an increase in average check . during the second quarter of fiscal 2011 , we implemented an effective menu price increase of approximately 1.4 % .
| on a weighted average basis , based on the timing of our menu roll outs within each quarter , the cheesecake factory menu included a 1.9 % increase in pricing for fiscal year 2012. this increase in menu pricing was partially offset by changes in menu mix due to check management by our guests , as well as some shifting of menu preferences as our guests tried newer items . inclusive of our summer 2012 and winter 2013 menu changes , we are targeting an effective price increase of approximately 1.8 % for the first half of fiscal 2013. we plan to review our operating cost and expense trends in the spring of 2013 and consider the need for additional menu pricing in connection with our 2013 summer menu change . comparable sales at our grand lux cafe restaurants decreased 2.0 % from fiscal year 2011 driven by lower guest traffic , partially offset by an increase in average check . with fewer restaurants in operation than the cheesecake factory and a number of locations that are proportionately larger in size , grand lux cafe can experience greater variability in its comparable sales . we implemented effective menu price increases of approximately 1.0 % and 0.8 % during the second and fourth quarters of fiscal 2012 , respectively . on a weighted average basis , based on the timing of our menu roll outs within each quarter , the grand lux cafe menu included a 1.5 % increase in pricing for fiscal year 2012. this increase in menu pricing was partially offset by changes in menu mix due to check management by our guests , as well as some shifting of menu preferences as our guests tried newer items . inclusive of our spring and fall 2012 menu changes , we are targeting an effective price increase of approximately 1.8 % for the first half of fiscal 2013. we are reviewing our operating cost and expense trends and are considering the need for additional menu pricing in connection with our 2013 spring menu change . we generally update and reprint our menus twice a year . as part of these menu updates , we evaluate the need for price increases based on those operating cost and expense
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the company allocated approximately one-half of the cost of the agreement as a loss on the settlement of claims and , accordingly , recorded a loss of $ 665 in the second quarter of 2013. the remaining amounts to be paid are treated as contract acquisition costs and are being amortized to expense over three years starting in july 2013 , consistent with the contract terms between the providence journal and the newspaper and magazine publishers . in the fourth quarter of 2013 , the dallas morning news , inc. executed an agreement with star telegram , inc. to provide printing services for the fort worth star-telegram , a major metropolitan newspaper , whose reported average print circulation volumes per the september 2013 publisher 's statement were approximately 190,000 copies on sundays and 110,000 daily copies on mondays through fridays . printing of this newspaper is scheduled to commence in the first quarter of 2014 at the company 's printing operations in plano , texas . effective september 11 , 2013 , robert w. decherd retired as the company 's chairman , president and chief executive officer after 40 years of employment with the company and former parent company . mr. decherd was succeeded by james m. moroney iii . mr. moroney served as the company 's executive vice president since december 2007 and as publisher and chief executive officer of the dallas morning news since june 2001. in september 2013 , mr. moroney was elected as the chairman of the company 's board of directors and mr. decherd now serves as vice chairman of the company . in addition to the above , the following significant transactions and events affected a. h. belo 's results of operations and financial position during 2013 : in 2013 , 508 digital and speakeasy each completed their first full year of operations and generated $ 5,773 in revenue . the company continues to focus on diversifying its revenue streams and in addition to 508 digital and speakeasy , the company began publishing design guide and texas wedding guide , luxury design and wedding guide publications and related websites targeting upscale builders , interior designers and wedding related businesses in various texas markets . the company also began promoting events , such as one day university , through its crowdsource operation . the company concluded the accrual of transition benefits to the a. h. belo pension transition supplement plan ( the “ pts plan ” ) in the first quarter . the company recognized $ 1,090 of remaining expense related to the pts plan and made $ 5,217 of contributions to the plan , representing current and prior year obligations . as a result of an increase in the discount rate and favorable investment performance , the net unfunded position of the pension plans was $ 50,082 as of december 31 , 2013 , an improvement of $ 72,739 from the prior year . the company made required contributions to its pension plans of $ 7,396 and voluntary contributions of $ 4,604 . dividend proceeds of $ 2,952 were received from an equity method investee , reducing the carrying value of this investment . dividends totaling $ 6,356 were recorded and paid to shareholders and to holders of restricted stock units . the quarterly dividend rate was increased from $ 0.06 per share to $ 0.08 per share effective with the dividend declared in the second quarter and paid in the third quarter . the company received a refund of $ 1,334 on a tax return amended in a prior year . the company acquired 421,070 of its series a shares through open market transactions for $ 2,763 , which are recorded as treasury stock . page 18 a. h. belo corporation 2013 annual report on form 10-k story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-align : justify ; font-size:10pt ; '' > the providence journal the table below sets forth the components of the providence journal net operating revenue for the last three years . certain prior year amounts were reclassified to conform to current year presentation . replace_table_token_8_th display – revenue decreased in 2013 and 2012 as a result of a decline in retail and general advertising volumes . classified – revenue decreased in 2013 due to lower rates in all categories , offset by an increase in automotive volumes . revenue decreased in 2012 due to a volume decline in legal and automotive advertising . preprint – revenue decreased in 2013 and 2012 due to a decline in the volume of preprint newspaper inserts , consistent with the decline in circulation volumes . the 2013 decline is partially offset by higher volumes in home delivery mail advertisements . digital – revenue decreased in 2013 and 2012 due to reduced volumes in banner and online advertising . revenue also declined in 2013 due to lower real estate classified advertising and , in 2012 , due to a decline in employment and other classified advertising . circulation – revenue decreased in 2013 due to a decline in home delivery and single copy paid print circulation volumes of 8.7 percent and 11.9 percent , respectively , partially offset by an effective rate increase of 10.0 percent in home delivery rates . revenue increased in 2012 primarily due to $ 3,737 of revenue related to the providence journal 's transition from a carrier buy-sell circulation model to a distributor fee-for-service circulation model at the end of 2011. under this model , higher revenue is recognized , offset by higher distribution expenses . the increase due to the change in circulation model in 2012 was offset by a decline in home delivery and single copy paid print circulation volumes of 7.3 percent and 8.9 percent , respectively . printing and distribution – revenue increased in 2013 and 2012 due to expanded distribution of new and existing third-party newspapers . in the second quarter of 2013 , the providence journal executed an agreement allowing it to effectively assume the distribution of various national and regional newspapers and magazines previously managed by a third-party distributor . story_separator_special_tag this expansion generated $ 1,886 of additional revenue in 2013. see the consolidated financial statements , note 14 – contingencies . the company has currently engaged stephens inc. to explore a potential sale of the providence journal as the company focuses resources and management time and attention on its core dallas market . page 22 a. h. belo corporation 2013 annual report on form 10-k operating costs and expenses the table below sets forth the components of the company 's operating expenses for the last three years . replace_table_token_9_th employee compensation and benefits – expenses decreased in 2013 due to the cessation of benefits related to the pts plan in the second quarter of 2013 , resulting in a savings of $ 3,038. savings of $ 1,677 were also achieved due to lower headcount and cost control initiatives related to employee medical benefits . the company realized lower pension expense in 2013 and 2012 of $ 1,465 and $ 2,065 , respectively , due to lower discount rates on the a. h. belo pension plans ' projected benefit obligations and higher returns due to increased plan assets . in 2012 , the company realized lower compensation costs due to headcount reduction efforts . the 2011 loss for the pension plan withdrawal is further discussed below . other production , distribution and operating costs – expenses increased in 2013 and 2012 due to higher operating costs associated with 508 digital and speakeasy of $ 3,975 and $ 1,209 , respectively , as these marketing services operations continued to grow . expenses also increased in 2013 by $ 665 due to the settlement of a distribution contingency and by $ 2,297 due to a nonrecurring property tax credit received in 2012 , both at the providence journal . in 2012 , distribution costs for home delivery and outside publications increased at the providence journal due to the revised carrier distribution model and decreased at the dallas morning news consistent with lower circulation volumes . other expenses declined in 2013 due to lower legal , technology and sales promotion costs and declined in 2012 due to reduced out-sourcing of technology and consulting services . newsprint , ink and other supplies – expenses increased in 2013 and 2012 due to increased costs of supplements and ink resulting from a greater number of third-party publications under buy-sell arrangements , and due to additional preprint mail costs in 2013. these expenses were partially offset in both 2013 and 2012 by reduced newsprint costs associated with lower circulation volumes of the company 's newspapers . newsprint consumption approximated 48,195 , 49,670 and 52,570 metric tons in 2013 , 2012 and 2011 , respectively , at an average cost per metric ton of $ 606 , $ 618 and $ 636 , respectively . depreciation – expenses decreased in 2013 and 2012 due to a higher level of in-service assets being fully depreciated . in 2012 , the lower expense was partially offset by additional depreciation expense of $ 762 due to certain property , plant and equipment that was determined to have a shorter remaining useful life than previously estimated . asset impairments – asset impairments in 2011 included a loss of $ 872 to adjust the carrying value of a former commercial printing operation located in riverside , california to its appraised value . pension plan withdrawal – a final settlement was recorded in 2011 to adjust the projected benefit obligations assumed by the company 's pension plans , resulting in a loss of $ 1,988 . in 2010 , the company had withdrawn from a defined benefit pension plan sponsored by the former parent company and recorded a loss for the unfunded obligations assumed at that time . the settlement recorded in 2011 represented an adjustment to the projected benefit obligation resulting from the finalization of demographic data for participants transferred to the company 's pension plans . the company has no further obligations or claims related to the pension plan of the former parent company . amortization – expense increased due to amortization of customer relationships acquired in the purchase of certain assets and liabilities of dg publishing , inc. , which was recorded during the first quarter of 2013. a. h. belo corporation 2013 annual report on form 10-k page 23 other the table below sets forth the other components of the company 's results of operations for the last three years . replace_table_token_10_th “ n.m. ” – percent change is not meaningful . other – income in 2013 decreased due to lower gains on asset sales and lower income for equity method investments . income in 2012 increased due to greater investment income recognized from classified ventures and the positive current year impact of the company no longer owning an interest in belo investment , llc , which previously resulted in the company recognizing investment losses . interest expense – interest expense decreased in 2013 due to the company voluntarily terminating the its credit agreement in the first quarter , partially offset by the amortization of the $ 401 remaining debt issuance costs related to the credit agreement . tax provision – tax provision decreased in 2012 due to a one-time charge of $ 2,961 related to a pre-distribution internal revenue service ( “ irs ” ) audit adjustment in 2011 , pursuant to the tax matters agreement with the former parent company . see the consolidated financial statements , note 9 – income taxes . page 24 a. h. belo corporation 2013 annual report on form 10-k earnings and adjusted earnings before interest , taxes , depreciation and amortization from continuing operations in addition to net income ( loss ) from continuing operations , the company also evaluates earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) which is presented for continuing operations by adjusting for discontinued operations and losses attributable to noncontrolling interests .
| in 2012 , the dallas morning news and its marketing solutions group , dmnmedia , reached an agreement with localedge , hearst corporation 's full service internet marketing business , to resell localedge 's digital solutions to small businesses under the name of 508 digital in the dallas/fort worth areas . these solutions include development of mobile websites , search engine marketing and optimization , video , mobile advertising and email marketing . the dallas morning news also offers advertising analytics and online reputation management services . the company also entered into a joint venture with a local advertising agency , forming speakeasy , which targets middle-market business customers and provides turnkey social media account management and content development services . revenues from these marketing services initiatives were $ 5,773 in 2013 , up from $ 944 in 2012 , offsetting approximately 70 percent of the core print advertising revenue declines at the dallas morning news in 2013. although the company expects advertising revenues in the company 's core newspapers will continue to decrease in 2014 , we anticipate further revenue growth with 508 digital , speakeasy and other potential acquisitions to substantially offset these declines . the company 's newspapers aggressively market the capacity of their printing and distribution assets to other newspapers that would benefit from cost sharing arrangements . the company was successful in growing printing and distribution revenue by 4.6 percent and 14.6 percent in 2013 and 2012 , respectively , as a result of expansion of its distribution of third-party newspapers in its rhode island markets . additionally , as a result of executing an agreement to print the fort worth star-telegram starting in 2014 , the company anticipates additional printing and inserting revenues of $ 6,000 to $ 6,500 on an annual basis . a. h. belo corporation 2013 annual report on form 10-k page 19 newspaper revenue the table below sets forth the net operating revenues of a. h. belo 's daily newspapers for the last three years . replace_table_token_6_th ( a ) revenue reported for the providence journal in 2012
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however , since 2013 , the levels of modifications and extensions have declined and repayments of loans increased as borrowers ' access to financing improved . if the markets were to deteriorate and another prolonged economic downturn was to occur , we believe there could be additional loan modifications and delinquencies which may result in reduced net interest margins and additional losses throughout our sector . refer to item 1a of this report for additional risk factors . primary sources of operating revenues we derive our operating revenues primarily through interest received from making real estate-related bridge , mezzanine and junior participation loans and preferred equity investments . interest income earned on these loans and investments represented approximately 80 % , 76 % and 75 % of our total revenues in 2015 , 2014 and 2013 , respectively . property operating income is derived from our hotel and multifamily real estate owned assets . property operating income represented approximately 19 % , 23 % and 23 % of our total revenues in 2015 , 2014 and 2013 , respectively . the operation of a portfolio of hotel properties that we own is seasonal with the majority of revenues earned in the first two quarters of the calendar year . changes in financial condition assetscomparison of balances at december 31 , 2015 to december 31 , 2014 : cash and cash equivalents increased $ 138.3 million primarily due to loan payoffs and interest from our investments as well as proceeds from the unwinding of several of our cdo/clo vehicles , net of funding new loan originations and investments and payment of distributions to our stockholders . restricted cash decreased $ 169.8 million primarily due to the unwinding of all of our cdo vehicles and one of our clo vehicles and is net of issuance proceeds available from our fourth and fifth clos . restricted cash is kept on deposit with the trustees for our clos , and primarily represents proceeds received from loan payoffs and paydowns that have not yet been disbursed to bondholders or redeployed into new assets , as well as unfunded loan commitments and interest payments received from loans . our loan and investment portfolio balance , including our available-for-sale securities , was $ 1.56 billion and $ 1.59 billion at december 31 , 2015 and 2014 , respectively . the decrease in our portfolio balance was primarily due to loan payoffs and other reductions exceeding loan originations , see below for details . our portfolio had a weighted average current interest pay rate of 5.63 % and 5.44 % at december 31 , 2015 and 2014 , respectively . including certain fees and costs associated with the loan and investment portfolio , the weighted average current interest rate was 6.32 % and 6.16 % , respectively . advances on our financing facilities totaled $ 1.18 billion and $ 1.23 billion at december 31 , 2015 and 2014 , respectively , with a weighted average funding cost of 3.70 % and 3.65 % , respectively , which excludes changes in the market value of certain interest rate swaps and financing costs . including the financing costs , the weighted average funding rate was 4.12 % and 4.07 % , respectively . 40 loan and investment activity during 2015 was comprised of : originated 70 loans totaling $ 828.2 million with a weighted average interest rate of 6.87 % . received full satisfaction of 66 loans totaling $ 716.2 million that had a weighted average interest rate of 6.90 % , received partial paydowns on 16 loans totaling $ 112.5 million with a weighted average interest rate of 5.08 % , charged-off a fully reserved loan for $ 32.0 million and transferred an $ 8.4 million loan with a $ 2.5 million reserve to real estate owned , net . modified three loans totaling $ 34.3 million resulting in a decrease in the weighted average interest rate from 12.92 % to 11.50 % . extended 41 loans totaling $ 274.4 million . acquired a first mortgage note for $ 116.0 million with a default interest rate of 9.95 % in march 2015 that was subsequently paid off in april 2015. our allowance for loan losses was $ 86.8 million at december 31 , 2015 , a decrease of $ 28.7 million from december 31 , 2014 primarily due to the write-off of a fully reserved junior participation loan for $ 32.0 million . since december 31 , 2015 , we have originated 11 new loans for a total of $ 138.6 million and received a total of $ 8.5 million for the repayment in full of three loans . investments in equity affiliates increased $ 26.0 million primarily as a result of $ 19.3 million in total investments we made in a residential mortgage banking business and $ 6.6 million of income from equity affiliates recognized on these investments during 2015. real estate owned decreased $ 24.1 million primarily from reclassifying three hotel portfolio properties with an aggregate carrying value of $ 26.2 million to held-for-sale in connection with the sale of these properties , partially offset by the acquisition of a $ 5.9 million office building by deed in lieu of foreclosure . the $ 5.7 million decrease in real estate held-for-sale is primarily the result of the sale of four held-for-sale properties , partially offset by reclassifying the three hotel portfolio properties as described above . we sold the properties for $ 41.1 million , recognizing a gain of $ 7.8 million and paid off a related mortgage note payable of $ 9.1 million . liabilitiescomparison of balances at december 31 , 2015 to december 31 , 2014 : credit facilities and repurchase agreements decreased $ 43.8 million primarily due to paying down the facilities with a portion of the proceeds from the issuance of clo iv and clo v , partially offset by utilizing a portion of three new financing facilities with total capacity of $ 191.5 million , as well as increasing the capacity of an existing facility by $ 15.0 million . story_separator_special_tag collateralized loan obligations increased $ 305.8 million primarily due to the completion of our fourth collateralized securitization in the first quarter of 2015 where we issued $ 219.0 million of clo notes , and the completion of our fifth collateralized securitization in the third quarter of 2015 where we issued $ 267.8 million of clo notes , partially offset by the unwind of clo ii totaling $ 177.0 million in the first quarter of 2015. collateralized debt obligations decreased $ 331.2 million due to the unwind of cdo i and cdo ii in the first quarter of 2015 and cdo iii in the third quarter of 2015. equity equity activity in 2015 consisted of the issuance of 402,694 shares of restricted stock to employees of ours and our manager , including our chief executive officer , and 83,430 shares to the independent members of the board of directors . we also issued up to 445,765 performance-based restricted 41 common stock units to our chief executive officer that vest at the end of a four-year performance period subject to meeting certain total stockholder return objectives . see note 12 '' equity '' of this report . as of february 26 , 2016 , we have $ 330.4 million available under our $ 500.0 million shelf registration statement that was declared effective by the sec in august 2013. the following table presents dividends declared ( on a per share basis ) for 2015 : replace_table_token_9_th ( 1 ) preferred stockthe dividend declared on february 2 , 2015 was for the period december 1 , 2014 through february 28 , 2015. the dividend declared on april 29 , 2015 was for the period march 1 , 2015 through may 31 , 2015. the dividend declared on july 29 , 2015 was for the period june 1 , 2015 through august 31 , 2015. the dividend declared on november 2 , 2015 was for the period september 1 , 2015 through november 30 , 2015. common stock on february 24 , 2016 , the board of directors declared a cash dividend of $ 0.15 per share of common stock . the dividend is payable on march 15 , 2016 to common stockholders of record as of the close of business on march 10 , 2016. preferred stock on february 1 , 2016 , the board of directors declared a cash dividend of $ 0.515625 per share of 8.25 % series a preferred stock ; a cash dividend of $ 0.484375 per share of 7.75 % series b preferred stock ; and a cash dividend of $ 0.53125 per share of 8.50 % series c preferred stock . these amounts reflect dividends from december 1 , 2015 through february 29 , 2016 and are payable on february 29 , 2016 to preferred stockholders of record on february 15 , 2016 . 42 comparison of results of operations for years ended 2015 and 2014 the following table sets forth our results of operations for the years ended december 31 , 2015 and 2014 : replace_table_token_10_th nmnot meaningful 43 the following table presents the average balance of interest-earning assets and related interest-bearing liabilities , associated interest income and expense and the corresponding weighted average yields ( dollars in thousands ) : replace_table_token_11_th ( 1 ) based on upb for loans , amortized cost for securities and principal amount for debt . ( 2 ) weighted average yield calculated based on annualized interest income or expense divided by average carrying value . net interest income interest income increased $ 0.1 million in 2015 as compared to 2014. this increase was primarily due to a 3 % increase in the average yield on core interest-earning assets from 6.47 % for 2014 to 6.67 % for 2015 , due to higher interest rates on our originations as compared to runoff during 2014 and 2015. the increase was partially offset by a 3 % decrease in our average core interest-earning assets from $ 1.64 billion for 2014 to $ 1.59 billion for 2015 , primarily due to loan payoffs exceeding loan originations in 2014. other interest income , net was $ 7.9 million for 2015. during the first quarter of 2015 , we acquired a $ 116.0 million defaulted first mortgage , at par . in the second quarter of 2015 , the first mortgage paid off and as a result , we recognized net interest income of $ 7.9 million . there was no such income in 2014. interest expense increased $ 1.8 million , or 4 % , for 2015 as compared to 2014. the average cost of our interest-bearing liabilities increased 7 % from 3.99 % for 2014 to 4.25 % for 2015 , primarily due to a 44 $ 1.1 million increase in the acceleration of fees resulting from the unwind of several of our securitization vehicles as compared to 2014 , as well as from the issuance of $ 97.9 million of senior unsecured notes in 2014 , which carry a higher cost of debt . the increase was partially offset by a 2 % decrease in the average balance of our interest-bearing liabilities from $ 1.20 billion for 2014 to $ 1.17 billion for 2015. the decrease in the average balance was primarily due to the corresponding decrease in our average core interest-earning assets , partially offset by the full impact of our senior unsecured notes issued in 2014. other revenue property operating results ( income less expenses ) are comprised of our multifamily and hotel portfolios as well as an office building . property operating results decreased $ 0.4 million , or 7 % , for 2015 as compared to 2014 , primarily due to the sales of several properties during 2014 and 2015. other income , net decreased $ 1.4 million , or 84 % , for 2015 , as compared to 2014. during 2014 , we recognized $ 0.9 million of net interest income and gain on the sale of rmbs investments , as well as received $ 0.6 million more in miscellaneous asset management and loan modification fees as compared to 2015.
| cost control we seek to minimize our operating costs , which consist primarily of employee compensation and related costs , management fees and other general and administrative expenses . if there are increases in foreclosures and non-performing loans and investments , certain of these expenses , particularly employee compensation expenses and asset management related expenses , may increase . significant developments during 2015 loan and investment activity we originated 70 loans totaling $ 828.2 million with a weighted average interest rate of 6.87 % . we received full satisfaction of 66 loans totaling $ 716.2 million with a weighted average interest rate of 6.90 % and partial paydowns on 16 loans totaling $ 112.5 million with a weighted average interest rate of 5.08 % . we charged off a fully reserved $ 32.0 million loan and transferred an $ 8.4 million loan with a $ 2.5 million reserve to real estate owned . we also recognized provision for loan losses totaling $ 6.5 million and recorded $ 2.0 million of recoveries of previously recorded loan loss reserves , resulting in a net provision for loan losses of $ 4.5 million during 2015. in april 2015 , a $ 116.0 million defaulted first mortgage we acquired in march 2015 , paid off . as a result of this payoff , we repaid an $ 87.0 million warehouse facility financing this acquisition and recognized income totaling $ 6.7 million , net of fees and expenses . the $ 6.7 million of income is comprised of other interest income totaling $ 7.9 million , partially offset by $ 1.2 million of expenses related to this transaction that were recorded in employee compensation and benefits . 37 financing activities the following events occurred during 2015 and are described in more detail in note 7 '' debt obligations '' of this report : we completed the unwind of our three remaining legacy cdo vehicles as well as clo ii redeeming $ 416.0 million of outstanding notes and generating approximately $ 30.0 million of cash
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we acquired 33 model home properties and leased them back to the homebuilders under triple net leases during the year ended december 31 , 2019. the purchase price for the properties was approximately $ 13.0 million . the purchase price consisted of cash payments of $ 3.9 million and mortgage notes of $ 9.1 million . 26 we review our portfolio of investment properties for value appreciation potential on an ongoing basis , and dispose of any properties that no longer satisfy our requirements in this regard , taking into account tax and other considerations . the proceeds from any such property sale , after repayment of any associated mortgage , are available for investing in properties that we believe will have a greater likelihood of future price appreciation . during year ended december 31 , 2020 we disposed of the following properties : centennial tech center , which was sold on february 5 , 2020 for approximately $ 15.0 million and the company recognized a loss of approximately $ 0.9 million . union terrace , which was sold on march 13 , 2020 for approximately $ 11.3 million and the company recognized a gain of approximately $ 0.7 million . one of four executive office park buildings , which was sold on december 2 , 2020 for approximately $ 2.3 million and the company recognized a loss of approximately $ 75,000. during the year ended december 31 , 2020 , we disposed of 46 model homes for approximately $ 18.1 million and recognized a gain of approximately $ 1.6 million . during year ended december 31 , 2019 we disposed of the following properties : morena office center , which was sold on january 15 , 2019 for approximately $ 5.6 million and the company recognized a gain of approximately $ 0.7 million . nightingale land , which was sold on may 8 , 2019 for approximately $ 875,000 and the company recognized a loss of approximately $ 93,000. on july 1 , 2019 , netreit genesis , llc sold a 43 % tenants-in-common interest in genesis plaza ( “ tic interest ” ) for $ 5.6 million to a newly formed entity , netreit genesis ii , llc , in which netreit casa grande lp is the sole member . netreit casa grande lp owned and sold morena office center on january 15 , 2019. the sale of the tic interest was structured as a 1031 exchange and included $ 2.9 million in cash and assumption of debt . the company remains a guarantor of the debt and netreit genesis , llc and netreit genesis ii , llc are jointly and severally liable for the debt securing genesis plaza , the financial terms and conditions of which remain materially unchanged . the presidio office building , which was sold on july 31 , 2019 for approximately $ 12.3 million and the company recognized a gain of approximately $ 4.5 million . during the year ended december 31 , 2019 , we disposed of 41 model homes for approximately $ 14.6 million and recognized a gain of approximately $ 1.2 million . economic environment on march 11 , 2020 , the world health organization declared covid-19 , a respiratory illness caused by the novel coronavirus , a pandemic , and on march 13 , 2020 , the united states declared a national emergency with respect to covid-19 . the covid-19 pandemic caused state and local governments within our areas of business operations to institute quarantines , “ shelter-in-place ” mandates , including rules and restrictions on travel and the types of businesses that may continue to operate . while certain areas have re-opened , others have seen an increase in the number of cases reported , prompting local government to enforce further restrictions . we continue to monitor our operations and government recommendations . on march 27 , 2020 , the coronavirus aid , relief , and economic security act ( “ cares act ” ) was signed into law to provide widespread emergency relief for the economy and to provide aid to corporations . the cares act included several significant provisions related to taxes , refundable payroll tax credits and deferment of social security payments . on december 27 , 2020 , the coronavirus response and relief supplemental appropriations act of 2021 was signed into law to provide further relief for the economy and to provide aid to corporations . we continue to evaluate the relief options for us and our tenants available under the coronavirus response and relief supplemental appropriations act of 2021 , as well as other emergency relief initiatives and stimulus packages instituted by the federal government . a number of the relief options contain restrictions on future business activities , including ability to repurchase shares and pay dividends , that require careful evaluation and consideration , or are limited to private companies . we will continue to assess these options , and any subsequent legislation or other relief packages , including the accompanying restrictions on our business , as the effects of the pandemic continue to evolve . the effects of the covid-19 pandemic did not significantly impact our operating results during the fiscal 2020. we continue to monitor and communicate with our tenants to assess their needs and ability to pay rent . we have negotiated lease amendments with certain tenants who have demonstrated financial distress caused by the covid-19 pandemic , which have included or may include rent deferral , temporary rent abatement , or reduced rental rates and or lease extension periods , however no new negotiations were initiated during the fourth quarter of 2020. while these amendments have affected our short-term cash flows , we do not believe they represent a change in the valuation of our assets for the properties affected and have not significantly affected our results of operations . story_separator_special_tag given the longevity of this pandemic , the covid-19 outbreak may materially affect our financial condition and results of operations going forward , including , but not limited to , real estate rental revenues , credit losses , leasing activity , and potentially the valuation of our real estate assets . we expect that we may have additional rent deferrals , abatements and credit losses from our commercial tenants into 2021 which may have a material impact on our real estate rental revenue and cash collections . we also expect that the effects of the covid-19 pandemic will impact our ability to lease up available commercial space . our business operations and activities in many regions may be subject to future quarantines , `` shelter-in-place '' rules , and various other restrictions for the foreseeable future . due to the uncertainty of the future impacts of the covid-19 pandemic , the extent of the financial impact can not be reasonably estimated at this time . for more information , see part ii - item 1a . risk factors ” included elsewhere in this annual report on form 10-k. we have taken steps to best protect the health and safety of our employees globally . our daily execution has evolved largely into a virtual model , but we believe we have been successful in maintaining our ability to effectively communicate with and service our tenants during the pandemic period . it is impossible to project u.s. economic growth , but economic conditions could have a material effect on our business , financial condition and results of operations . credit market environment according to nareit , the national association of real estate investment trusts , reits have largely been resilient during the pandemic as overall leverage ratios were at or near the lowest on record . reits also lengthened the maturities of their debts to reduce risks of having to refinance during adverse market conditions . reits maintain high levels of liquidity , both on balance sheet through holdings of cash and securities and also through committed lines of credit . with reit operating performance stabilizing during the third quarter of 2020 , and interest rates remaining low , reits with concentrations in non-social distancing sectors may be poised for faster recovery in 2021 . 27 our ability to execute our business strategies , and in particular to make new investments , is highly dependent upon our ability to procure external financing . our principal sources of external financing include the issuance of our equity securities and mortgages secured by properties . the market for mortgages has remained strong , and interest rates remain relatively low compared to historical rates , decreasing approximately 1.5 % during 2020 for refinanced mortgages . we continue to obtain mortgages from the commercial mortgage-backed securities ( “ cmbs ” ) market , life insurance companies and regional banks . although these lenders are currently optimistic about the outlook of the credit markets , the potential impact of new regulations and market volatility remain a concern . even though we have been successful in procuring equity financing and secured mortgages financing , we can not be assured that we will be successful at doing so in the future . management evaluation of results of operations our management team 's evaluation of operating results includes an assessment of our ability to generate cash flow necessary to pay operating expenses , general and administrative expenses , debt service , and to fund dividends to our stockholders . as a result , our management team 's assessment of operating results gives less emphasis to the effects of unrealized gains and losses and other non-cash charges , such as depreciation and amortization and impairment charges , which may cause fluctuations in net income for comparable periods but have no impact on cash flows . our management team 's evaluation of our potential for generating cash flow includes on-going assessments of our existing portfolio of properties , our non-stabilized properties , long-term sustainability of our real estate portfolio , our future operating cash flow from anticipated acquisitions , and the proceeds from the sales of our real estate assets . in addition , our management team evaluates our portfolio and individual properties ' results of operations with a primary focus on increasing and enhancing the value , quality and quantity of properties in our real estate holdings . our management team focuses its efforts on improving underperforming assets through re-leasing efforts , including negotiation of lease renewals and rental rates . properties that have reached goals in occupancy and rental rates are evaluated for potential added value appreciation and , if lacking such potential , are sold with the equity reinvested in properties that have better potential without foregoing cash flow . our ability to increase assets under management is affected by our ability to raise borrowings and or capital , coupled with our ability to identify appropriate investments . our results of operations for the years ended december 31 , 2020 and 2019 are not indicative of those expected in future periods , as we expect that rental income , interest expense , rental operating expense , general and administrative expense , and depreciation and amortization will significantly change in future periods as a result of the assets sold over the last two years , potential sale of real estate assets in 2021 in order to generate sufficient cash proceeds to pay down the company 's obligation to the polar note , and the growth through future acquisitions of real estate related investments . critical accounting policies as a company primarily involved in owning income generating real estate assets , management considers the following accounting policies critical as they reflect our more significant judgments and estimates used in the preparation of our financial statements and because they are important for understanding and evaluating our reported financial results .
| the decrease in rental operating costs as a percentage of total revenue for the years ended december 31 , 2020 compared to 2019 is due to the mix of properties held to include a higher percentage of model homes period over period , which have significantly lower operating costs . general and administrative . general and administrative ( “ g & a ” ) expenses were $ 5.8 million for the year ended december 31 , 2020 , compared to $ 5.3 million for the same period in 2019 , representing an increase of approximately $ 0.5 million or 9 % . as a percentage of total revenue , our general and administrative costs was 23.6 % and 18.4 % for the years ended december 31 , 2020 and 2019 , respectively . the increase in g & a expense for the years ended december 31 , 2020 compared to 2019 is due to the timing of vesting of non-cash stock compensation expense primarily for stock granted to new employees and officers , as well as due to the decrease in revenue related to early 2019 and early 2020 property sales . depreciation and amortization . depreciation and amortization expenses were $ 6.3 million for the year ended december 31 , 2020 , compared to $ 7.4 million for the same period in 2019 , representing a decrease of $ 1.1 million or 15 % . the decrease in depreciation costs is associated with the properties sold in 2020 and 2019. asset impairments . we review the carrying value of each of our real estate properties annually to determine if circumstances indicate an impairment in the carrying value of these investments exists . during 2020 , we recognized a non-cash impairment charge of $ 1.3 million on the waterman plaza property and $ 0.4 million on highland court . this impairment charges reflect management 's revised estimate of the fair market value based on sales comparable of like property in the same geographical area as well as an evaluation of future cash flows or an executed purchase sale agreement . there were no impairment charges during 2019. interest expense-series b preferred stock . the series b preferred stock issued in august 2014 included a mandatory redemption and therefore , is treated
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in turn , this could have a material adverse effect on our business , financial condition and results of operations and , in particular , this could have a material adverse effect on the value and liquidity of securities in our investment portfolio . financial measures management uses the following three key financial indicators in evaluating our performance and measuring the overall growth in value generated for arch capital 's common shareholders : book value per share book value per share represents total common shareholders ' equity available to arch divided by the number of common shares and common share equivalents outstanding . management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of arch capital 's share price over time . book value per share is impacted by , among other factors , our underwriting results , investment returns and share repurchase activity , which has an accretive or dilutive impact on book value per share depending on the purchase price . book value per share was $ 60.91 at december 31 , 2017 , a 10.4 % increase from $ 55.19 at december 31 , 2016 . the growth in 2017 was primarily generated through underwriting and investment returns . operating return on average common equity operating return on average common equity ( “ operating roae ” ) represents annualized after-tax operating income available to arch common shareholders divided by average common shareholders ' equity available to arch during the period . after-tax operating income available to arch common shareholders , a “ non-gaap measure ” as defined in the sec rules , represents net income available to arch common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method , net foreign exchange gains or losses and ugc transaction costs and other , net of income taxes . management uses operating roae as a key measure of the return generated to arch common shareholders . see “ comment on non-gaap financial measures. ” our operating roae was 5.7 % for 2017 , compared to 9.4 % for 2016 and 9.7 % for 2015 . the lower operating roae for 2017 primarily reflected a higher level of catastrophic loss activity , partially offset by strong mortgage insurance underwriting performance and favorable investment returns . total return on investments total return on investments includes investment income , equity in net income or loss of investment funds accounted for using the equity method , net realized gains and losses and the change in unrealized gains and losses generated by arch 's investment portfolio . total return is calculated on a pre-tax basis and before investment expenses excluding amounts reflected in the ‘ other ' segment , and reflects the effect of financial market conditions along with foreign currency fluctuations . management uses total return on investments as a key measure of the return generated to arch common shareholders on the capital held in the business , and compares the return generated by our investment portfolio against benchmark returns which we measured our portfolio against during the periods . the following table summarizes the pre-tax total return ( before investment expenses ) of investment held by arch compared to the benchmark return ( both based in u.s. dollars ) against which we measured our portfolio during the periods : replace_table_token_14_th ( 1 ) our investment expenses were approximately 0.30 % , 0.34 % and 0.35 % , respectively , of average invested assets in 2017 , 2016 and 2015 . total return for our investment portfolio outperformed that of the benchmark return index in 2017 and primarily reflected strong investment returns on our investment grade fixed income portfolio , which represents the majority of our investment portfolio , and in equities and alternatives . total return was impacted by weakening of the u.s. dollar against the euro , british pound sterling and other major currencies which increased total return on non-u.s. dollar denominated arch capital 56 2017 form 10-k investments during 2017 . excluding foreign exchange , total return was 4.98 % for 2017 , compared to 2.35 % for 2016 and 1.62 % for 2015 . the benchmark return index included weightings to the following indices , which are primarily from the bank of america merrill lynch ( “ boaml ” ) : replace_table_token_15_th the benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities . although the estimated duration and average credit quality of this index will move as the duration and rating of its constituent securities change , generally we do not adjust the composition of the benchmark return index except to incorporate changes to the mix of liability currencies and durations noted above . the benchmark return index should not be interpreted as expressing a preference for or aversion to any particular sector or sector weight . the index is intended solely to provide , unlike many master indices that change based on the size of their constituent indices , a relatively stable basket of investable indices . at december 31 , 2017 , the benchmark return index had an average credit quality of “ aa2 ” by moody 's , an estimated duration of 3.53 years . comment on non-gaap financial measures throughout this filing , we present our operations in the way we believe will be the most meaningful and useful to investors , analysts , rating agencies and others who use our financial information in evaluating the performance of our company . story_separator_special_tag this presentation includes the use of after-tax operating income available to arch common shareholders , which is defined as net income available to arch common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method , net foreign exchange gains or losses , ugc transaction costs and other , loss on redemption of preferred shares and income taxes , and the use of annualized operating return on average common equity . the presentation of after-tax operating income available to arch common shareholders and annualized operating return on average common equity are non-gaap financial measures as defined in regulation g. the reconciliation of such measures to net income available to arch common shareholders and annualized return on average common equity ( the most directly comparable gaap financial measures ) in accordance with regulation g is included under “ results of operations ” below . we believe that net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method , net foreign exchange gains or losses , ugc transaction costs and other and loss on redemption of preferred shares in any particular period are not indicative of the performance of , or trends in , our business . although net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of our operations , the decision to realize investment gains or losses , the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized gains or losses , the recognition of net impairment losses , the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result , in large part , from general economic and financial market conditions . furthermore , certain users of our financial information believe that , for many companies , the timing of the realization of investment gains or losses is largely opportunistic . in addition , net impairment losses recognized in earnings on our investments represent other-than-temporary declines in expected recovery values on securities without actual realization . the use of the equity method on certain of our investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds ( either limited partnerships or limited liability companies ) . in applying the equity method , these investments are initially recorded at cost and are subsequently adjusted based on our proportionate share of the net income or loss of the funds ( which include changes in the market value of the underlying securities in the funds ) . this method of accounting is different from the way we account for our other fixed maturity securities and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments . ugc transaction costs and other include advisory , financing , legal , severance , incentive compensation arch capital 57 2017 form 10-k and other transaction costs related to the ugc acquisition . during the 2016 fourth quarter , ugc transaction costs and other included non-recurring expenses related to a change in the our approach on the deferral of certain internal underwriting costs which are no longer being deferred . we believe that ugc transaction costs and other , due to their non-recurring nature , are not indicative of the performance of , or trends in , our business performance . the loss on redemption of preferred shares related to the redemption of our series c preferred shares in september 2017 and had no impact on shareholders ' equity or cash flows . due to these reasons , we exclude net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method , net foreign exchange gains or losses , ugc transaction costs and other and loss on redemption of preferred shares from the calculation of after-tax operating income available to arch common shareholders . in addition , income tax expense for 2017 included a $ 21.5 million charge due to the revaluation of the company 's net deferred tax asset resulting from the reduction in the u.s. corporate income tax rate from 35 % to 21 % effective january 1 , 2018. due to the non-recurring nature of this item , we excluded it from after-tax operating income available to arch common shareholders . we believe that showing net income available to arch common shareholders exclusive of the items referred to above reflects the underlying fundamentals of our business since we evaluate the performance of and manage our business to produce an underwriting profit . in addition to presenting net income available to arch common shareholders , we believe that this presentation enables investors and other users of our financial information to analyze our performance in a manner similar to how management analyzes performance . we also believe that this measure follows industry practice and , therefore , allows the users of financial information to compare our performance with our industry peer group . we believe that the equity analysts and certain rating agencies which follow us and the insurance industry as a whole generally exclude these items from their analyses for the same reasons . our segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss before the contribution from the ‘ other ' segment .
| the simulation results noted above are informational only , and no assurance can be given that our ultimate losses will not be significantly different than the simulation results shown above , and such differences could directly and significantly impact earnings favorably or unfavorably in the period they are determined . we do not have significant exposure to pre-2002 liabilities , such as asbestos-related illnesses and other long-tail liabilities . it is difficult to provide meaningful trend information for certain liability/casualty coverages for which the claim-tail may be especially long , as claims are often reported and ultimately paid or settled years , or even decades , after the related loss events occur . any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors , including the fact that relatively limited historical information has been reported to us through december 31 , 2017 . mortgage operations supplemental information the mortgage segment 's insurance in force ( “ iif ” ) and risk in force ( “ rif ” ) were as follows at december 31 , 2017 and 2016 : replace_table_token_45_th ( 1 ) represents the aggregate dollar amount of each insured mortgage loan 's current principal balance . ( 2 ) includes gse credit risk-sharing transactions and international insurance business . ( 3 ) represents the aggregate amount of each insured mortgage loan 's current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and or loss ratio caps for credit risk-sharing or reinsurance transactions . the insurance in force and risk in force for our u.s. primary mortgage segment 's business were as follows at december 31 , 2017 : replace_table_token_46_th ( 1 ) represents the ending percentage of loans in default . arch capital 71 2017 form 10-k the insurance in force and risk in force for our u.s. primary mortgage segment 's business were as follows at december 31 , 2016 : replace_table_token_47_th ( 1 ) represents the ending percentage of loans in default . the following tables provide supplemental disclosures on risk in
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the ability of the company to continue to grow net interest income is largely dependent on management 's ability to succeed in its overall business development efforts . management expects these efforts to continue but does not intend to compromise credit quality and prudent management of the maturities of interest-earning assets and interest-paying liabilities in order to achieve growth . 21 non-interest income increased to $ 20.5 million in 2015 compared to $ 18.4 million in 2014 and $ 19.3 million in 2013 . atm revenue increased by $ 761,000 or 19.4 % , and service charge income increased $ 417,000 or 7.9 % primarily due to increased transactions following the old national bank branch acquisition , mortgage banking income increased $ 158,000 or 26.5 % as refinance activity and new purchase activity has increased due to lower mortgage rates . additionally , trust , brokerage & insurance commissions increased $ 762,000 or 12 % . the primary reason for the decrease of $ .9 million or 5 % from 2013 to 2014 was less gains on sales of securities and a decline in mortgage banking income as refinance and new purchase activity has slowed , offset by increases in revenue from brokerage and insurance commissions and deposit account service charges . non-interest expenses increased $ 4,741,000 , to $ 49.2 million in 2015 compared to $ 44.5 million in 2014 , and $ 43.5 million in 2013 . the increase during 2015 was primarily due to expenses incurred of $ 1.4 million to acquire the twelve onb branches and expenses for the operation of the branches from acquisition in august through year-end . in addition , salaries & benefits expense increased $ 1.6 million or 6.3 % , and occupancy & equipment expense increased $ 796,000 or 9.5 % . the increase during 2014 of 2.3 % was primarily due to an increase in salary and benefits expense as a result of higher officer salary and insurance costs . following is a summary of the factors that contributed to the changes in net income ( in thousands ) : replace_table_token_4_th credit quality is an area of importance to the company . year-end total nonperforming loans were $ 4.0 million at december 31 , 2015 compared to $ 4.5 million at december 31 , 2014 , and $ 6.5 million at december 31 , 2013 . the decrease in 2015 and 2014 was the result of loans that paid off or became current during the year and loans transferred to other real estate owned . other real estate owned balances totaled $ 477,000 at december 31 , 2014 compared to $ 263,000 at december 31 , 2014 , and $ 568,000 at december 31 , 2013 . the increase in 2015 was due to more properties being transferred in than sold during the year . the company 's provision for loan losses was $ 1.3 million for 2015 , compared to $ 629,000 for 2014 , and $ 2.2 million for 2013 . at december 31 , 2015 , loans secured by both commercial and residential real estate comprised 66 % , 70 % , and 74 % of the loan portfolio for 2015 , 2014 , and 2013 , respectively . the company also held an investment in one trust preferred security with a fair value of $ 1.9 million and unrealized losses of $ 1.2 million compared to a fair value of $ 364,000 and unrealized losses of $ 2.9 million at december 31 , 2014. during 2015 and 2014 the company did not record any additional impairment charges for these securities . see note 4 – “ investment securities ” for additional details regarding these investments . the company 's capital position remains strong and the company has consistently maintained regulatory capital ratios above the “ well-capitalized ” standards . the company 's tier 1 capital ratio to risk weighted assets ratio at december 31 , 2015 , 2014 , and 2013 was 13.23 % , 14.42 % , and 14.37 % , respectively . the company 's total capital to risk weighted assets ratio at december 31 , 2015 , 2014 , and 2013 was 14.25 % , 15.60 % , and 15.58 % , respectively . the primary reason for the decrease in these ratios was completion of the acquisition of twelve onb branches which increased risk-weighted assets by approximately $ 227 million offset by completion of private placement capital raise completed during the second quarter of 2015 which resulted in an increase in common stockholder 's equity of approximately $ 29.3 million . the increase in these ratios during 2014 was primarily the result of an increase in retained earnings from current year net income and slightly lower preferred dividends due to the conversion of series b preferred stock . the decline in these ratios during 2013 was primarily due to a decrease in retained earning resulting from a greater amount of preferred dividends paid following the issuance of additional series c preferred stock in 2012 . ( see “ preferred stock ” in note 1 to consolidated financial statements for more detailed information . ) the company 's liquidity position remains sufficient to fund operations and meet the requirements of borrowers , depositors , and creditors . the company maintains various sources of liquidity to fund its cash needs . see “ liquidity ” herein for a full listing of its sources and anticipated significant contractual obligations . the company enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers . these financial instruments include lines of credit , letters of credit and other commitments to extend credit . the total outstanding commitments at december 31 , 2015 , 2014 and 2013 were $ 298.3 million , $ 242.8 million , and $ 244.2 million , respectively . see note 17 – “ commitments and contingent liabilities ” herein for further information . story_separator_special_tag 22 critical accounting policies and use of significant estimates the company has established various accounting policies that govern the application of u.s. generally accepted accounting principles in the preparation of the company 's financial statements . the significant accounting policies of the company are described in the footnotes to the consolidated financial statements . certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities ; management considers such accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from these judgments and assumptions , which could have a material impact on the carrying values of assets and liabilities and the results of operations of the company . allowance for loan losses . the company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements . an estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by considering factors including historical loss rates , expected cash flows and estimated collateral values . in assessing these factors , the company use organizational history and experience with credit decisions and related outcomes . the allowance for loan losses represents the best estimate of losses inherent in the existing loan portfolio . the allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off , net of recoveries . the company evaluates the allowance for loan losses quarterly . if the underlying assumptions later prove to be inaccurate based on subsequent loss evaluations , the allowance for loan losses is adjusted . the company estimates the appropriate level of allowance for loan losses by separately evaluating impaired and nonimpaired loans . a specific allowance is assigned to an impaired loan when expected cash flows or collateral do not justify the carrying amount of the loan . the methodology used to assign an allowance to a nonimpaired loan is more subjective . generally , the allowance assigned to nonimpaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics , adjusted for qualitative factors including the volume and severity of identified classified loans , changes in economic conditions , changes in credit policies or underwriting standards , and changes in the level of credit risk associated with specific industries and markets . because the economic and business climate in any given industry or market , and its impact on any given borrower , can change rapidly , the risk profile of the loan portfolio is continually assessed and adjusted when appropriate . notwithstanding these procedures , there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required . other real estate owned . other real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired , establishing a new cost basis . the adjustment at the time of foreclosure is recorded through the allowance for loan losses . due to the subjective nature of establishing the fair value when the asset is acquired , the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate . if it is determined that fair value temporarily declines subsequent to foreclosure , a valuation allowance is recorded through noninterest expense . operating costs associated with the assets after acquisition are also recorded as noninterest expense . gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense . investment in debt and equity securities . the company classifies its investments in debt and equity securities as either held-to-maturity or available-for-sale in accordance with statement of financial accounting standards ( sfas ) no . 115 , “ accounting for certain investments in debt and equity securities , ” which was codified into asc 320. securities classified as held-to-maturity are recorded at cost or amortized cost . available-for-sale securities are carried at fair value . fair value calculations are based on quoted market prices when such prices are available . if quoted market prices are not available , estimates of fair value are computed using a variety of techniques , including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities , fundamental analysis , or through obtaining purchase quotes . due to the subjective nature of the valuation process , it is possible that the actual fair values of these investments could differ from the estimated amounts , thereby affecting the financial position , results of operations and cash flows of the company . if the estimated value of investments is less than the cost or amortized cost , the company evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment . if such an event or change has occurred and the company determines that the impairment is other-than-temporary , a further determination is made as to the portion of impairment that is related to credit loss . the impairment of the investment that is related to the credit loss is expensed in the period in which the event or change occurred . the remainder of the impairment is recorded in other comprehensive income . deferred income tax assets/liabilities . the company 's net deferred income tax asset arises from differences in the dates that items of income and expense enter into our reported income and taxable income . deferred tax assets and liabilities are established for these items as they arise .
| results of operations net interest income the largest source of operating revenue for the company is net interest income . net interest income represents the difference between total interest income earned on earning assets and total interest expense paid on interest-bearing liabilities . the amount of interest income is dependent upon many factors , including the volume and mix of earning assets , the general level of interest rates and the dynamics of changes in interest rates . the cost of funds necessary to support earning assets varies with the volume and mix of interest-bearing liabilities and the rates paid to attract and retain such funds . 24 the company 's average balances , interest income and expense and rates earned or paid for major balance sheet categories are set forth in the following table ( dollars in thousands ) : year ended december 31 , 2015 year ended december 31 , 2014 year ended december 31 , 2013 average balance interest average rate average balance interest average rate average balance interest average rate assets interest-bearing deposits $ 78,605 $ 199 0.25 % $ 32,379 $ 83 0.26 % $ 13,633 $ 33 0.24 % federal funds sold 493 — 0.10 % 495 1 0.10 % 6,923 6 0.09 % certificates of deposit investments 5,118 44 0.86 % — — — % 2,554 14 0.55 % investment securities taxable 400,423 7,741 1.93 % 374,285 7,499 2.00 % 466,031 < td colspan= '' 2 ''
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the cautionary statements made in this annual report on form 10-k should be read as being applicable to all forward-looking statements whenever they appear in this annual report . for these statements , we claim the protection of the safe harbor for forward-looking statements contained in the private securities litigation reform act . actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the securities and exchange commission . all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph . overview we are a blank check company , originally incorporated as a cayman islands exempted company on july 26 , 2017 and formed for the purpose of effecting a merger , share exchange , asset acquisition , share purchase , reorganization or similar business combination with one or more businesses that the company has not yet identified ( business combination ) . effective december 21 , 2018 , we changed our jurisdiction of incorporation from cayman islands to the state of delaware . see management 's discussion and analysis of financial condition and results of operationrecent developmentsdomestication pursuant to section 388 of the dgcl. although we may pursue an acquisition in any industry or geography , we are capitalizing on the ability of our management team and the broader fortress platform to identify , acquire and operate a business that may provide opportunities for attractive risk-adjusted returns . our sponsors are mosaic sponsor , llc and fortress mosaic sponsor llc ( each a sponsor and , together , the sponsors ) . our registration statement for the initial public offering ( the initial public offering ) was declared effective on october 18 , 2017. on october 23 , 2017 , we consummated the initial public offering of 34,500,000 units ( units ) , including the issuance of 4,500,000 units as a result of the underwriters ' exercise of their over-allotment option in full , at $ 10.00 per unit , generating gross proceeds of $ 345 million and incurring offering costs of approximately $ 19.7 million , inclusive of $ 12.075 million in deferred underwriting commissions . simultaneously with the closing of the initial public offering , we consummated the private placement ( private placement ) of 5,933,334 warrants ( the private placement warrants ) , at a price of $ 1.50 per private placement warrant , with our sponsors , generating gross proceeds of $ 8.9 million . upon the closing of the initial public offering and private placement , $ 345 million ( $ 10.00 per unit ) of the aggregate net proceeds of the sale of the units in the initial public offering and the private placement was placed in a u.s.-based trust account ( trust account ) at j.p. morgan chase bank , n.a. , maintained by continental stock transfer & trust company , acting as trustee . beginning in january 2018 , the proceeds held in the trust account have been invested in u.s. government securities , within the meaning set forth in section 2 ( a ) ( 16 ) of the investment company act , with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by us meeting the conditions of paragraphs ( d ) ( 2 ) , ( d ) ( 3 ) and ( d ) ( 4 ) of rule 2a-7 of the investment company act , as determined by us , until the earlier of : ( i ) the completion of a business combination and ( ii ) our failure to consummate a business combination within 24 months from the closing of the initial public offering , or 27 months from the closing of the initial public offering if we have executed a letter of intent , agreement in principle or definitive agreement for an initial business combination within 24 months from the closing of the initial public offering ( the combination period ) . in order to protect the amounts held in the trust account , the sponsors had agreed to indemnify the trust account if and to the extent any claims by third parties , such as a vendor for services rendered or products sold to us , or a prospective target business with which we have entered into an acquisition agreement , reduce the amount of funds in the trust account below $ 10.00 per share . this liability will not apply with respect to any claims by a third party who executed a waiver of any right , title , interest or claim of any kind in or to any monies held in the trust account or to any claims under our indemnity of the underwriter of the initial public offering against certain liabilities , including liabilities under the securities act . moreover , in the event that an executed waiver is deemed to be unenforceable against a third party , the sponsors will not be responsible to the extent of any liability for such third-party claims . our management has broad discretion with respect to the specific application of the net proceeds of the initial public offering , the over-allotment , and the private placement , although substantially all of the net proceeds are intended to be applied toward consummating a business combination . 37 on december 5 , 2017 , we announced that the holders of our units may elect to separately trade the class a common stock and warrants comprising the units commencing on december 8 , 2017. those units not separated will continue to trade on the new york stock exchange under the symbol mosc. story_separator_special_tag , and each of the shares of class a common stock and warrants that are separated will trade on the new york stock exchange under the symbols mosc and mosc.ws , respectively . recent developments new york stock exchange notice on october 3 , 2018 , the company was notified by the nyse that it was not in compliance with the continued listing standards set forth in section 802.01b of the nyse listed company manual because the company has fewer than 300 public stockholders . the company delivered a business plan to the nyse within 45 days of receipt of the notification outlining how it intends to cure the deficiency and comply with the nyse continued listing requirement . the company can avoid delisting if , within 18 months following receipt of the nyse notice , the company 's securities are owned by at least 300 public stockholders . the company expects that upon completion of its initial business combination it will have at least 400 public stockholders . if the company 's common stock ultimately were to be delisted for any reason , including failure to comply with section 802.01b of the nyse listed company manual , it could negatively impact the company by ( i ) reducing the liquidity and market price of the company 's common stock ; ( ii ) reducing the number of investors willing to hold or acquire the company 's common stock , which could further harm the performance of the company 's common stock and negatively impact the company 's ability to raise equity financing ; ( iii ) limiting the company 's ability to use a registration statement to offer and sell freely tradable securities , thereby preventing the company from accessing the public capital markets ; and ( iv ) impairing the company 's ability to provide equity incentives to its employees . under the nyse rules , the company 's common stock will continue to be traded on the nyse during this period , subject to the company 's compliance with other continued listing requirements . domestication pursuant to section 388 of the dgcl on december 21 , 2018 , we held an extraordinary general meeting ( the egm ) of our shareholders to consider certain proposals related to our domicile , including a domestication proposal to change our jurisdiction of incorporation by deregistering as an exempted company in the cayman islands ( the cayman company ) and continuing and domesticating as a corporation incorporated under the laws of the state of delaware ( the domestication proposal ) . a total of 32,729,725 ( 75.9 % ) of our issued and outstanding ordinary shares held of record as of november 26 , 2018 , the record date for the egm , were present either in person or by proxy , which constituted a quorum , and the requisite number of shares were voted in favor of the domestication proposal . effective december 21 , 2018 , we changed our jurisdiction of incorporation from the cayman islands to the state of delaware ( the domestication ) . the company discontinued its existence as a cayman islands exempted company as provided under the cayman islands companies law ( 2018 revision ) and , pursuant to section 388 of the dgcl , continued its existence under the dgcl as a corporation incorporated in the state of delaware . in accordance with rule 12g-3 ( a ) under the exchange act , the shares of common stock of the company , as the successor to the cayman company were deemed to be registered under section 12 ( b ) of the exchange act . in the domestication , each of the cayman company 's outstanding class a ordinary shares and class f ordinary shares became , by operation of law , one share of the company 's class a common stock or class f common stock , respectively . consequently , each holder of a cayman company unit , class a ordinary share , class f ordinary share or warrant immediately prior to the domestication now holds a unit , share of class a common stock , share of class f common stock or warrant representing the same proportional equity interest in the company as that shareholder held in the cayman company and representing the same class of security . the company 's units , common stock and warrants continue to be listed for trading on the new york stock exchange under the symbols mosc.u , mosc and mosc ws , respectively . upon effectiveness of the domestication , the company 's cusip numbers relating to its units , common stock and warrants changed to 61946m 209 , 61946m 100 and 61946m 118 , respectively . the rights of holders of the company 's common stock are now governed by its delaware certificate of incorporation , its delaware by-laws and the dgcl , each of which is described in the cayman company 's final proxy statement/prospectus dated december 3 , 2018 relating to the domestication , which was filed with the securities and exchange commission pursuant to rule 424 ( b ) ( 3 ) on december 3 , 2018 , which is part of the company 's registration statement on form s-4 , which was filed with the securities and exchange commission on november 5 , 2018 and was amended on november 27 , 2018 ( registration no . 333-228187 ) . the business , assets and liabilities of the company and its subsidiaries on a consolidated basis , as well as its principal locations and fiscal year , were the same immediately after the domestication as they were immediately prior to the domestication .
| costs in connection with a business combination , the sponsors or an affiliate of the sponsor , or certain of our officers and directors may , but are not obligated to , loan us funds as may be required ( working capital loans ) . in connection with our assessment of going concern considerations in accordance with the financial accounting standard board 's accounting standards update ( asu ) 2014-15 , disclosures of uncertainties about an entity 's ability to continue as a going concern , management has determined that the mandatory liquidation and subsequent dissolution raises substantial doubt about our ability to continue as a going concern . management has not recorded any adjustments to the carrying amounts of assets or liabilities after considering the requirement to liquidate after october 23 , 2019 if we are unable to complete a business combination . related party transactions founder shares on august 15 , 2017 , we issued an aggregate of 8,625,000 shares of founder shares o our sponsors ( the founder shares ) in exchange for an aggregate capital contribution of $ 25,000 , with each sponsor purchasing an equal number of founder shares . the sponsors agreed to forfeit an aggregate of up to 1,125,000 founder shares to the extent that the over-allotment option is not exercised in full by the underwriters . on october 23 , 2017 , the underwriters exercised their over-allotment option . as a result , the 1,125,000 founder shares were no longer subject to forfeiture . the founder shares will automatically convert into class a common stock upon the consummation of a business combination , or earlier at the option of the holder , on a one-for-one basis , subject to adjustment . our sponsors , officers and directors ( the initial stockholders ) have agreed not to transfer , assign or sell any of their founder shares until the earliest of ( a ) one year after the completion of the initial business combination , ( b ) subsequent to the initial
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prior to the separation , vornado operated as a reit and distributed 100 % of its reit taxable income to its shareholders ; accordingly , no provision for federal income taxes has been made in the accompanying financial statements for the periods prior to the separation . we have adhered and intend to continue to adhere to these requirements and maintain our reit status in future periods . as a reit , we can reduce our taxable income by distributing all or a portion of such taxable income to shareholders . future distributions will be declared and paid at the discretion of the board of trustees and will depend upon cash generated by operating 45 activities , our financial condition , capital requirements , annual dividend requirements under the reit provisions of the code , and such other factors as our board of trustees deems relevant . we also participate in the activities conducted by our subsidiary entities that have elected to be treated as trss under the code . as such , we are subject to federal , state , and local taxes on the income from these activities . income taxes attributable to our trss are accounted for under the asset and liability method . under the asset and liability method , deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements , which will result in taxable or deductible amounts in the future . we aggregate our operating segments into three reportable segments ( commercial , multifamily , and third-party asset management and real estate services ) based on the economic characteristics and nature of our assets and services . we compete with a large number of property owners and developers . our success depends upon , among other factors , trends affecting national and local economies , the financial condition and operating results of current and prospective tenants , the availability and cost of capital , interest rates , construction and renovation costs , taxes , governmental regulations and legislation , population trends , zoning laws , and our ability to lease , sublease or sell our assets at profitable levels . our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due . overview we own and operate a portfolio of high-quality commercial and multifamily assets , many of which are amenitized with ancillary retail . our portfolio reflects our longstanding strategy of owning and operating assets within metro-served submarkets in the washington , d.c. metropolitan area that have high barriers to entry and key urban amenities , including being within walking distance of a metro station . on november 13 , 2018 , amazon announced publicly the selection of sites that we own in national landing as the location of amazon hq2 , subject to negotiation and execution of definitive documentation between amazon and jbg smith , and subject to the approval of tax incentives by the commonwealth of virginia and arlington county . we anticipate that we will enter into agreements with amazon pursuant to which amazon will engage us as its development manager , property manager , and retail leasing agent for amazon hq2 . in addition , we granted amazon the exclusive right for a limited time to lease approximately 500,000 square feet of existing office space at 241 18th street s. , 1800 south bell street and 1770 crystal drive , and the right to acquire the pen place and met 6 , 7 and 8 land in our future development pipeline with estimated potential development density of up to approximately 4.1 million square feet . during 2018 , we sold or recapitalized approximately $ 875.0 million of assets that were identified for sale because of their relatively low expected return potential and their high tax basis , enabling better capital retention . the assets sold generated approximately $ 30.0 million of noi in 2018. also , consistent with our approach to capital recycling , in the competitive washington , d.c. office leasing market , we are focused on retaining tenants and avoiding the costly concessions associated with backfilling vacancy . we believe this approach produces a higher comparable return while better positioning assets for potential sale or recapitalization , and simultaneously de-risking them at a time of greater supply and cyclical downturn risk . the lease renewals we executed in 2017 and 2018 will further reduce our noi in 2019 , primarily due to free rent associated with these early renewals . as the free rent in these leases burns off , and our under construction assets deliver , we expect our noi to grow and surpass 2018 levels by the second half of 2020. as of december 31 , 2018 , our operating portfolio consists of 62 operating assets comprising 46 commercial assets totaling approximately 12.9 million square feet ( 11.3 million square feet at our share ) and 16 multifamily assets totaling 6,315 units ( 4,531 units at our share ) . additionally , we have ( i ) nine assets under construction comprising five commercial assets totaling approximately 1.2 million square feet ( 927,000 square feet at our share ) and four multifamily assets totaling 1,476 units ( 1,298 units at our share ) ; and ( ii ) 41 future development assets totaling approximately 23.1 million square feet ( 19.6 million square feet at our share ) of estimated potential development density . key highlights of operating results for the year ended december 31 , 2018 included : net income attributable to common shareholders of $ 39.9 million , or $ 0.31 per diluted common share , for the year ended december 31 , 2018 as compared to a net loss of $ 71.8 million , or $ 0.70 per diluted common share , for the year ended december 31 , 2017 . story_separator_special_tag net income attributable to common shareholders for the year ended december 31 , 2018 included gains on the sale of real estate of $ 52.2 million and transaction and other costs of $ 27.7 million . net loss attributable to common shareholders for the year ended december 31 , 2017 included transaction and other costs of $ 127.7 million and a gain on bargain purchase of $ 24.4 million ; operating commercial portfolio leased and occupied percentages at our share of 89.6 % and 85.5 % as of december 31 , 2018 compared to 88.0 % and 87.2 % as of december 31 , 2017 ; operating multifamily portfolio leased and occupied percentages at our share of 95.7 % and 93.9 % as of december 31 , 2018 compared to 95.7 % and 93.8 % as of december 31 , 2017 ; 46 the leasing of approximately 2.0 million square feet , or 1.8 million square feet at our share , at an initial rent ( 1 ) of $ 46.64 per square foot and a gaap-basis weighted average rent per square foot ( 2 ) of $ 48.39 for the year ended december 31 , 2018 ; and a decrease in same store ( 3 ) net operating income of 1.1 % to $ 250.3 million for the year ended december 31 , 2018 as compared to $ 253.0 million for the year ended december 31 , 2017 . _ ( 1 ) represents the cash basis weighted average starting rent per square foot , which excludes free rent and fixed escalations . ( 2 ) represents the weighted average rent per square foot that is recognized over the term of the respective leases , including the effect of free rent and fixed escalations . ( 3 ) includes the results of the properties that are owned , operated and in service for the entirety of both periods being compared except for properties for which significant redevelopment , renovation or repositioning occurred during either of the periods being compared . excludes the jbg assets acquired in the combination . additionally , investing and financing activity during the year ended december 31 , 2018 included : the sale of four commercial assets located in washington d.c. and reston , virginia , a future development asset located in reston , virginia , and the out-of-service portion of a multifamily asset located in silver spring , maryland , for an aggregate gross sales price of $ 427.4 million , resulting in gains on sale of real estate of $ 52.2 million . see note 4 to the financial statements for additional information ; the leasing of the unimproved land at 1700 m street for a 99 -year term , with no extension options ; the acquisition of a 4.25-acre land parcel , potomac yard land bay h located in alexandria , virginia , for $ 23.0 million ; the closing of a real estate venture with canadian pension plan investment board ( `` cppib '' ) to develop and own 1900 n street , an under construction commercial asset in washington , d.c. we contributed 1900 n street , valued at $ 95.9 million , to the real estate venture , and cppib has committed to contribute approximately $ 101.3 million to the venture for a 45.0 % interest , which will reduce our ownership interest from 100.0 % at the real estate venture 's formation to 55.0 % as contributions are funded ; the investment of $ 10.1 million for a 16.67 % interest in a real estate venture with cim group and pacific life insurance company , which purchased the 1,152-key wardman park hotel , located adjacent to the woodley park metro station in northwest washington , d.c. ; the acquisition by our partner in the real estate venture that owned the investment building , a 401,000 square foot office building located in washington , d.c. , of our 5.0 % interest in the venture for $ 24.6 million , resulting in a gain of $ 15.5 million ; the sale of the warner , a 583,000 square foot office building located in washington , d.c. , by our unconsolidated real estate venture with cppib for $ 376.5 million . in connection with the sale , the unconsolidated real estate venture recognized a gain on sale of $ 32.5 million , of which our proportionate share was $ 20.6 million ; a $ 50.0 million draw under our unsecured term loan maturing in january 2023 , in accordance with the delayed draw provisions of the credit facility , bringing the outstanding borrowings under the term loan facility to $ 100.0 million . concurrent with the draw , we entered into an interest rate swap agreement effectively to convert the variable interest rate to a fixed interest rate ; a $ 200.0 million draw under our unsecured term loan maturing in july 2024 , in accordance with the delayed draw provisions of the credit facility . we also repaid all outstanding revolving credit facility balances ; aggregate borrowings under mortgages payable totaling $ 118.1 million , of which $ 47.5 million relates to the principal balance on a new mortgage loan collateralized by 1730 m street and the remainder related to construction draws under mortgages payable ; the repayment of mortgages payable with an aggregate principal balance of $ 298.1 million and recognized losses on the extinguishment of debt in conjunction with these repayments of $ 5.2 million ; declared cash dividends totaling $ 1.00 ( regular dividends of $ 0.90 per common share and a special dividend of $ 0.10 per common share ) . regular quarterly dividends declared in december 2018 of $ 0.225 per common share and a special dividend of $ 0.10 per common share were paid in january 2019 ; and the investment of $ 385.9 million in development costs , construction in progress and real estate additions .
| net cash provided by investing activities of $ 66.3 million primarily comprised : ( i ) $ 413.1 million of proceeds from sale of real estate , ( ii ) $ 80.3 million of distributions of capital from sales of unconsolidated real estate ventures and ( iii ) $ 14.4 million of distributions of capital from unconsolidated real estate ventures , partially offset by ( iv ) $ 385.9 million of development costs , construction in progress and real estate additions , ( v ) $ 31.2 million of investments in and advances to unconsolidated real estate ventures and ( vi ) $ 23.2 million of real estate acquisitions . net cash used in financing activities of $ 193.5 million primarily comprised : ( i ) $ 312.9 million of repayment of mortgages payable , ( ii ) $ 150.8 million of repayments of our revolving credit facility , ( iii ) $ 107.4 million of dividends paid to common shareholders and ( iv ) $ 17.4 million of distributions to redeemable noncontrolling interests , partially offset by ( v ) $ 250.0 million of proceeds from borrowings under our unsecured term loans , ( vi ) $ 118.1 million of aggregate proceeds from borrowings under mortgages payable and ( vii ) $ 35.0 million of borrowings under our revolving credit facility . cash flows for the year ended december 31 , 2017 cash and cash equivalents and restricted cash increased $ 306.3 million to $ 338.6 million as of december 31 , 2017 compared to $ 32.3 million as of december 31 , 2016 . this increase resulted from $ 239.8 million of net cash provided by financing activities and $ 74.2 million of net cash provided by operating activities , partially offset by $ 7.7 million of net cash used in investing activities . our outstanding debt was $ 2.2 billion as of december 31 , 2017 , a $ 1.0 billion increase from the balance at december 31 , 2016 primarily from mortgages payable assumed in the combination and borrowings under our credit facility . net cash provided by operating activities of $ 74.2 million primarily comprised : ( i ) $ 88.4 million of net income ( before $ 191.9
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acquisition and divestiture activity associated with insurance agencies is included in the consolidated financial statements from the transaction date ; therefore , comparisons between fiscal years are impacted by varying levels of assets , liabilities , income , and expense . insurance service s we offer insurance services through greenpoint , a full-service insurance agency that provides commercial and personal lines of insurance . revenues are primarily derived from commissions paid by issuing companies on the sale of policies . commission revenue totaled $ 5.93 million in 2013 , an increase of $ 190 thousand , or 3.31 % , compared to the same period of 2012 , which is due to an increase in direct bill property and casualty insurance income . commission revenue totaled $ 5.74 million in 2012 , a decrease of $ 454 thousand , or 7.33 % , compared to the same period of 2011. the decrease in revenue reflects the sale of two agency offices during 2011. wealth management services we offer trust management , estate administration , and investment advisory services through fcwm and the bank 's trust division , which reported combined assets under management of $ 706 million as of december 31 , 2013 , and $ 876 million as of december 31 , 2012. these assets are not our assets , but are managed under various fee-based arrangements as fiduciary or agent . the decrease in managed assets is attributed to fcwm . the trust division manages inter vivos trusts and trusts under will , develops and administers employee benefit and individual retirement plans , and manages and settles estates . fiduciary fees for these services are charged on a schedule related to the size , nature , and complexity of the account . revenues consist primarily of commissions on assets under management and investment advisory fees . 34 critical accounting estimates we prepare our consolidated financial statements in accordance with generally accepted accounting principles ( gaap ) in the united states and conform to general practices within the banking industry . our financial position and results of operations require management to make judgments and estimates to develop the amounts reflected and disclosed in the consolidated financial statements . different assumptions in the application of these estimates could result in material changes to our consolidated financial position and consolidated results of operations . estimates , assumptions , and judgments are based on historical experience and other factors including expectations of future events believed to be reasonable under the circumstances that are periodically evaluated . these estimates are generally necessary when assets and liabilities are required to be recorded at estimated fair value , a decline in the value of an asset carried on the financial statements at fair value warrants an impairment write-down or establishment of a valuation reserve , or an asset or liability needs to be recorded based upon the probability of occurrence of a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . fair values and information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or , when available , are provided by third-party sources . when third-party information is not available , valuation adjustments are estimated by management primarily through the use of financial modeling techniques and appraisal estimates . our accounting policies are fundamental in understanding md & a and the disclosures presented in item 8 , financial statements and supplementary data , of this report . see note 1 , summary of significant accounting policies , to the consolidated financial statements in item 8 of this report . these policies may involve significant estimates and assumptions that have a material impact on our financial condition or operating performance due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , we have identified the establishment and determination of investment securities , the allowance for loan losses , business combinations , intangible assets , and income taxes as the accounting areas that require the most subjective or complex judgments . investment securities independent third parties are used to determine the fair values of our investment securities . inputs provided by third parties are reviewed and corroborated by management . evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature . we review our investment portfolio on a quarterly basis for indications of other-than-temporary impairment ( otti ) . the analysis differs depending upon the type of investment security being analyzed . considerations in determining whether a security is other-than-temporarily impaired include , among others , our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value , or whether it is more likely than not we will be required to sell the security before recovering its fair value ; the severity of the loss and the length of time fair value has been below amortized cost ; the expectation of the security 's future performance ; and the creditworthiness of the security 's issuer . if the impairment is determined to be other-than-temporary , the value of the security is reduced and a corresponding charge to earnings is recognized . see note 3 , investment securities , to the consolidated financial statements in item 8 of this report . allowance for loan losses our quarterly review of the allowance methodology and relevant factors serves as the primary means management evaluates the adequacy of the allowance for loan losses . the determination of our allowance for loan losses requires management to make significant estimates and assumptions . story_separator_special_tag while management utilizes its best judgment and available information , the ultimate adequacy of the allowance is dependent upon a variety of factors beyond our control , including the performance of our loan portfolio , the economy , changes in interest rates , and the view of regulatory authorities . these uncertainties may result in material changes to the allowance for loan losses in the near term ; however , the amount of the change can not reasonably be estimated . 35 the company 's allowance for loan losses consists of reserves assigned to specific loans and credit relationships and general reserves assigned to loans not separately identified that have been segmented into groups with similar risk characteristics , according to our internal risk grades . general reserve allocations are based on management 's judgments of qualitative and quantitative factors about macro and micro economic conditions reflected within the loan portfolio and the economy . factors considered in this evaluation include , but are not limited to , probable losses from loan and other credit arrangements , general economic conditions , changes in credit concentrations or pledged collateral , historical loan loss experience , and trends in portfolio volume , maturities , composition , delinquencies , and nonaccruals . historical loss rates for each risk grade of commercial loans are adjusted by environmental factors to estimate the amount of reserve needed by segment . individually significant loans require additional analysis such as the borrower 's underlying cash flow and capacity for debt repayment , specific business conditions , and value of secondary sources of repayment ; consequently , this analysis may result in the identification of weakness and a corresponding need for a specific reserve . third-party collateral valuations are regularly obtained and evaluated to assist management in determining potential credit impairment and the amount of impairment to record . internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment . the internal evaluation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs . when a third-party evaluation is received , it is reviewed for reasonableness . once the evaluation is reviewed and accepted , discounts are applied to fair market value , based on , but not limited to , our historical liquidation experience for like collateral , resulting in an estimated net realizable value . the estimated net realizable value is compared to the outstanding loan balance to determine the appropriate amount of specific impairment reserve . specific reserves are generally recorded for impaired loans while third-party evaluations are in process and for impaired loans that continue to make some form of payment . while waiting for receipt of the third-party appraisal , we regularly review the relationship to identify any potential adverse developments and begin the tasks necessary to gain control of the collateral and prepare it for liquidation , including , but not limited to , engagement of counsel , inspection of collateral , and continued communication with the borrower , if appropriate . generally , the only difference between current appraised value , adjusted for liquidation costs , and the carrying amount of the loan , less the specific reserve , is any downward adjustment to appraised value that we determine appropriate , such as the costs to sell the property and a deflator for the devaluation of property when banks are the sellers . impaired loans that do not meet the aforementioned criteria and do not have a specific reserve have typically been written down through partial charge-offs to net realizable value . based on prior experience , the company rarely returns loans to performing status after they have been partially charged off . credits identified as impaired move quickly through the process towards ultimate resolution except in cases involving bankruptcy and various state judicial processes , which may extend the time for ultimate resolution . an independent third party is used to assist management in the determination of the changes in cash flows , and the amount of possible impairment , related to our purchased performing loans and purchased credit impaired ( pci ) loan pools . pci loan pools are evaluated separately from non-pci loans in the determination of the allowance . see note 6 , allowance for loan losses , to the consolidated financial statements in item 8 of this report . business combinations the company may engage in business combinations with other companies . in accordance with the acquisition method of accounting , all identifiable acquired assets , including purchased loans , and liabilities are recorded at fair value . fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available . management makes significant estimates and exercises significant judgment in accounting for business combinations . any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill . if the price of the acquired business is less than the net assets acquired , a gain on the purchase is recorded . financial assets and liabilities are typically valued using discount models that apply current discount rates to streams of cash flow . valuation 36 methods require the use of assumptions , which can result in alternate valuations , varying levels of goodwill , or bargain purchase gains , and in some cases amortization expense or accretion income . management must also make estimates for the useful or economic lives of certain acquired assets and liabilities . we review the purchased loan portfolio quarterly for changes in cash flows and possible impairment using input provided from an independent third party . management 's assumptions regarding purchased loans and intangible assets may significantly influence the allowance for loan losses . see note 2 , acquisitions , divestitures , and branching activity , and note 6 , allowance for loan losses , to the consolidated financial statements in item 8 of this report .
| these increases 38 were offset by the recognition of merger expenses from the peoples and waccamaw acquisitions , a decrease in the net gain on sale of securities , and an increase in salaries and employee benefits resulting from the expanded branch network . net interest income net interest income , our largest contributor to earnings , comprised 75.48 % of total net interest and noninterest income in 2013 , 71.04 % in 2012 , and 66.96 % in 2011. for the following discussion , net interest income is presented on a tax equivalent basis to provide a comparison among all types of interest earning assets . the tax equivalent basis adjusts for the tax-favored status of income from certain loans and investments . although non-gaap , management believes this financial measure is more widely used in the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources . we use this non-gaap financial measure to monitor net interest income performance and manage the composition of our balance sheet . the following table presents our average consolidated balance sheets in the periods indicated : replace_table_token_6_th 39 ( 1 ) fully taxable equivalent at the rate of 35 % ( fte ) . the fte basis adjusts for the tax benefits of income on certain tax exempt loans and investments using the federal statutory rate of 35 % for each period presented . the company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and nontaxable amounts . ( 2 ) nonaccrual loans are included in average balances outstanding but with no related interest income during the period of nonaccrual . ( 3 ) represents the difference between the yield on earning assets and cost of funds . the following table presents the impact on tax equivalent net interest income resulting from changes in volume , the average volume times the prior year 's average rate ; rate , the average rate times the prior year 's average volume ; and rate/volume , the average volume column times the change in average rate , in the periods indicated : replace_table_token_7_th ( 1 ) fully taxable equivalent
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looking ahead to 2013 , the broader u.s. economy is expected to continue to recover at a moderate pace , with a range of current estimates for u.s. gdp growth approximating 2.0 % . however , world economies may continue to experience volatility due to the impact of europe 's debt crisis and possible contagion effects that could undermine economic growth in europe and the rest of the world . overall , 2013 gdp growth in world economies is expected to be higher than 2012 , led by brazil , russia , india , and china , while european economies are expected to only be up slightly . given that backdrop , we remain cautiously optimistic that our commercial and industrial markets will continue to improve in 2013. defense during 2012 , approximately 37 % of our business was attributed to the defense sector , predominantly in the united states , and characterized by long-term programs and contracts driven primarily by the dod budgets and funding levels . we have a well-diversified portfolio of products and services that supply all branches of the u.s. military , with content on many high performance programs and platforms . the u.s. defense budget serves as a leading indicator of our defense market , and its future outlook has been marked with some uncertainty . over the past two years , top-line reductions reflect former defense secretary panetta 's guidance to deliver approximately $ 487 billion in cuts over 10 years . uncertainty in our defense market also stems from the budget control act of 2011 , whereby the congressional super committee failed to identify $ 1.2 trillion of savings in order to further reduce the country 's mounting deficit . the inability to reach a deal and produce additional savings meant that sequestration , or automatic cuts of $ 500 billion in defense over the next 10 years , would have taken effect beginning on january 2 , 2013 , resulting in aggregate reductions of about $ 1 trillion over 10 years . however , on january 1 , 2013 , congress elected to delay the impact of sequestration until at least march 1 , 2013 , and these cuts will automatically be implemented if an agreement has not been reached by march 27 , 2013. meanwhile , the release of the fiscal year 2013 dod budget request in february 2012 indicated a smaller and leaner structure moving forward , consistent with the president 's strategy . the pentagon has requested $ 525 billion for its base budget in fiscal year 2013 ( down from $ 531 billion in 2012 ) , and an additional $ 88 billion for overseas contingency operations ( oco ) to support our troops in combat ( down from $ 115 billion in fy12 ) . the oco funding request was lower , as a result of scaled down operations and reduced need for troops in iraq and afghanistan . however , as congress was unable to reach an agreement on desired fiscal year 2013 funding levels prior to the start of its fiscal year ( in october 2012 ) , it agreed to operate under a continuing resolution of the 2012 fiscal year budget until at least march 27 , 2013 . 28 following a period of significant growth in the overall defense budget and related supplemental budgets seen in the previous decade , future defense spending , as it relates to the 2013 future years defense plan , is expected to be flat over the next five years . while we monitor the budget process as it relates to programs in which we participate , we can not predict the ultimate impact of future dod budgets , which tend to fluctuate year-by-year and program-by-program . as a result , some of the budget reductions and program cancellations may negatively impact programs in which we participate . in our ground defense market , we anticipate ground vehicle upgrades and modernization programs to continue to be funded over the next five years , although the timing is uncertain following years of rapid growth from the supplemental defense budgets and the impending draw down of our forces from overseas operations . additionally , we expect to benefit from increased funding levels on c4isr , electronic warfare , unmanned systems and communications programs within our aerospace defense market . in our naval defense market , we expect continued funding for the u.s. shipbuilding program , particularly as it relates to the ramp up in production on the cvn-79 ford class aircraft carrier over the next two years . commercial aerospace approximately 17 % of our revenue is derived from the global commercial aerospace market , including the commercial jet , regional jet , and commercial helicopter markets . our primary focus in this market is oem products and services for commercial jets , where we provide a combination of flight control and utility actuation systems , sensors , and other electronics , as well as shot and laser peening services , to our primary customers in boeing and airbus . shot and laser peening are also utilized on highly stressed components of turbine engine fan blades , landing gear , and aircraft structures . the largest driver of the commercial aerospace business is oem parts , which is highly dependent on new aircraft production . industry data supports a solid increase in commercial aircraft deliveries over the next few years , as 2011 marked the first year in a multi-year production up-cycle for the commercial aerospace market . over the next few years , oem-oriented companies are expected to perform well , due to planned increases in production by boeing and airbus , on both legacy and new aircraft . in addition , according to the international air transport association ( iata ) , air travel continues to be robust and is likely to continue to expand in future years . story_separator_special_tag as such , following a solid performance over the past two years , the commercial aerospace business is expected to continue its strong growth in 2013. industry experts also expect a modest growth outlook for both regional and business jets . oil and gas approximately 12 % of our revenue is derived from the oil and gas market . we have a diverse offering to the oil and gas market , including critical-function valves , valve systems , large process vessels , and control electronics , as well as various surface treatment services on highly stressed metal components , throughout the entire refinery , as well as in petrochemical and other processing plants . in 2012 , we expanded our offering to service the emerging shale oil and gas market , including hydraulic fracturing ( fracking ) techniques , and are now able to support upstream , midstream and downstream product offerings . we also maintain a significant mro business for our pressure-relief valve technologies and field services , which has been growing steadily as refineries opportunistically service or upgrade equipment which has been operating at full capacity in recent years . for 2012 , our mro business represented approximately 60 % of the total sales in our oil and gas market , with the remainder in our large capital projects business . the most prevalent driver impacting this market is capital spending by refiners for maintenance , upgrades , capacity expansion , safety improvements , and compliance with environmental regulations , which is experienced by both our domestic and international customers . refiner profitability and global crude oil prices in general will impact their capital spending levels . in 2012 , the oil and gas market continued to be hampered by a reduction in new capital equipment orders due to a lack of capital spending , particularly in international markets , despite a strong rebound in mro activity . crude oil prices ( based on west texas intermediate ) were essentially flat in 2012 , due to ongoing volatility and uncertainty regarding europe 's debt crisis . prices are forecasted to decrease approximately 5 % in 2013 , according to the energy information administration ( eia ) , as world economies recover leading to an increase in global supply that should more than offset higher global consumption . furthermore , the u.s. experienced higher total crude oil production in 2012 which is expected to increase in 2013 , despite ongoing uncertainty in several international markets . meanwhile , the fluctuations in refinery margins in 2012 cause modest uncertainty for refinery margins in 2013. looking ahead , we believe a base level of maintenance capital spending will result in continued mro demand . furthermore , as global economies continue to rebound , we anticipate a modest turnaround in our large capital projects business . this includes our complete coker deheading system , which enables safer coke drum operation during the refining process , and also 29 for our large vessel sales . we also will look to capitalize on opportunities in the emerging shale oil and gas market , where we supply energy production and processing equipment , and environmental solutions . longer term , as global dependence on natural resources persists , oil exploration deepens , and transport requirements widen , we anticipate additional opportunities will arise for flow control products . additionally , global environmental concerns will drive incremental spending to comply with more stringent emissions standards . we continue to take a long-term view that energy and energy production , transmission , and consumption will provide a foundation of economic strength . power generation approximately 21 % of our revenue is derived from the commercial nuclear power generation market , where we supply a variety of highly engineered products and services , including reactor coolant pumps , control rod drive mechanisms , valves , motors , spent fuel management , containment doors , bolting solutions , and enterprise resource planning and plant process controls through our flow control segment . according to the nrc , nuclear power comprises approximately 20 % of all the electric power produced in the united states , with 104 reactors operating across 65 nuclear power plants in 31 states . our strong growth in recent years is a result of the u.s. plant recertification process . nearly all of the operating u.s. nuclear power plants have applied for or will be applying for 20-year plant life extensions as they reach the end of their current 40-year operating lives . as of december 31 , 2012 , 73 reactors have received plant life extensions , applications from 15 additional reactors have been submitted and are pending approval , and letters of intent to apply have been submitted from 16 more reactors with expected application submittal dates from 2013 through 2020. during 2012 , u.s. courts rejected the nrc 's waste confidence decision , requiring a general environmental impact study and evaluation of the storage of spent nuclear fuel before further life extensions will be approved . as a result of this legislation , no further license approvals ( beyond the 73 completed or currently in process ) will be granted until the waste confidence decision has been resolved . curtiss-wright 's diverse product offering may aid any necessary studies or spent fuel management solutions . additionally , as assessments and analysis from the events at fukushima continue to drive safety and reliability improvements , we have seen and continue to expect increased opportunities worldwide for our vast portfolio of advanced nuclear technologies that are specifically designed to enhance plant safety , fire safety , seismic design and controls , spent fuel storage , backup site power , and also comply with other regulatory requirements on existing plants , particularly the tier 1 regulations as proposed by the nrc . in addition to plant recertifications , there are several emerging factors that could precipitate an expansion in global commercial nuclear power demand over the next several years . the eia forecasts that worldwide total energy consumption is expected to increase at an average annual rate of 0.3
| in our controls segment , sales decreased primarily in the ground defense market , due to lower production levels on the tow improved target acquisition system ( itas ) and abrams platforms , slightly offset by higher sales of turret drive systems to international customers . defense sales in our surface technologies segment were essentially flat . commercial sales increased $ 127 million , or 11 % , as compared to the prior year period , driven by increased sales across all of our major commercial markets . in our flow control segment , the incremental impact of acquisitions contributed favorably to our power generation market , which was somewhat offset by lower sales due to slower orders from our commercial heating , ventilation , and air conditioning ( hvac ) customers in the general industrial market . in our controls segment , the incremental impact of acquisitions contributed to increased sales in the general industrial market . in addition , higher sales of our flight control products and the incremental impact of acquisitions contributed favorably to sales in the commercial aerospace market . in our surface technologies segment , strong demand from our base businesses and the incremental impact from acquisitions contributed to higher sales in the commercial aerospace and general industrial markets , respectively . operating income operating income decreased $ 25 million , or 14 % , as compared to the prior year period . in our flow control segment , operating income decreased $ 25 million to $ 79 million , impacted by certain one-time items , including a strike , additional assembly and preparation for shipment costs related to the reactor coolant pumps ( rcps ) for the ap1000 program , and restructuring costs . in our controls segment , operating income grew $ 11 million to $ 87 million , as a result of our cost reduction and containment efforts and the expected accretive impact and operational improvements from our acra acquisition . in our surface technologies segment , operating income decreased $ 4 million to $ 27 million , and was negatively impacted by $ 12 million of restructuring costs , of which $ 5
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sales of our epicentral tm software have increased 46 % in 2016 compared to 2015 as we completed three installations worldwide compared to one installation completed in 2015. during 2016 we made strategic investments to improve and enhance epicentral tm which has led to increased revenue growth during 2016 that we believe will continue into 2017. in the lottery market , we continue to hold a leading position based on our long-term relationship with igt , our largest customer and the world 's largest provider of lottery terminals . igt has been our customer since 1995 , and we continue to maintain a good relationship with them . during 2016 , total lottery printer sales to igt increased approximately 5 % , compared to 2015. domestic lottery sales to igt increased 20 % but was offset by an 86 % decrease in international lottery sales to igt due a sale in 2015 for the spanish lottery that did not repeat in 2016. our sales to igt each year are directly dependent on the timing and number of new and upgraded lottery terminal installations igt performs and are not indicative of igt 's overall business or revenue . starting in 2015 , we no longer have an exclusive arrangement with igt , however , we do not believe this will significantly impact our business as we continue to have a good relationship with igt and we now have the ability to sell our market leading products to other lottery system customers . sales of our printrex branded printers include wide format , rack mounted and vehicle mounted thermal printers used by customers to log and plot oil field and down hole well drilling data in the oil and gas exploration industry . sales in this market also includes wide format vehicle mounted printers used to print schematics and certain other critical information in emergency services vehicles and other mobile printing applications . during 2016 , we experienced 61 % lower printrex product sales due primarily to the negative impact on drilling activity from our customers resulting from the continued decline of worldwide oil prices . although we are uncertain when the oil and gas market will recover , we have taken prudent steps to align our cost structure with the current revenue level while we wait for the rebound to occur . our tsg group , which sells service , replacement parts and consumable products , including receipt paper , ribbons and inkjet cartridges , continues to offer a recurring revenue stream for the company . tsg sales decreased 28 % in 2016 from 2015 primarily due to usually high sales of replacement parts mainly to igt for a legacy lottery printer in 2015 that did not repeat to the same extent in 2016. additionally , we experienced a decrease in sales of printrex consumables due to lower usage by our oil and gas customers due to depressed oil prices , as well as lower sales of hp inkjet cartridges used in our banking printers as we deemphasize our focus on this commoditized product . despite lower tsg sales in 2016 we expect tsg sales to increase in 2017 , largely in the second half of the year , due to contractual commitments for replacement part sales to igt . operationally , our gross margin was 41.6 % in 2016 , which fell just 30 basis points shy of the record high gross margin of 41.9 % we reported in 2015. we believe gross margin will increase in 2017 as our newer , higher margin products continue to grow and become a larger portion of our overall sales . in 2016 we achieved operating margin of 9.1 % compared to 7.5 % in 2015 primarily due to legal and settlement expenses incurred in 2015 related to the now-settled ad lawsuit . during 2017 , we expect to more significantly increase our focus on the restaurant solutions market , as we believe it represents transact 's most significant , long term growth opportunity . to that end , we plan to build out a world-class , direct sales organization by recruiting and bringing new sales staff on board , as well as launch targeted marketing campaigns to support our restaurant solutions business . as a result of this investment , we expect our operating expenses , largely selling and marketing , to increase by approximately $ 2 million in 2017 compared to 2016. we reported net income of $ 3,617,000 and net income per diluted share of $ 0.47 for 2016 , compared to $ 3,092,000 and net income per diluted share of $ 0.39 for 2015. in terms of cash flow for 2016 , we experienced a very strong year , generating $ 4,623,000 of cash from operating activities . we also returned $ 5,963,000 to our shareholders in the form of $ 3,571,000 for treasury shares and $ 2,416,000 for cash dividends and finishing the year with cash and cash equivalents of $ 2,503,000 and no debt on our consolidated balance sheet at december 31 , 2016. critical accounting policies and estimates the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates , judgments and assumptions that affect both balance sheet items and statement of income categories . such estimates and judgments are based upon historical experience and certain assumptions that are believed to be reasonable in the particular circumstances . we evaluate our assumptions on an ongoing basis by comparing actual results with our estimates . actual results may differ from the original estimates . the following accounting policies are those that we believe to be most critical in the preparation of our financial statements . these items utilize assumptions and estimates about the effect of future events that are inherently uncertain and are therefore based on our judgment . please refer to note 2 – summary of significant accounting policies in the accompanying consolidated financial statements for a complete listing of our accounting policies . story_separator_special_tag revenue recognition – our typical contracts include the sale of printers and terminals , which are sometimes accompanied by separately-priced extended warranty contracts . we also sell replacement parts , consumables , and other repair services ( sometimes pursuant to multi-year product maintenance contracts ) , which are not included in the original printer or terminal sale and are ordered by the customer as needed . we recognize revenue pursuant to the guidance within accounting standards codification ( `` asc '' ) 605 , `` revenue recognition '' ( asc 605 ) . specifically , revenue is recognized when evidence of an arrangement exists , delivery ( based on shipping terms which are generally fob shipping point ) has occurred , the selling price is fixed and determinable , and collectability is reasonably assured . we recognize revenue from the sale of printers and terminals to our distributors and resellers on a sell-in basis and on substantially the same terms as we recognize revenue from all our other customers . we provide for an estimate of product returns and price protection based on historical experience at the time of revenue recognition . 14 our software solution , epicentral tm , enables casino operators to create promotional coupons and marketing messages and to print them in real-time at the slot machine . revenue arrangements for epicentral tm include multiple deliverables and as a result such arrangements are accounted for in accordance with both asc 605-25 , `` multiple-element arrangements '' and asc 985-605 , `` software . '' epicentral tm is primarily comprised of both a software component , which is licensed to the customer , and a hardware component . epicentral contains both software and hardware that are integrated to deliver the system 's full functionality . these arrangements are accounted for in accordance with asc 605-25 , `` multiple-element arrangements '' . epicentral can also include an additional software offering , mobile host , that allows the customer to access certain applications on mobile devices . mobile host is accounted for in accordance with asc 985-605 , `` software '' as mobile host software does not function together with the hardware device to deliver its essential functionality . revenue , inclusive of software license fees , is generally recognized upon installation and formal acceptance by the customer with the exception of any amount allocated to free maintenance which is deferred and recognized over the initial maintenance period , generally one year . for epicentral tm and other multiple deliverable arrangements , we consider whether the deliverables in an arrangement are within the scope of existing higher-level gaap and apply such literature to the extent that it provides guidance regarding whether to separate multiple-deliverable arrangements and how to allocate value among those separate units of accounting . when we enter into a multiple deliverable arrangement , we also determine whether revenue arrangements consist of more than one unit of accounting . at that time , we allocate arrangement consideration to the separate units of accounting based on a relative selling price hierarchy , except where amounts allocable to the delivered units is limited to that which is contingent upon the delivery of additional deliverables or meeting other specified performance conditions . the relative selling price for each element is based upon the following selling price hierarchy : vendor specific objective evidence ( `` vsoe '' ) if available , third party evidence ( `` tpe '' ) if vsoe is not available , or best estimate of selling price ( `` besp '' ) to the extent that vsoe or tpe are not available . revenue related to extended warranty and product maintenance contracts is recognized pursuant to asc 605-20-25 , `` separately priced extended warranty and product maintenance contracts . '' pursuant to this guidance , revenue related to separately priced product maintenance contracts is deferred and recognized over the term of the maintenance period . we record deferred revenue for advance payments received from customers for maintenance contracts . our customers have the right to return products that do not function properly within a limited time after delivery . we monitor and track product returns and record a provision for the estimated future returns based on historical experience . returns have historically been within expectations and the provisions established , but we can not guarantee that we will continue to experience return rates consistent with historical patterns . we offer some of our customers price protection as an incentive to carry inventory of our product . these price protection plans provide that if we lower prices , we will credit them for the price decrease on inventory they hold . our customers typically carry limited amounts of inventory , and we infrequently lower prices on current products . as a result , the amounts paid under these plans have not been material . however , we can not guarantee that this minimal level will continue . we charge our customers for shipping and handling services . the amounts billed to customers are recorded as revenue when the product ships . any costs incurred related to these services are included in cost of sales . accounts receivable – we have standardized credit granting and review policies and procedures for all customer accounts , including : credit reviews of all new customer accounts ; ongoing credit evaluations of current customers ; credit limits and payment terms based on available credit information ; and adjustments to credit limits based upon payment history and the customer 's current creditworthiness . we also provide an estimate of doubtful accounts based on historical experience and specific customer collection issues . our allowance for doubtful accounts as of december 31 , 2016 was approximately $ 50,000 , or less than 1 % of outstanding accounts receivable , which we feel is appropriate considering the overall quality of our accounts receivable . while credit losses have historically been within expectations and the reserves established , we can not guarantee that our credit loss experience will continue to be consistent with historical experience .
| we recorded net interest expense of $ 26,000 in 2016 compared to $ 28,000 in 2015. interest expense was higher in 2015 due to interest expense incurred from borrowing $ 2,500,000 to pay the ad lawsuit settlement in 2015. we did not borrow any funds during 2016. other , net . we recorded other expense of $ 4,000 in 2016 compared to other income of $ 2,000 in 2015. the change was primarily due to higher foreign currency exchange losses recorded by our u.k. subsidiary in 2016 compared to 2015. income taxes . we recorded an income tax provision of $ 1,553,000 in 2016 compared to $ 1,350,000 in 2015. our effective tax rate for 2016 of 30.0 % remained relatively consistent with the effective tax rate in 2015 of 30.4 % . we expect our annual effective tax rate for 2017 to be approximately 32 % . 19 net income . we reported net income during 2016 of $ 3,617,000 , or $ 0.47 per diluted share , compared to $ 3,092,000 , or $ 0.39 per diluted share , for 2015. results of operations : year ended december 31 , 2015 compared to year ended december 31 , 2014 net sales . net sales , which include printer , terminal and software sales as well as sales of replacement parts , consumables and maintenance and repair services , by market for the years ended december 31 , 2015 and 2014 were as follows : replace_table_token_19_th * international sales do not include sales of products made to domestic distributors or other customers who in turn ship those products to international destinations . net sales for 2015 increased $ 6,568,000 , or 12 % , from 2014. printer and terminal sales volume increased 22 % to approximately 167,000 units primarily due to increases in the lottery , restaurant solutions and pos automation and banking markets , of 97 % , 86 % and 27 % , respectively . the average selling price of our printers and terminals decreased approximately 7 % from 2014 to 2015 ,
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in 2018 , tenant improvements include $ 115.00 per square foot for a new , 16.5-year lease with wework for 115,000 square feet at 149 madison avenue , which will entail a full-scale redevelopment of the property . in 2017 , rent leasing spreads were significantly positive ( 43.6 % ) due to extending the 119,000-square-foot lease with dla piper at university circle in san francisco and leasing 230,000 square feet at 650 california street in san francisco . the leasing at 650 california street required significant tenant improvements ; however , the net economic impact of the leasing at 650 california street is favorable . positive rent leasing spreads in 2017 for renewal leases were partially offset by a slight rent roll-down for the 824,000-square-foot lease extension and amendment executed with westinghouse at cranberry woods in pittsburgh . liquidity and capital resources overview cash flows generated from the operation of our properties are primarily used to fund recurring expenditures and stockholder dividends . the amount of distributions to common stockholders is determined by our board of directors and is dependent upon a number of factors , including funds deemed available for distribution based principally on our current and future projected operating cash flows , reduced by capital requirements necessary to maintain our existing portfolio , our future capital needs , and future sources of liquidity , as well as the annual distribution requirements necessary to maintain our status as a reit under the code . investments in new property acquisitions and first-generation capital improvements are generally funded with capital proceeds from property sales , debt , or cash on hand . our board of directors elected to maintain a $ 0.20 dividend rate for fourth quarter of 2018 , as well as for the first quarter of 2019. short-term liquidity and capital resources during 2018 , we generated net cash flows from operating activities of $ 97.6 million , which consists primarily of receipts from tenants for rent and reimbursements , reduced by payments for operating costs , administrative expenses , interest expense , and lease inducements . during the same period , we paid total distributions to stockholders of $ 95.1 million , which included dividend page 24 index to financial statements payments for four quarters ( $ 23.9 million for the fourth quarter of 2017 and an aggregate of $ 71.2 million for the first three quarters of 2018 ) . during 2018 , we sold 222 east 41st street and an additional 22.5 % interest in the 333 market street and university circle joint ventures for aggregate net proceeds of $ 519.7 million . we used these proceeds to pay down $ 293.2 million of debt ; to invest $ 157.6 million in real estate assets , including those held in unconsolidated joint ventures ; and to repurchase $ 70.4 million of our common stock . over the short term , we expect our primary sources of capital and liquidity to be operating cash flows , select property dispositions , and debt . we expect that our principal demands for funds will be property acquisitions , capital improvements to our existing portfolio , stockholder distributions , stock repurchases , operating expenses , and interest and principal payments . as of february 4 , 2019 , we have access to $ 152.0 million under our revolving credit facility and $ 300.0 million under our delayed-draw term loan . we believe that we will have adequate liquidity and capital resources to meet our current obligations as they come due . long-term liquidity and capital resources over the long term , we expect that our primary sources of capital will include operating cash flows , select property dispositions , and borrowing proceeds . we expect that our primary uses of capital will continue to include stockholder distributions ; acquisitions ; capital expenditures , such as building improvements , tenant improvements , and leasing costs ; and repaying or refinancing debt . consistent with our financing objectives and operational strategy , over the long term we have generally maintained debt levels less than 40 % of the undepreciated costs of our assets . as of december 31 , 2018 , our debt-to-real-estate-asset ratio was approximately 32.7 % . our debt-to-real-estate-asset ratio includes our share of joint venture real estate assets and debt , as well as basis adjustments related to joint venture real estate assets . as described below , our variable rate indebtedness may use london interbank offering rate ( “ libor ” ) as a benchmark for establishing the rate . libor is the subject of recent national , international and other regulatory guidance and proposals for reform . these reforms and other pressures may cause libor to disappear entirely or to perform differently than in the past . the consequences of these developments can not be entirely predicted but could include an increase in the cost of our variable rate indebtedness . if libor is no longer widely available , or otherwise at our option , our revolving credit facility and term loan facilities provide for alternate interest rate calculations . unsecured bank debt on december 7 , 2018 , we amended and restated our $ 500 million unsecured revolving credit facility and $ 300 million unsecured term loan with a $ 950 million combined credit facility . as further described below , the new facility extends maturities , lowers interest costs , and increases the unsecured revolving credit facility from $ 500 million to $ 650 million . concurrent with closing , we repaid the $ 300 million outstanding balance on the old $ 300 million term loan . as of december 31 , 2018 , the new $ 300 million term loan remained undrawn and includes a delayed-draw feature , which allows us up to 12 months to fully draw the term loan . our revolving credit facility has a capacity of $ 650.0 million and matures in january 2023 , with two six-month extension options . as of december 31 , 2018 , we had $ 482.0 million in outstanding borrowings on the revolving credit facility . story_separator_special_tag amounts outstanding under the revolving credit facility bear interest at the london interbank office rate ( `` libor '' ) , plus an applicable margin ranging from 0.775 % to 1.45 % for libor borrowings , or an alternate base rate , plus an applicable margin ranging from 0.00 % to 0.45 % for base rate borrowings , based on our applicable credit rating . the per annum facility fee on the aggregate revolving commitment ( used or unused ) ranges from 0.125 % to 0.30 % , also based on our applicable credit rating . additionally , the revolving credit facility , along with the $ 300 million term loan , as described below , provides for four accordion options for an aggregate additional amount of up to $ 500 million , subject to certain limitations . our $ 300.0 million unsecured term loan matures in january 2024 ( the `` $ 300 million term loan '' ) and bears interest , at our option , at either ( i ) libor , plus an applicable margin ranging from 0.85 % to 1.65 % for libor loans , or ( ii ) an alternate base rate , plus an applicable margin ranging from 0.00 % to 0.65 % for base rate loans , based on our applicable credit rating . the per annum facility fee on the aggregate term loan commitment ( used or unused ) ranges from 0.125 % to 0.30 % , also based on our applicable credit rating . as of december 31 , 2018 , the $ 300 million term loan remained undrawn with no amounts outstanding . our $ 150.0 million unsecured term loan matures in july 2022 ( the `` $ 150 million term loan '' ) and bears interest , at our option , at either ( i ) libor , plus an applicable margin ranging from 0.90 % to 1.75 % for libor loans , or ( ii ) alternative base rate , plus an applicable margin ranging from 0.00 % to 0.75 % for base rate loans . the interest rate on the $ 150 million term loan is effectively fixed with an interest rate swap agreement , which is designated as a cash flow hedge . based on the terms of the interest rate swap and our current credit rating , the interest rate on the $ 150 million term loan is effectively fixed at 3.07 % . page 25 index to financial statements debt covenants as of december 31 , 2018 , the $ 300 million term loan , the $ 150 million term loan , and the revolving credit facility contain the following restrictive covenants , which are defined in the debt agreements : limit the ratio of secured debt to total asset value to 40 % or less ; require the fixed charge coverage ratio to be at least 1.50 :1.00 ; limit the ratio of debt to total asset value to 60 % or less , or 65 % or less following a material transaction ; require the ratio of unencumbered interest coverage ratio to be at least 1.75 :1.00 ; limit the unencumbered leverage ratio to 60 % or less , or 65 % or less following a material transaction . as of december 31 , 2018 , we were in compliance with the restrictive covenants on these outstanding debt obligations . bonds payable in august 2016 , we issued $ 350.0 million of 10-year , unsecured 3.650 % senior notes at 99.626 % of their face value ( the `` 2026 bonds payable '' ) . the 2026 bonds payable require semi-annual interest payments in february and august based on a contractual annual interest rate of 3.650 % . the principal amount of the 2026 bonds payable is due and payable on the maturity date , august 15 , 2026. in march 2015 , we issued $ 350.0 million of 10-year , unsecured 4.150 % senior notes at 99.859 % of their face value ( the `` 2025 bonds payable '' ) . the 2025 bonds payable require semi-annual interest payments in april and october based on a contractual annual interest rate of 4.150 % . the principal amount of the 2025 bonds payable is due and payable on the maturity date , april 1 , 2025. the restrictive covenants on the 2026 bonds payable and the 2025 bonds payable as defined pursuant to an indenture include : a limitation on the ratio of debt to total assets , as defined , to 60 % ; limits to our ability to incur debt if the consolidated income available for debt service to annual debt service charge , as defined , for four previous consecutive fiscal quarters is less than 1.50:1:00 on a pro forma basis ; limits to our ability to incur liens if , on an aggregate basis for us , the secured debt amount would exceed 40 % of the value of the total assets ; and a requirement that the ratio of unencumbered asset value , as defined , to total unsecured debt be at least 150 % at all times . as of december 31 , 2018 , we were in compliance with the restrictive covenants on the 2026 bonds payable and the 2025 bonds payable . debt settlements and interest payments during 2018 , we made the following debt repayments : on december 14 , 2018 , we terminated both the $ 120.0 million development authority bonds and the corresponding obligations under capital leases related to one & three glenlake parkway in atlanta . on december 7 , 2018 , concurrent with closing on the amendment and restatement of our term loan and revolving credit facility , we repaid the $ 300 million remaining balance on the $ 300 million term loan , which includes a delayed-draw feature , allowing up to 12 months to fully draw the term loan . on october 10 , 2018 , we paid the $ 20.7 million outstanding balance on the one glenlake mortgage note two months prior to its original maturity date .
| in the current year , we provided asset and property management services to the market square joint venture , the san francisco joint ventures , and the 1800 m street joint venture . for the first half of 2017 , we only provided management services to the market square joint venture ; effective july 1 , 2017 , we began to also provide management services to the san francisco joint ventures . we anticipate asset and property management fee income to remain at similar levels in the near term . other property income was $ 7.3 million for 2018 , which represents an increase as compared with $ 3.3 million for 2017 , primarily due to providing additional reimbursable services to our unconsolidated joint ventures ( $ 2.1 million ) and lease termination activity ( $ 1.7 million ) . other property operating income is expected to vary in the future , based on additional future joint venture activities and lease restructurings . property operating costs were $ 88.8 million for 2018 , which represents a slight increase from $ 87.8 million for 2017 . the impacts of acquired properties with primarily gross leases ( $ 6.7 million ) are offset by transferring university circle and 333 market street page 27 index to financial statements to unconsolidated joint ventures in the third quarter of 2017 ( $ 5.6 million ) . property operating costs are expected to vary with future leasing activity and changes in our portfolio . asset and property management fee expenses were $ 0.9 million for both 2018 and 2017 . there was a slight decrease due to expenses incurred in 2017 for the key center marriott which was sold in january 2017 ( $ 0.1 million ) . future asset and property management fee expenses are expected to remain stable in the near term and may increase as a result of future investing activities . depreciation was $ 81.8 million for 2018 , which represents a slight increase as compared with $ 80.4 million for 2017 . the impacts of additional depreciation from acquisitions ( $ 8.1 million ) and from the completion of capital and
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and infrastructure , including from failure or malicious attacks ; the fact that the prices at which shares of our class a common stock are sold in one or more of our controlled equity offerings or in other offerings or other transactions may vary significantly , and purchasers of shares in such offerings or transactions , as well as existing stockholders , may suffer significant dilution if the price they paid for their shares is higher than the price paid by other purchasers in such offerings or transactions ; our ability to meet expectations with respect to payments of dividends and distributions and repurchases of shares of our class a common stock and purchases of limited partnership interests of bgc holdings , l.p. , which we refer to as bgc holdings , or other equity interests in our subsidiaries , including from cantor , our executive officers , other employees , partners , and others , and the net proceeds to be realized by us from offerings of our shares of class a common stock ; and the effect on the market for and trading price of our class a common stock of various offerings and other transactions , including our controlled equity and other offerings of our class a common stock and convertible or exchangeable debt securities , our repurchases of shares of our class a common stock and purchases of bgc holdings limited partnership interests or other equity interests in our subsidiaries , our payment of dividends on our class a common stock and distributions on bgc holdings limited partnership interests , convertible arbitrage , hedging , and other transactions engaged in by holders of our 4.50 % convertible notes and counterparties to our capped call transactions , and resales of shares of our class a common stock acquired from us or cantor , including pursuant to our employee benefit plans , conversion of our convertible notes , conversion or exchange of our convertible or exchangeable debt securities , and distributions from cantor pursuant to cantor 's 81 distribution rights obligations and other distributions to cantor partners including deferred distribution rights shares . this discussion summarizes the significant factors affecting our results of operations and financial condition during the years ended december 31 , 2012 and 2011. this discussion is provided to increase the understanding of , and should be read in conjunction with , our consolidated financial statements and the notes thereto included elsewhere in this report . overview and business environment we are a leading global brokerage company primarily servicing the wholesale financial and real estate markets through our two segments , financial services and real estate services . our financial services segment specializes in the brokering of a broad range of products , including fixed income securities , interest rate swaps , foreign exchange , equities , equity derivatives , credit derivatives , commodities , futures and structured products . our financial services segment also provides a full range of services , including trade execution , broker-dealer services , clearing , processing , information , and other back-office services to a broad range of financial and non-financial institutions . our integrated platform is designed to provide flexibility to customers with regard to price discovery , execution and processing of transactions , and enables them to use voice , hybrid , or in many markets , fully electronic brokerage services in connection with transactions executed either otc or through an exchange . through our espeed , bgc trader and bgc market data brands , we offer financial technology solutions , market data , and analytics related to select financial instruments and markets . we entered into the commercial real estate business in october 2011 with the acquisition of all of the outstanding shares of newmark & company real estate , inc. , a leading u.s. commercial real estate brokerage and advisory firm primarily serving corporate and institutional clients . newmark was founded in 1929 in new york city . in 2000 , newmark embarked upon a national expansion and in 2006 entered into an agreement with london-based knight frank to operate jointly in the americas as newmark knight frank. in the second quarter of 2012 , we completed the acquisition of substantially all of the assets of grubb & ellis company and its direct and indirect subsidiaries , which we refer to as grubb & ellis. grubb & ellis was formed in 1958 and built a full-service national commercial real estate platform of property management , facilities management and brokerage services . we have largely completed the integration of grubb & ellis with newmark knight frank to form the resulting business , newmark grubb knight frank ( or ngkf ) . ngkf is a full-service commercial real estate platform that comprises our real estate services segment , offering commercial real estate tenants , owners , investors and developers a wide range of services , including leasing ; capital markets services including investment sales , debt placement , appraisal , and valuation services ; as well as consulting , project and development management , leasing and corporate advisory services and property and corporate facilities management services . in connection with our acquisition of substantially all of the assets of grubb & ellis , we began , with the second quarter of 2012 , reporting two reportable segments , financial services and real estate services , as reflected in our quarterly report on form 10-q for such quarter filed on august 8 , 2012. prior to the second quarter of 2012 , we had only one reportable segment . on august 8 , 2012 , we filed a current report on form 8-k to update our financial statements and certain other information contained in our annual report on form 10-k for the year ended december 31 , 2011 and our quarterly report on form 10-q for the quarter ended march 31 , 2012 to reflect such change in our reportable segments . story_separator_special_tag these two segments continue to be reported in this annual report on form 10-k. our customers include many of the world 's largest banks , broker-dealers , investment banks , trading firms , hedge funds , governments , corporations , property owners , real estate developers and investment firms . we have offices in dozens of major markets , including new york and london , as well as in atlanta , beijing , boston , chicago , copenhagen , dallas , dubai , hong kong , houston , istanbul , johannesburg , los angeles , mexico city , miami , moscow , nyon , paris , rio de janeiro , são paulo , seoul , singapore , sydney , tokyo , toronto , washington , d.c. and zurich . 82 we remain confident in our future growth prospects as we continue to increase the scale and depth of our real estate platform and continue to seek market driven opportunities to expand our business in numerous financial asset classes . financial services : the financial intermediary sector has been a competitive area that has had strong revenue growth over the past decade due to several factors . one factor is the increasing use of derivatives to manage risk or to take advantage of the anticipated direction of a market by allowing users to protect gains and or guard against losses in the price of underlying assets without having to buy or sell the underlying assets . derivatives are often used to mitigate the risks associated with interest rates , equity ownership , changes in the value of foreign currency , credit defaults by corporate and sovereign debtors and changes in the prices of commodity products . over the past decade , demand from financial institutions , financial services intermediaries and large corporations has increased volumes in the wholesale derivatives market , thereby increasing the business opportunity for financial intermediaries . another key factor in the growth of the financial intermediary sector over the past decade has been the increase in the number of new products . as market participants and their customers strive to mitigate risk , new types of equity and fixed income securities , futures , options and other financial instruments have been developed . these new securities and derivatives are not immediately ready for more liquid and standardized electronic markets , and generally increase the need for trading and require broker-assisted execution . the past twelve months have been challenging as lower activity and volatility have contributed to declines in market volumes across the asset classes in our financial services segment . growth drivers as a wholesale intermediary , our business is driven by several key drivers in addition to those listed above . these include : overall industry volumes in the markets in which we broker , the size and productivity of our front-office headcount ( including salespeople , brokers and other front-office professionals ) , regulatory issues and the percentage of our revenues related to fully electronic brokerage . below is a brief analysis of the market and industry volumes for some of our financial services products including our overall hybrid and fully electronic trading activities . overall market volumes and volatility volume is driven by a number of items , including the level of issuance for financial instruments , the price volatility of financial instruments , overall macro-economic conditions , the creation and adoption of new products , the regulatory environment , and the introduction and adoption of new trading technologies . in general , increased price volatility increases the demand for hedging instruments , including many of the cash and derivative products which we broker . for example , hedge funds are increasingly making use of derivatives to protect positions and preserve the capital of their more cautious institutional clients , which now account for almost two-thirds of assets managed by the industry , according to a report from j.p. morgan . during the year ended december 31 , 2012 , industry volumes generally declined year-over-year for many of the otc and listed products we broker in rates , credit , foreign exchange and equities . this was due in large part to volatility being lower than the 10-year average in these asset classes during the year . for example , a broader measure of volatility across rates , credit , foreign exchange ( fx ) , equities , and other markets is bank of america merrill lynch 's global financial stress index ( gfsi ) . it averaged approximately 0.67 over the last five years , and had been as high as 3.01 during the height of the global financial crises in the second half of 2008 , but averaged only 0.23 during the fourth quarter of 2012. market stress measures such as the gfsi are generally good proxies for overall volatility and volumes across our four asset class categories . below is a discussion of the volume and growth drivers of our various financial services brokerage product categories . 83 rates volumes and volatility our rates business is particularly influenced by the level of sovereign debt issuance globally , and over the past year this issuance has generally continued to grow , although quantitative easing has muted the public issuance of many sovereign issues . for example , according to the securities industry and financial markets association ( sifma ) , issuance by the u.s. treasury of interest-bearing debt increased by approximately 42 % for the fourth quarter of 2012 versus the same period last year , and was up by approximately 10 % for all of 2012. rates volumes are also influenced by market volatility , and such volatility has been dampened for the past year due to continued quantitative easing undertaken by the u.s. federal reserve and other major central banks . quantitative easing entails the central banks buying government securities or other securities in the open marketparticularly longer-dated instrumentsin an effort to promote increased lending and liquidity and bring down long-term interest rates .
| the decrease in rates revenues of $ 46.0 million was primarily driven by lower volumes as activity remained muted due to quantitative easing undertaken by major central banks . credit brokerage revenues decreased $ 30.4 million . global credit market volume has declined as banks adjust to new capital requirements for credit transactions under basel iii and due to uncertainty surrounding the rules for clearing credit derivatives in the u.s. foreign exchange revenues decreased by $ 10.3 million . global fx volumes were lower in 2012 , largely as certain major central banks intervened to keep their currencies from appreciating and low interest rates in most major economies minimized the utilization of carry-trade strategies . revenues from equities and other asset classes decreased by $ 58.4 million . global equity markets continued to be difficult in 2012 as equity derivative volumes were down between 9 % and 41 % according to the occ , eurex , deutsche bourse , and the cme . real estate management services real estate management services revenues were $ 122.7 million for the year ended december 31 , 2012. the revenues associated with property and facilities management fees are earned as a consequence of the acquisitions of newmark knight frank and grubb & ellis in the fourth quarter of 2011 and the second quarter of 2012 , respectively . fees from related parties fees from related parties decreased by $ 9.1 million , or 14.6 % , for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011. the decrease was primarily due to lower revenues related to elx and a reduced level of support fees for services provided to cantor . 96 market data market data revenues decreased by $ 0.5 million , or 2.6 % , for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011. software solutions software solutions revenues increased by $ 0.8 million , or 8.4 % , for the year ended december 31 , 2012 as compared to the year ended december
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in this segment , customer bases are within the insurance , financial services , energy and specialized markets , and healthcare verticals . principal operating costs and expenses personnel expenses are the major component of both our cost of revenues and selling , general and administrative expenses . personnel expenses , which represented 57.1 % and 56.8 % of our total expenses for the years ended december 31 , 2015 and 2014 , respectively , include salaries , benefits , incentive compensation , equity compensation costs , sales commissions , employment taxes , recruiting costs , and outsourced temporary agency costs . we allocate personnel expenses between two categories , cost of revenues and selling , general and administrative costs , based on the actual costs associated with each employee . we categorize employees who maintain our solutions as cost of revenues , and all other personnel , including executive managers , sales people , marketing , business development , finance , legal , human resources , and administrative services , as selling , general and administrative expenses . a significant portion of our other operating costs , such as facilities and communications , are also either captured within cost of revenues or selling , general and administrative expense based on the nature of the work being performed . while we expect to grow our headcount over time to take advantage of our market opportunities , we believe that the economies of scale in our operating model will allow us to grow our personnel expenses at a lower rate than revenues . historically , our ebitda margin has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses . however , part of our corporate strategy is to invest in new solutions which may offset margin expansion . 30 cost of revenues . our cost of revenues consists primarily of personnel expenses . cost of revenues also includes the expenses associated with the acquisition and verification of data , the maintenance of our existing solutions and the development and enhancement of our next-generation solutions . our cost of revenues excludes depreciation and amortization . selling , general and administrative expense . our selling , general and administrative expense also consists primarily of personnel costs . a portion of the other operating costs such as facilities , insurance and communications are also allocated to selling , general and administrative costs based on the nature of the work being performed by the employee . our selling , general and administrative expenses excludes depreciation and amortization . trends affecting our business we serve customers in four primary vertical markets : property/casualty insurance , healthcare , energy , and financial services . the industry trends in each of those markets can affect our business . a significant change in property/casualty insurers ' profitability could positively or negatively affect demand for our solutions . for insurers , the keys to profitability include investment income and premium growth . investment income remains under pressure as a result of low interest rates . growth in property/casualty insurers ' direct written premiums is cyclical , with total industry premium growth receding from a peak of 14.8 % in 2002 to a trough of negative 3.1 % in 2009 and subsequently recovering to 4.4 % in 2012 , 4.3 % in 2013 , and 4.4 % in 2014. based on our experience , insurers more closely scrutinize their spending in periods of more challenging growth . in recent years , we have signed multi-year contracts with certain customers , and pricing is fixed at the beginning of each multi-year period ; pricing for other customers is still linked to prior years ' premiums . trends in catastrophe and noncatastrophe weather losses can have an effect on our customers ' profitability and therefore their appetite for buying analytics to help them manage their risks . the apparent increase in the frequency and severity of weather events that cause losses for insurers could lead to increased demand for our catastrophe modeling , catastrophe loss information , and repair cost solutions . a significant decrease in the number or severity of catastrophes could negatively affect our revenues . we also have a portion of our revenue related to the number of claims processed due to losses which can be impacted by seasonal storm activity . the need by our customers to fight insurance fraud — both in claims and at policy inception — could lead to increased demand for our underwriting and claims solutions . market trends continue to influence our financial services vertical in important ways . most notable among the recent trends affecting the vertical includes a significant increase in the number of alternative lenders and alternative payment instruments in the market . we are adapting our offerings to address the needs of alternative lenders , backed by our deep expertise in and datasets covering the performance of customers across a full range of credit histories . as well , our unique ability to analyze the customer adoption rates of new alternative payment instruments from our syndicated study datasets is enabling us to serve as the “ go to ” solution for the industry 's analytic needs in the space . a strengthening of the u.s. dollar relative to the currencies of our international clients and a softening of the global economy is putting an even greater level of downward pressure on our revenues from such clients . however , we are also observing a growing appetite for our expense and regulatory focused solutions among those clients . lastly , we are seeing a greater number of companies entering the ad effectiveness space , potential competitors to our position in this space . we stand confident of our position at this stage , given the unique nature and strength of our partnerships coupled by the comprehensiveness of our data , particularly as it relates to seeing the full wallet spend of a consumer . trends in the energy , metals and mining sectors and activity in financial markets can influence our revenues . story_separator_special_tag movements of commodity prices affect the profitability of energy and metals and mining companies , while stock markets and mergers and acquisitions , or m & a , are the principal drivers of activity for financial institutions . among the specific trends influencing commodity prices are global gross domestic product growth , supply of individual commodities , and geopolitical factors . the slow down of the chinese economy is currently contributing to an oversupply of a number of commodities . rising u.s. oil and gas production , opec policy , and the partial lifting of sanctions against iran in january 2016 has led to a sharp fall in crude oil prices ; and most metals markets are currently in oversupply . lower commodity prices have reduced discretionary spending for clients and has stalled m & a activity . however , the uncertainty also increases client demand for our data and services . commodity prices are expected to recover over time to incentivize the investment required to meet growing energy demand . longer term the paris global accord on climate change signals a period of change in the energy mix , incentivizing growth in renewable energy and other low carbon technologies , while fossil fuels are expected to remain a core part of energy demand for the foreseeable future . we will continue to evolve our offerings to meet the needs of our clients in an increasingly complex market . trends in the u.s. healthcare market can affect a portion of our revenues in the decision analytics segment . that market continues to undergo significant change as the result of healthcare reform legislation . the specific trends affecting our current healthcare business include payment reform , expansion of insurance coverage , and efforts at cost containment . payment reform is driving the market to value-based reimbursement , which has caused healthcare providers to bear increased financial risk and responsibility for quality outcomes . the expansion of insurance coverage has reduced the uninsured population through both 31 increased enrollment in medicaid and in the commercial market through statewide health exchanges . as the government seeks to control fraud , waste , and abuse , efforts to contain costs will likely continue to become more prevalent . although such changes have the potential to disrupt the healthcare marketplace , we believe the requirements for reform could increase demand for our analytic solutions in the areas of population health management , quality measurement , risk adjustment for medicare advantage and qualified health plans participating on statewide health exchanges , and detection of prepayment fraud , waste and abuse . we experience seasonality in our medicare advantage risk adjustment business in the second half of our fiscal year , related to the cms submission deadline . description of acquisitions we acquired six businesses since january 1 , 2013. these acquisitions affect the comparability of our consolidated results of operations between periods . on may 19 , 2015 , we acquired 100 % of the stock of wood mackenzie . wood mackenzie is a global provider of data analytics and commercial intelligence for the energy , chemicals , metals and mining verticals . this acquisition advances our strategy to expand internationally and positions ourselves in the global energy market . wood mackenzie is included in the energy and specialized markets vertical , formerly named the specialized markets vertical , of the decision analytics segment . see note 9 to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchase price allocations . on november 6 , 2015 , we acquired 100 % of the stock of infield systems limited , or infield . infield is a provider of business intelligence , analysis , and research to the oil , gas , and associated marine industries . infield has become part of wood mackenzie and continues to provide services to enhance wood mackenzie 's upstream and supply chain capabilities in the decision analytics segment . see note 9 to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchase price allocations . on november 20 , 2015 , we acquired 100 % of the stock of the pci group , or pci . pci is a consortium of five specialist companies that offer integrated data and subscriptions research in the chemicals , fibers , films , and plastics sectors . pci has become part of wood mackenzie , and continues to provide services to enhance wood mackenzie 's chemicals capabilities in the decision analytics segment . see note 9 to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchase price allocations . on december 8 , 2014 , we acquired 100 % of the stock of maplecroft . using a proprietary data aggregation and analytical approach , maplecroft enables its customers to assess , monitor , and forecast a growing range of worldwide risks , including geopolitical and societal risks . within our decision analytics segment , this acquisition positions us as a provider of value chain optimization tools , providing comprehensive quantitative risk analytics and platforms by which customers can visualize , quantify , mitigate , and manage their risk . maplecroft is headquartered in bath , england . on october 31 , 2014 , we acquired the net assets of dart consulting limited , or dart . dart is a provider of benchmarking and advisory solutions to financial services institutions in australia , new zealand , and other key asia-pacific markets . as part of our decision analytics segment , dart provides benchmarking solutions and professional services critical to financial services institutions in the management of lending and payment portfolios . on january 29 , 2014 , we acquired the net assets of inovatus , llc , or inovatus . the assets primarily consisted of software and are embedded in our existing models focusing on reducing fraud and premium leakage for personal auto insurance carriers .
| this current liability is deferred revenue that does not require a direct cash outflow since our customers have prepaid and are obligated to purchase the services . in most businesses , growth in revenue typically leads to an increase in the accounts receivable balance causing a use of cash as a company grows . unlike these businesses , our cash position is favorably affected by revenue growth , which results in a source of cash due to our customers prepaying for most of our services . our capital expenditures as a percentage of revenues for the years ended december 31 , 2015 and 2014 , were 8.0 % and 8.4 % , respectively . we estimate our capital expenditures for 2016 will be approximately $ 175 million , which primarily consists of expenditures on our technology infrastructure and our continuing investments in developing and enhancing our solutions . expenditures related to developing and enhancing our solutions are predominately related to internal use software and are capitalized in accordance with asc 350-40 , “ accounting for costs of computer software developed or obtained for internal use . ” we also capitalize amounts in accordance with asc 985-20 , “ software to be sold , leased or otherwise marketed . ” we have also historically used a portion of our cash for repurchases of our common stock from our stockholders . for the years ended december 31 , 2015 , 2014 and 2013 , we repurchased $ 20.5 million , $ 778.5 million and $ 277.4 million , respectively , of our common stock . in prior years , we provided pension and postretirement benefits to certain qualifying active employees and retirees . on february 29 , 2012 , we instituted a hard freeze , which eliminated all future compensation and service credits , to all participants in the pension plans . in april 2012 , we completed a voluntary prefunding to our qualified pension plan of $ 72.0 million , which resulted in a contribution of $ 78.8 million for the
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34 as of december 31 , 2020 , we estimate our five-year capital investment to be approximately $ 2.7 billion , with most of that investment targeted toward upgrading existing utility infrastructure and to support customer and community growth needs . our actual 2020 and forecasted capital expenditures and depreciation for the next five years from 2021 through 2025 are as follows ( in millions ) : replace_table_token_16_th ( a ) includes accruals for property , plant and equipment as disclosed as supplemental cash flow information in the consolidated statements of cash flows in the consolidated financial statements in this annual report on form 10-k. efficiently plan , construct and operate rate base power generation facilities to serve our electric utilities . we believe that we best serve customers and communities with a vertically integrated business model for our electric utilities . this business model remains a core strength and strategy today as we invest in and operate efficient power generation resources to cost-effectively supply electricity to our customers . we strive to provide power at reasonable rates to our customers and earn competitive returns for our investors . our power production strategy focuses on low-cost construction and efficient operation of our generating facilities . our low power production costs result from a variety of factors including low fuel costs , efficiency in converting fuel into energy , low per unit operating and maintenance costs and high levels of power plant availability . for our coal-fired power plants , we leverage our mine-mouth location advantage to eliminate coal transportation costs that often represent the largest component of the delivered cost of coal for many other utilities . additionally , we operate our plants with high levels of availability as compared to industry benchmarks . 35 we continue to believe that ownership of power generation facilities by our electric utilities best serves customers . rate-based generation assets offer several advantages for customers and shareholders , including : when generating assets are included in the utility rate base and reviewed and approved by government authorities , customer rates are more stable and predictable , and typically less expensive in the long run ; especially when compared to power otherwise purchased from the open market through wholesale contracts that are periodically re-priced to reflect current and varying market conditions ; regulators participate in a planning process where long-term investments are designed to match long-term energy demand ; the lower-risk profile of rate-based generation assets contributes to stronger credit ratings which , in turn , can benefit both customers and investors by lowering the cost of capital ; and investors are provided a long-term and stable return on their investment . proactively integrate alternative and renewable energy into our utility energy supply while mitigating customer rate impacts . in november 2020 , we announced clean energy goals to reduce ghg emissions intensity for our electric utilities of 40 % by 2030 and 70 % by 2040 and achieve ghg reductions of 50 % by 2035 for our gas utilities . our goals are based on existing technology and computed from 2005 baseline levels of ghg emissions intensity for our electric operations and natural gas distribution system . since 2005 , we have reduced ghg emissions intensity from our gas utilities by more than 33 % and achieved a 25 % reduction from our electric utilities . colorado electric has achieved an approximate 50 % reduction in ghg emissions since 2005 and is on track to reach colorado 's 80 % carbon reduction goal by 2030. our goals are based on prudent and proven solutions to reduce our emissions while minimizing cost impacts to our customers . this keeps our customers at the forefront of our decision-making , which is central to our values . more of our customers , particularly our larger customers , are demanding cleaner sources of energy to meet their sustainability goals . in addition , there is more interest from consumers , regulators and legislators to increase the use of renewable and other alternative energy sources . to support this interest , we created the renewable ready program for south dakota and wyoming customers . in support of this program , we created and received approvals for new , voluntary renewable energy tariffs to serve certain commercial , industrial and governmental agency customer requests for renewable energy resources . to meet the renewable energy commitments under the new tariffs , on november 30 , 2020 , we completed construction and placed into service the corriedale wind project , a 52.5 mw wind energy project near cheyenne , wyoming . supporting our renewable energy efforts in colorado , in september 2020 , colorado electric received approval from the cpuc for its request for approval of its preferred solar bid in support of its renewable advantage program , which plans to add up to 200 mw of renewable energy by the end of 2023. to date , many states have enacted , and others are considering , mandatory renewable energy standards , requiring utilities to meet certain thresholds of renewable energy generation . in addition , some states have either enacted or are considering legislation setting ghg emission reduction targets . federal legislation for renewable energy standards and ghg emission reductions has been considered and may be implemented in the future . mandates for the use of renewable energy or the reduction of ghg emissions will likely drive the need for significant investment in our electric utilities and gas utilities segments . these mandates will also likely increase prices for electricity and or natural gas for our utility customers . as a regulated utility we are responsible for providing safe , reliable and affordable sources of energy to our customers . accordingly , we employ a customer-focused strategy for complying with standards and regulations that balances our customers ' rate concerns with environmental considerations and administrative and legislative mandates . story_separator_special_tag we attempt to strike this balance by prudently and proactively incorporating renewable energy into our resource supply , while seeking to minimize the magnitude and frequency of rate increases for our utility customers . build and maintain strong relationships with wholesale power customers of our utilities and our power generation business . we strive to build strong relationships with other utilities , municipalities and wholesale customers . we believe we will continue to be an important provider of electricity to wholesale utility customers , who will continue to need products such as capacity and energy to reliably serve their customers . by providing these products under long-term contracts , we help our customers meet their energy needs . we also earn more stable revenues and greater returns for shareholders over the long-term than we would by selling energy into more volatile energy spot markets . in addition , relationships that we have established with wholesale power customers have developed into other opportunities . mean , mdu and the city of gillette , wyoming were wholesale power customers that are now joint minority owners in two of our power plants , wygen i and wygen iii , reducing risk and providing steady revenues . vertically integrate businesses that are supportive of our electric and gas utility businesses . while our primary focus is serving customers and growing our core utilities , we selectively invest in vertically integrated businesses that provide cost effective and efficient fuel and energy to our utilities . we currently own and operate power generation and mining assets that are vertically integrated into and support our electric utilities . these operations are located at our utility-generating complexes and are physically integrated into our electric utilities ' operations . 36 the power generation segment currently owns five power facilities , four of which are contracted with our affiliate electric utilities under mid- to long-term power purchase agreements . our power generation segment has an experienced staff with significant expertise in planning , building and operating power plants . the power generation team has constructed 22 generation projects since 1995 with an aggregate investment in excess of $ 2.5 billion . this team also provides shared services to our electric utilities ' generation facilities , resulting in efficient management of all of the company 's generation assets . in certain states , our electric utilities are required to competitively bid for generation resources needed to serve customers . generally , our power generation segment submits bids in response to those competitive solicitations . our power generation segment can often realize competitive advantages provided by prior construction expertise , fuel supply advantages and by co-locating new plants at existing sites , reducing infrastructure and operating costs . our small surface coal mine is located immediately adjacent to our gillette energy complex in northeastern wyoming , where all five of our remaining coal-fired power plants are located . we operate and own majority interests in four of the five power plants . we own 20 % of the fifth power plant which is operated by a majority owner . the mine provides low-sulfur coal directly to these power plants via a conveyor belt system , minimizing transportation costs . on average , the fuel can be delivered to the adjacent power plants at less than $ 1.00 per mmbtu , providing very cost competitive fuel to our power plants when compared to other coal-fired and natural gas-fired generating facilities . nearly all of the mine 's production is sold to the five on-site , mine-mouth generation facilities under long-term supply contracts . approximately one-half of our production is sold under cost-plus contracts with affiliates . a small portion of the mine 's production is sold to off-site industrial customers and delivered by truck . grow our dividend . we are extremely proud of our track record of annual dividend increases for shareholders . 2020 represented our 50th consecutive year of increasing dividends . in january 2021 , our board of directors declared a quarterly dividend of $ 0.565 per share , equivalent to an annual dividend of $ 2.26 per share . we intend to continue our record of annual dividend increases with a targeted dividend payout ratio of 50 % to 60 % . maintain an investment grade credit rating and ready access to debt and equity capital markets . we require access to the capital markets to fund our planned capital investments or acquire strategic assets that support prudent and earnings-accretive business growth . we have demonstrated our ability to cost-effectively access the debt and equity markets , while maintaining our investment-grade issuer credit rating . prospective information we expect to generate long-term growth through the expansion of integrated utilities and supporting operations . sustained growth requires continued capital deployment . our integrated energy portfolio , focused predominately on regulated utilities , provides growth opportunities , yet avoids concentrating business risk . we expect much of our earnings growth in the next few years will come from the need for capital deployment at our utilities and continued focus on improving efficiencies and controlling costs . although dependent on market conditions , we are confident in our ability to obtain additional financing , as necessary , to continue our growth plans . we remain focused on prudently managing our operations and maintaining our overall liquidity to meet our operating , capital and financing needs , as well as executing our long-term strategic plan . prospective information for our operating segments should be read in conjunction with our business strategy discussed above , and our company highlights discussed below . company highlights february 2021 weather event in february 2021 , a prolonged period of historic cold temperatures across the central united states , which covered all of our utilities ' service territories , caused a significant increase in heating and energy demand and contributed to unforeseeable and unprecedented market prices for natural gas and electricity .
| 51 investing activities : net cash used in investing activities was $ 55 million lower than in 2019. this variance to the prior year was primarily attributable to : capital expenditures of approximately $ 767 million in 2020 compared to $ 818 million in 2019. higher prior year expenditures were driven by large projects such as the natural bridge pipeline project , the busch ranch ii wind project and construction of the final segment of the 175-mile transmission line from rapid city , south dakota to stegall , nebraska . the current year capital expenditures included the corriedale wind project . cash inflows increased $ 3.6 million for other investing activities . financing activities : net cash provided by financing activities was $ 83 million lower than in 2019. this variance to the prior year was primarily attributable to : cash inflows decreased $ 82 million due to maturities and repayments of long and short-term debt in excess of issuances ; cash outflows increased $ 11 million due to increased dividends paid on common stock ; and cash outflows decreased by $ 9.7 million for other financing activities primarily driven by lower current year financing costs incurred in the june 17 , 2020 debt transaction compared to prior year financing costs incurred in the june 17 , 2019 and october 3 , 2019 debt transactions . capital sources revolving credit facility and cp program we have a $ 750 million revolving credit facility that matures on july 30 , 2023 with two one-year extension options ( subject to consent from lenders ) . this facility includes an accordion feature that allows us , with the consent of the administrative agent , the issuing agents and each bank increasing or providing a new commitment , to increase total commitments up to $ 1.0 billion . we also have a $ 750 million , unsecured cp program that is backstopped by the revolving credit facility . amounts outstanding under the revolving credit facility and the cp program , either individually or in the aggregate , can not exceed $ 750 million . the revolving credit facility prohibits us from paying cash dividends if a default or an event
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as of february 24 , 2021 , six states have ordered active moratoria on the suspension of service disconnections due to non-payment . the moratoria on disconnects have expired in eight states . the company continues to monitor the evolving covid-19 pandemic and will continue to comply with the current ordered moratoria and any future moratoria implemented . financing activities to ensure adequate liquidity given the impacts of the covid-19 pandemic on debt and capital markets , on march 20 , 2020 , parent company and american water capital corp. ( “ awcc ” ) , parent company 's wholly owned finance subsidiary , entered into a term loan credit agreement that provides for a 364-day term loan facility of up to $ 750 million ( the “ term loan facility ” ) . on march 20 , 2020 , awcc borrowed $ 500 million under the term loan facility , the proceeds of which were used for general corporate purposes of awcc and american water , and to provide additional liquidity . the term loan facility allowed for a single additional borrowing of up to $ 250 million , which expired unused on june 19 , 2020. see note 13—short-term debt in the notes to consolidated financial statements for additional information . on april 14 , 2020 , awcc completed a $ 1.0 billion debt offering which included the sale of $ 500 million aggregate principal amount of its 2.80 % senior notes due 2030 and $ 500 million aggregate principal amount of its 3.45 % senior notes due 2050. net proceeds of this offering were used to lend funds to parent company and its regulated subsidiaries , repay various senior notes and regulated subsidiary debt obligations at maturity , repay commercial paper obligations and short-term indebtedness under awcc 's unsecured revolving credit facility , and for general corporate purposes . see note 12—long-term debt in the notes to consolidated financial statements for additional information . the company sought to take advantage of lower interest rates available in the capital markets in 2020 by refinancing long-term debt , where possible . in 2020 , awcc and the company 's regulated subsidiaries issued in the aggregate $ 311 million of private activity bonds and government funded debt in multiple transactions with annual interest rates ranging from 0.60 % to 1.20 % , maturing in 2023 to 2027. the company used these proceeds to retire an aggregate of $ 311 million of long-term debt issues at maturity with annual interest rates ranging from 4.45 % to 5.60 % . 50 financial results for the years ended december 31 , 2020 , 2019 and 2018 , diluted earnings per share ( gaap ) were $ 3.91 , $ 3.43 and $ 3.15 , respectively . in 2020 , as compared to 2019 , diluted earnings per share increased $ 0.48. this increase was primarily driven by continued growth in the regulated businesses from infrastructure investment , acquisitions and organic growth , as well as the benefit from depreciation expense related to the assets of the company 's new york subsidiary , as required by assets held for sale accounting . revenues increased as a result of warmer and drier than normal weather during the third quarter of 2020 across several of the company 's subsidiaries , contributing a benefit of $ 0.07 per diluted share for 2020. revenues from the company 's residential customers increased from many states experiencing work from home activities due to the covid-19 pandemic , which were largely offset by decreased revenues from the company 's commercial and industrial customers as a result of the covid-19 pandemic . partially offsetting these increases were estimated impacts from the covid-19 pandemic on hos from increased claims that likely have resulted from more work from home activity . during the fourth quarter of 2019 , the company recognized a loss of $ 0.19 per diluted share , relating to the sale of its keystone operations . additionally , during the first quarter of 2019 , the company recorded a benefit of $ 0.01 per diluted share from the reduction of the liability related to the freedom industries chemical spill settlement in west virginia . growth—through capital investment in infrastructure and regulated acquisitions , as well as strategic growth opportunities in the market-based businesses the company expects to continue to grow its businesses , with the majority of its growth to be achieved in the regulated businesses through ( i ) continued capital investment in the company 's infrastructure to provide safe , clean , reliable and affordable water and wastewater services to its customers , and ( ii ) regulated acquisitions to expand the company 's services to new customers . the company also expects to continue to grow the market-based businesses , which leverages its core water and wastewater competencies . in 2020 , the company invested $ 1.9 billion , primarily in the regulated businesses , as discussed below : regulated businesses growth and optimization $ 1.8 billion capital investment in the regulated businesses , the majority for infrastructure improvements and replacements ; and $ 135 million to fund acquisitions in the regulated businesses , which added approximately 37,800 water and wastewater customers during 2020 , in addition to approximately 14,500 customers added through organic growth during 2020. during 2021 , the company closed on the acquisition of two regulated water and wastewater systems adding approximately 600 customers , for a total aggregate purchase price of $ 3 million . as of february 24 , 2021 , the company has entered into agreements for pending acquisitions in the regulated businesses to add approximately 30,000 additional customers . sale of new york american water company , inc. on november 20 , 2019 , the company and the company 's new york subsidiary entered into a stock purchase agreement with liberty , pursuant to which liberty will purchase all of the capital stock of the new york subsidiary for an aggregate purchase price of approximately $ 608 million in cash , subject to adjustment as provided in the stock purchase agreement . story_separator_special_tag the company 's regulated new york operations have approximately 125,000 customers in the state of new york . see item 1—business—regulated businesses—sale of new york american water company , inc. for additional information . the assets and related liabilities of the new york subsidiary were classified as held for sale on the consolidated balance sheets as of december 31 , 2020. see note 6—acquisitions and divestitures in the notes to consolidated financial statements for additional information . market-based businesses growth msg was awarded the contract for ownership , operation and maintenance of the water and wastewater systems at joint base lewis-mcchord in washington state , effective september 24 , 2020. joint base lewis-mcchord is comprised of fort lewis and mcchord air force base . the joint base has a population of approximately 115,000 , comprised of 40,000 active personnel , 60,000 family members and 15,000 civilian and contract employees . the total contract award includes estimated revenues of approximately $ 771 million over a 50-year period , subject to an annual economic price adjustment . future growth looking forward , the company expects to invest between $ 10.3 billion to $ 10.5 billion from 2021 to 2025 , and between $ 22 billion to $ 25 billion from 2021 to 2030 , including $ 1.9 billion in 2021. the company 's expected future investments include : capital investment for infrastructure improvements in the regulated businesses of $ 8.9 billion over the next five years , and between $ 19 billion and $ 21 billion over the next 10 years , including $ 1.6 billion expected in 2021 ; and 51 growth from acquisitions in the regulated businesses to expand the company 's water and wastewater customer base of between $ 1.4 billion to $ 1.6 billion over the next five years , and between $ 3 billion to $ 4 billion over the next 10 years , including $ 300 million expected in 2021. presented in the following chart is the estimated allocation of the company 's expected capital investment for infrastructure improvements in its regulated businesses over the next five years , by purpose : operational excellence the company 's adjusted regulated o & m efficiency ratio , which is used as a measure of the operating performance of the regulated businesses , was 34.3 % for the year ended december 31 , 2020 , compared to 34.5 % and for the year ended december 31 , 2019. the improvement in this ratio reflects the continued focus on operating costs , as well as an increase in operating revenues for the regulated businesses . the company 's adjusted regulated o & m efficiency ratio is a non-gaap measure , and is defined by the company as its operation and maintenance expenses from the regulated businesses , divided by the operating revenues from the regulated businesses , where both operation and maintenance expenses and operating revenues were adjusted to eliminate purchased water expense . also excluded from operation and maintenance expenses are the allocable portion of non-operation and maintenance support services costs , mainly depreciation and general taxes , which are reflected in the regulated businesses segment as operation and maintenance expenses , but for consolidated financial reporting purposes , are categorized within other line items in the accompanying consolidated statements of operations . additionally , t he company excluded the impact of certain freedom industries chemical spill settlement activities recognized in 2018 and 2019 from operation and maintenance expenses ( see note 17—commitments and contingencies in the notes to consolidated financial statements for additional information ) . the items discussed above were excluded from the calculation as they are not reflective of management 's ability to increase the efficiency of the regulated businesses . the company evaluates its operating performance using this ratio , and believes it is useful to investors because it directly measures improvement in the operating performance and efficiency of the regulated businesses . this information is derived from the company 's consolidated financial information but is not presented in its financial statements prepared in accordance with gaap . this information supplements and should be read in conjunction with the company 's gaap disclosures , and should be considered as an addition to , and not a substitute for , any gaap measure . the company 's adjusted regulated o & m efficiency ratio ( i ) is not an accounting measure that is based on gaap ; ( ii ) is not based on a standard , objective industry definition or method of calculation ; ( iii ) may not be comparable to other companies ' operating measures ; and ( iv ) should not be used in place of the gaap information provided elsewhere in this form 10-k. 52 presented in the table below is the calculation of the company 's adjusted regulated o & m efficiency ratio and a reconciliation that compares operation and maintenance expenses and operating revenues , each as determined in accordance with gaap , to those amounts utilized in the calculation of its adjusted o & m efficiency ratio : replace_table_token_4_th ( a ) includes the impact of a settlement in 2018 with one of the company 's general liability insurance carriers , and a reduction in the first quarter of 2019 of a liability , each related to the freedom industries chemical spill . ( b ) the calculation assumes regulated purchased water revenues approximate regulated purchased water expenses . 53 regulatory matters general rate cases presented in the table below are annualized incremental revenues , assuming a constant water sales volume , resulting from general rate cases authorizations that became effective during 2018 through 2020 : replace_table_token_5_th ( a ) the $ 39 million base rate increase was effective on november 1 , 2020 , which is net of excess accumulated deferred income taxes ( “ eadit ” ) of $ 15 million being returned to customers . the unprotected eadit balance of $ 133 million is being returned to customers over 15 years .
| 59 replace_table_token_11_th in 2020 , as compared to 2019 , operating revenues increased $ 161 million primarily due to : ( i ) $ 122 million increase from authorized rate increases , including infrastructure surcharges , principally from infrastructure investment in various states ; ( ii ) $ 36 million increase from water and wastewater acquisitions , as well as organic growth in existing systems ; ( iii ) $ 16 million increase in demand , primarily driven by ( a ) weather , including warmer and drier than normal weather in the third quarter of 2020 and unusually wet weather conditions experienced in the northeast and midwest during the second quarter of 2019 , and ( b ) increases in demand from the company 's residential customers in several states due to an increase in work from home activities resulting from the covid-19 pandemic , substantially offset by decreases in demand from the company 's commercial and industrial customers due to the covid-19 pandemic ; and ( iv ) $ 13 million decrease in other operating revenues due to eadit being returned to customers , including in the company 's new jersey subsidiary as part of the general rate case which became effective on november 1 , 2020. operation and maintenance presented in the table below is information regarding the main components of the regulated businesses ' operating and maintenance expense , with explanations for material variances provided in the ensuing discussions : replace_table_token_12_th employee-related costs replace_table_token_13_th in 2020 , as compared to 2019 , employee-related costs increased $ 33 million primarily due to : ( i ) $ 19 million increase in salaries and wages from higher headcount and related compensation expense supporting growth in the businesses ; ( ii ) $ 5 million increase in group insurance due to higher premiums in 2020 ; and ( iii ) $ 8 million increase in pension service costs . 60 production costs replace_table_token_14_th in 2020 , as compared to 2019 , production costs increased $ 18 million primarily due to an increase in purchased water . operating supplies and services in 2020 , as compared to 2019 , operating supplies and services increased $ 5 million primarily due to technology services . maintenance materials and supplies in 2020 , as compared to 2019 , maintenance materials and supplies increased $ 10 million primarily due to an increase in planned deferred maintenance and tank painting projects in the company 's new jersey subsidiary and an increase in other maintenance costs across several of the company 's subsidiaries . other ( operation and maintenance ) in 2020 , as compared to 2019 , other
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for any contracts with multiple elements ( i.e. , training , installation , additional parts , etc . ) we allocate revenue among the deliverables primarily based upon objective and reliable evidence of fair value of each element in the arrangement . if objective and reliable evidence of fair value of any element is not available , we use an estimated selling price for purposes of allocating the total arrangement consideration among the elements . in addition , judgments are required in evaluating the credit worthiness of our customers . credit is not extended to customers and revenue is not recognized until we have determined that collectability is reasonably assured . allowance for doubtful accounts . 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 their 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 to us , such as in the case of a bankruptcy filing , deterioration in the customer 's operating results or financial position or other material events impacting their business , we record a specific allowance to reduce the related receivable to the amount we expect to recover given all information presently available . actual write-offs during the past three years have not been material to our results of operations . we also record an allowance for all other customers based on certain other factors including the length of time the receivables are past due and historical collection experience with individual customers . as of december 31 , 2011 , our accounts receivable balance of $ 325.4 million is reported net of allowances for doubtful accounts of $ 5.6 million . we believe our reported allowances at december 31 , 2011 , are adequate . if the financial conditions of those customers were to deteriorate , however , resulting in their inability to make payments , we may need to record additional allowances that would result in additional selling , general and administrative expenses being recorded for the period in which such determination is made . inventory . our policy is to record inventory write-downs when conditions exist that indicate that our inventories are likely to be in excess of anticipated demand or are obsolete based upon our assumptions about future demand for our products and market conditions . we regularly evaluate the ability to realize the value of our inventories based on a combination of factors including the following : historical usage rates , forecasted sales or usage , product end of life dates , estimated current and future market values and new product introductions . purchasing requirements and alternative usage avenues are explored within these processes to mitigate inventory exposure . when recorded , our write-downs are intended to reduce the carrying value of our inventories to their net realizable value and establish a new cost basis . as of december 31 , 2011 , our inventories of $ 336.1 million are stated net of inventory write-downs . if actual demand for our products deteriorates or market conditions are less favorable than those that we project , additional inventory write-downs may be required in the future . goodwill . we have recorded goodwill in connection with our business acquisitions . we review goodwill in june of each year , or on an interim basis if required , for impairment to determine if events or changes in business conditions indicate that the carrying value of the goodwill may not be recoverable . such reviews assess the fair value of the assets based upon our estimates of the future cash flows we expect the assets to generate within the boundaries of the applicable business segments of the company . our current review indicates that no adjustments are necessary for the goodwill assets , which have a carrying value of $ 498.3 million as of december 31 , 2011 . product warranties . our products are sold with warranty provisions that require us to remedy deficiencies in quality or performance of our products over a specified period of time , generally twelve to twenty-four months , at no cost to our customers . our policy is to establish warranty reserves at levels that represent our estimate of the costs that will be incurred to fulfill those warranty requirements at the time that revenue is recognized . we believe that our recorded liability of $ 16.0 million at december 31 , 2011 is adequate to cover our future cost of materials , labor and overhead for the servicing of our products sold through that date . if actual product failures or material or service delivery costs differ from our estimates , our warranty liability would need to be revised accordingly . contingencies . we are subject to the possibility of loss contingencies arising in the normal course of business . we consider the likelihood of loss or impairment of an asset or the incurrence of a liability , as well as our ability to reasonably estimate the amount of loss in determining loss contingencies . an estimated loss is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount can be reasonably estimated . we regularly evaluate current information available to us to determine whether such accruals should be adjusted . 27 income taxes . we record our deferred tax assets when the benefits are more likely than not to be recognized . story_separator_special_tag valuation allowances against deferred tax assets are recorded when a determination is made that the deferred tax assets are not more likely than not to be realized in the future . in making that determination , on a jurisdiction by jurisdiction basis , we estimate our future taxable income based upon historical operating results and external market data . future levels of taxable income are dependent upon , but not limited to , general economic conditions , competitive pressures and other factors beyond our control . as of december 31 , 2011 , we have determined that a valuation allowance against our net deferred tax assets of $ 6.7 million is required . if we should determine that we may be unable to realize our deferred tax assets to the extent reported , an adjustment to the deferred tax assets would be recorded in the period such determination is made . consolidated operating results the following table sets forth for the indicated periods certain items as a percentage of revenue : replace_table_token_4_th _ ( 1 ) totals may not recompute due to rounding ( 2 ) amounts have been adjusted for the reclassification of certain discontinued operations to continuing operations . the following discussion of operating results provides an overview of our operations by addressing key elements in our consolidated statements of income . the “ segment operating results ” section that follows describes the contributions of each of our business segments to our consolidated revenue and earnings from operations for 2011 , 2010 and 2009 . given the nature of our business , we believe revenue and earnings from operations ( including operating margin percentage ) are most relevant to an understanding of our performance at a segment level . additionally , at the segment level we disclose backlog , which represents orders received for products or services for which a sales agreement is in place and delivery is expected within twelve months . revenue . revenue for 2011 totaled $ 1,544.1 million , an increase of 11.2 percent over 2010 revenue of $ 1,388.4 million . the increase was primarily due to increased revenue from our thermal vision and measurement segment , revenues reported by raymarine holdings , ltd. ( “ raymarine ” ) which was acquired on may 14 , 2010 , and icx technologies , inc. ( “ icx ” ) which was acquired on october 4 , 2010. excluding revenue from raymarine and icx , revenue for the year ended december 31 , 2011 was flat compared to the same period in 2010. revenue from our thermal vision and measurement segment increased by 14.9 percent in 2011 compared to the same period in 2010 , while revenue from our surveillance segment declined by 14.0 percent in 2011 compared to the same period in 2010. revenue for 2010 totaled $ 1,388.4 million , an increase of 21.0 percent over 2009 revenue of $ 1,147.1 million . the increase was primarily due to a 16.9 percent increase in thermal vision and measurement revenue , and the revenue reported by raymarine and icx . revenues from the dates of acquisition for those businesses totaled $ 150.2 million . excluding raymarine and icx , revenue for 2010 increased by 7.9 percent from 2009. international revenue in 2011 totaled $ 740.6 million , representing 48.0 percent of revenue . this compares with international revenue in 2010 which totaled $ 653.7 million , representing 47.1 percent of revenue and $ 474.8 million in 2009 , representing 41.4 percent of revenue . while the sales mix between united states and international sales may fluctuate from year to year , we expect revenue from customers outside the united states to continue to comprise a significant portion of our total revenue on a long-term basis . 28 gross profit . gross profit for the year ended december 31 , 2011 was $ 828.6 million compared to $ 763.6 million in 2010 . gross margin , defined as gross profit divided by revenue , decreased slightly from 55.0 percent in 2010 to 53.7 percent in 2011 . the decrease in gross margin in 2011 was primarily due to lower gross margins at raymarine and icx business units ( which have historically lower gross margins than our other business segments ) and the product mix in our surveillance division , partially offset by the continued production efficiencies realized from increased volumes in our thermal vision and measurement segment . excluding raymarine and the icx business units , gross margins were 57.4 percent and 56.8 percent in 2011 and 2010 , respectively . gross profit for the year ended december 31 , 2010 was $ 763.6 million compared to $ 658.5 million in 2009 . gross margin decreased from 57.4 percent in 2009 to 55.0 percent in 2010 . the decrease in gross margin was primarily due to gross margins at raymarine and icx and the product mix in our surveillance division , partially offset by production efficiencies related to increased volumes and lower production costs in our thermal vision and measurement manufacturing facilities . excluding raymarine and icx , gross margin was 56.8 percent of revenue in 2010. cost of goods sold includes materials , labor and overhead costs incurred in the manufacturing of products and services sold in the period as well as warranty costs . material costs include raw materials , purchased components and sub-assemblies , outside processing and inbound freight costs . labor and overhead costs consist of direct and indirect manufacturing costs , including wages and fringe benefits , operating supplies , depreciation and amortization , occupancy costs , and purchasing , receiving and inspection costs . research and development . research and development expenses were $ 147.2 million , or 9.5 percent of revenue in 2011 , compared to $ 116.6 million , or 8.4 percent of revenue , in 2010 , and $ 91.3 million , or 8.0 percent of revenue , in 2009 .
| 30 surveillance surveillance operating results are as follows ( in millions ) : replace_table_token_7_th revenue decreased by 14.0 percent in 2011 compared to 2010 , primarily due to decreases in revenue from u.s. government agencies , partially offset by revenue of $ 8.8 million from icx business units , which were acquired on october 4 , 2010. lower revenue and increased segment operating expenses caused the decline in earnings from operations and operating margin from 2010 to 2011. the earnings from operations include the impact of the amortization of intangible assets of $ 2.4 million and $ 0.6 million , and the fair value adjustments on inventory of $ 2.6 million and $ 1.3 million in 2011 and 2010 , respectively . the fair value adjustment on inventory related to purchase price accounting and the adjustment was fully amortized in 2011. the decline in backlog from 2010 to 2011 was primarily due to the continued reduction in procurement activity by our u.s. government customers in 2011. revenue increased by 2.4 percent in 2010 compared to 2009 . higher deliveries of ground-based products and the revenue from a business acquired in october 2009 was offset by decreases in revenue from airborne and maritime products as spending by u.s. government agencies declined in 2010. the change in product mix and increased operating expenses of the segment resulted in the decline in earnings from operations and operating margin from 2009 to 2010. the decline in backlog from 2009 to 2010 was primarily due to deliveries on u.s. government programs that were booked in prior years and the reduced procurement activity by our u.s. government customers in 2010. detection detection operating results are as follows ( in millions ) : replace_table_token_8_th icx was acquired on october 4 , 2010 and the operating results are for the period since the acquisition . the earnings from operations include the impact of the amortization of intangible assets of $ 2.6 million and $ 0.6 million , and the fair
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when analyzing the overall risk profile of its program business , farmer mac takes into account more than the farmer mac i agricultural loan delinquency percentages provided above . the total program business includes agvantage securities and rural utilities loans , neither of which have any delinquencies , and the usda guaranteed securities and usda-guaranteed portions underlying farmer mac ii guaranteed securities , which are backed by the full faith and credit of the united states . across farmer mac 's entire 51 program business , 90-day delinquencies represented 0.34 percent of the total program business as of december 31 , 2011 , compared to 0.58 percent as of december 31 , 2010. the combination of a strong agricultural economy , low interest rate environment , and strong lender liquidity challenged farmer mac 's ability to increase overall program volume during 2011. farmer mac 's new business volume totaled $ 3.4 billion in 2011 , compared to $ 3.0 billion and $ 2.5 billion , respectively , in 2010 and 2009 . as of december 31 , 2011 , farmer mac 's total outstanding loans , guarantees and commitments were $ 11.9 billion , compared to $ 12.2 billion and $ 10.7 billion as of december 31 , 2010 and 2009 , respectively . farmer mac 's overall program volume decreased in 2011 because the new business volume added during 2011 did not offset paydowns and maturities of existing program assets , primarily because of the maturity of a $ 475.0 million agvantage security that was not replaced with new business . farmer mac 's 2011 new business volume included purchases of $ 1.5 billion of agvantage securities issued by metropolitan life insurance company ( `` metlife '' ) with maturities ranging between three and ten years , which replaced maturing agvantage securities of $ 1.5 billion issued by metlife that had been held by third party investors and accounted for as off-balance sheet guarantees by farmer mac . new business volume for 2011 also included the purchase of $ 300.0 million of agvantage securities issued by rabo agrifinance , inc. with maturities ranging between two and three years . although the 2011 metlife transactions did not increase the overall level of outstanding program volume , they effectively extended the duration of the agvantage securities that had matured and should provide increased future profitability because the net interest margin earned by farmer mac holding these securities on-balance sheet is expected to exceed the guarantee fee earned on the prior off-balance sheet guarantees . during 2011 , farmer mac also completed a $ 159.9 million ltspc transaction , which was the largest ltspc transaction since march 2007. the expressed motivation of the counterparty in that transaction was to reduce its commodity concentration levels . farmer mac has recently observed increased lender interest in the ltspc product as a tool for lenders to manage their commodity concentration and borrower exposure levels as well as overall credit risk . farmer mac remains well-positioned to meet the needs of expanding demand over time , as the corporation 's capital position is significantly above its statutory and regulatory requirements . farmer mac 's gaap net income attributable to common stockholders for 2011 was $ 13.8 million , compared to $ 22.1 million for 2010 and $ 82.3 million for 2009 . the decrease in farmer mac 's gaap net income for 2011 was almost entirely attributable to the effects of fair value changes of its financial derivatives . although farmer mac 's financial derivatives provide effective economic hedges of interest rate risk , they are not designated in hedge relationships for accounting purposes and are required to be reported at fair value , with changes in fair value recorded in earnings as they occur . the fair values of farmer mac 's financial derivatives are sensitive to changes in long-term interest rates . if long-term interest rates increase , farmer mac 's financial derivatives generally increase in fair value . conversely , if long-term interest rates decrease , farmer mac 's financial derivatives generally decrease in fair value . for example , the 10-year treasury rate decreased approximately 142 basis points in 2011. during 2011 , farmer mac recorded unrealized fair value losses on its financial derivatives of $ 47.6 million . although these fair value changes are expected to have no permanent effect on earnings or capital if held to maturity , as is expected , they can contribute significant volatility in periodic gaap earnings . 52 apart from the unrealized losses on financial derivatives described above , gaap net income for 2011 benefited from increased net interest income , net releases from the allowance for losses and gains to adjust the carrying value of loans held for sale to the lower of cost or fair value . gaap net income in 2010 was affected by net losses on financial derivatives and reduced gains on trading assets , offset partially by higher net interest income as compared to 2009. gaap net income for 2009 included significant fair value gains on financial derivatives and trading assets . farmer mac 's non-gaap core earnings for 2011 were $ 42.9 million , up from $ 25.4 million and $ 16.1 million for 2010 and 2009 , respectively . core earnings for 2011 benefited from higher net interest income of $ 121.3 million , compared to $ 96.0 million in 2010 and net releases from the allowance for losses of $ 2.3 million , compared to provisions of $ 4.3 million in the prior year . farmer mac uses core earnings to measure corporate economic performance and develop financial plans because , in management 's view , core earnings is a useful alternative measure in understanding farmer mac 's economic performance , transaction economics and business trends . core earnings differs from gaap net income by excluding the effects of fair value accounting guidance . story_separator_special_tag core earnings also differs from gaap net income by excluding specified infrequent or unusual transactions that farmer mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of the corporation 's core business . this non-gaap financial measure may not be comparable to similarly labeled non-gaap financial measures disclosed by other companies . farmer mac 's disclosure of this non-gaap measure is not intended to replace gaap information but , rather , to supplement it . further discussion of farmer mac 's financial results and a reconciliation of farmer mac 's gaap net income attributable to common stockholders to core earnings is presented in `` —results of operations . '' critical accounting policies and estimates the preparation of farmer mac 's consolidated financial statements in conformity with gaap requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes for the periods presented . actual results could differ from those estimates . the critical accounting policies that are both important to the portrayal of farmer mac 's financial condition and results of operations and require complex , subjective judgments are the accounting policies for : ( 1 ) the allowance for losses , ( 2 ) fair value measurement , and ( 3 ) other-than-temporary impairment . allowance for losses farmer mac maintains an allowance for losses to cover estimated probable losses incurred as of the balance sheet date on loans held ( `` allowance for loan losses '' ) and loans underlying ltspcs and farmer mac guaranteed securities ( `` reserve for losses '' ) based on available information in accordance with financial accounting standards board ( `` fasb '' ) standards on accounting for contingencies and on measuring individual impairment of a loan . farmer mac 's methodology for determining the allowance for losses separately considers its portfolio segments – farmer mac i , farmer mac ii , and rural utilities , and disaggregates its analysis , where relevant , into classes of financing receivables , which currently include loans and agvantage securities . further disaggregation by commodity type is performed , where appropriate , in analyzing the need for an allowance for losses . the allowance for losses is increased through periodic provisions for loan losses that are charged against net interest income and provisions for losses that are charged to non-interest expense and is reduced by charge-offs for actual losses , net of recoveries . charge-offs represent losses on the outstanding principal 53 balance , any interest payments previously accrued or advanced and expected costs of liquidation . negative provisions , or releases of allowance for losses , are recorded in the event that the estimate of probable losses as of the end of a period is lower than the estimate at the beginning of the period . the total allowance for losses consists of a general allowance for losses and a specific allowance for impaired loans . general allowance for losses farmer mac i farmer mac 's methodology for determining its general allowance for losses incorporates the corporation 's automated loan classification system . that system scores loans based on criteria such as historical repayment performance , indicators of current financial condition , loan seasoning , loan size and loan-to-value ratio . for the purposes of the loss allowance methodology , the loans in farmer mac 's portfolio of loans and loans underlying farmer mac i guaranteed securities and ltspcs have been scored and classified for each calendar quarter since first quarter 2000. the allowance methodology captures the migration of loan scores across concurrent and overlapping three-year time horizons and calculates loss rates separately within each loan classification for ( 1 ) loans underlying ltspcs and ( 2 ) loans held and loans underlying farmer mac i guaranteed securities . the calculated loss rates are applied to the current classification distribution of unimpaired loans in farmer mac 's portfolio to estimate inherent losses , on the assumption that the historical credit losses and trends used to calculate loss rates will continue in the future . management evaluates this assumption by taking into consideration factors , including : economic conditions ; geographic and agricultural commodity/product concentrations in the portfolio ; the credit profile of the portfolio ; delinquency trends of the portfolio ; historical charge-off and recovery activities of the portfolio ; and other factors to capture current portfolio trends and characteristics that differ from historical experience . management believes that its use of this methodology produces a reasonable estimate of probable losses , as of the balance sheet date , for all loans included in the farmer mac i portfolio , including loans held and loans underlying farmer mac i guaranteed securities and ltspcs . farmer mac has not provided an allowance for losses for loans underlying farmer mac i agvantage securities . each agvantage security is a general obligation of an issuing institution approved by farmer mac and is secured by eligible loans in an amount at least equal to the outstanding principal amount of the security , with some level of overcollateralization also required for farmer mac i agvantage securities . farmer mac excludes the loans that secure agvantage securities from the credit risk metrics it discloses because of the credit quality of the issuing institutions , the collateralization level for the securities , and because delinquent loans are required to be removed from the pool of pledged loans and replaced with current eligible loans . farmer mac ii no allowance for losses has been provided for usda guaranteed securities or farmer mac ii guaranteed securities . the usda-guaranteed portions presented as `` usda guaranteed securities '' on the 54 consolidated balance sheets , as well as those that collateralize farmer mac ii guaranteed securities , are guaranteed by the usda . each usda guarantee is an obligation backed by the full faith and credit of the united states . farmer mac excludes these guaranteed portions from the credit risk metrics it discloses because of the usda guarantee .
| while these volatile changes in fair values may at times produce significant losses , as was the case in 2011 , they may also produce significant income , as 58 was the case in 2009. future changes in those values can not be reliably predicted ; however , as of december 31 , 2011 , the cumulative fair value after-tax losses recorded on financial derivatives was $ 77.9 million . over time , farmer mac will realize in earnings the net effect of the cash settlements on its interest rate swap contracts , which will on its own produce either income or expense , but is expected to generate positive net effective spread when combined with the interest received and paid on the assets and liabilities farmer mac holds on its balance sheet . any positive net effective spread would continue to build retained earnings and capital over time . although the unrealized fair value fluctuations experienced throughout the term of the financial derivatives will temporarily impact earnings and capital , those fluctuations are not expected to have any permanent effect if the financial derivatives are held to maturity , as is expected . farmer mac also excludes from core earnings the amortization of premiums on assets consolidated at fair value . upon the adoption of consolidation guidance on january 1 , 2010 , farmer mac determined itself to be the primary beneficiary of certain variable interest entities ( `` vies '' ) where farmer mac held beneficial interests in trusts used as vehicles for the securitization of rural utilities loans . upon consolidation , farmer mac transferred these assets from `` farmer mac guaranteed securities '' to `` loans held for investment in consolidated trusts '' on its consolidated balance sheet . farmer mac transferred these assets at their fair value , which resulted in an unamortized premium of $ 42.7 million . this premium is being amortized over the contractual lives of the underlying rural utilities loans . as of december 31 , 2011 , $ 38.0 million of this premium was still outstanding . in january 2010 , farmer mac
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the reform legislation should result in a reduction in uninsured patients , which should reduce our expense from uncollectible accounts receivable ; however , this legislation makes a number of other changes to medicare and medicaid , such as reductions to the medicare annual market basket update for federal fiscal years 2010 through 2019 , a productivity offset to the medicare market basket update , and a reduction to the medicare and medicaid disproportionate share payments , that could adversely impact the reimbursement received under these programs . the various provisions in the reform legislation that directly or indirectly affect reimbursement are scheduled to take effect over a number of years , and we can not predict their impact at this time . other provisions of the reform legislation , such as requirements related to employee health insurance coverage , should increase our operating costs . also included in the reform legislation are provisions aimed at reducing fraud , waste and abuse in the healthcare industry . these provisions allocate significant additional resources to federal enforcement agencies and expand the use of private contractors to recover potentially inappropriate medicare and medicaid payments . the reform legislation amends several existing federal laws , including the federal anti-kickback statute and the false claims act , making it easier for government agencies and private plaintiffs to prevail in lawsuits brought against healthcare providers . these amendments also make it easier for potentially severe fines and penalties to be imposed on healthcare providers accused of violating applicable laws and regulations . in a number of markets , we have partnered with local physicians in the ownership of our facilities . such investments have been permitted under an exception to the physician self-referral law , or the stark law , that allows physicians to invest in an entire hospital ( as opposed to individual hospital departments ) . the reform legislation changes the whole hospital exception to the stark law . the reform legislation permits existing physician investments in a whole hospital to continue under a grandfather clause if the arrangement satisfies certain requirements and restrictions , but physicians became prohibited , from the time the reform legislation became effective , from increasing the aggregate percentage of their ownership in the hospital . the reform legislation also restricts the ability of existing physician-owned hospitals to expand the capacity of their facilities . the impact of the reform legislation on each of our hospitals will vary depending on payor mix and a variety of other factors . we anticipate that many of the provisions in the reform legislation will be subject to further clarification and modification through the rule-making process , the development of agency guidance and judicial interpretations . moreover , twenty-six state attorneys general have jointly filed a challenge to certain aspects of the reform legislation . currently , rulings in four separate federal courts of appeals have led to a split among the federal circuit courts regarding the constitutionality of the reform legislation . the fourth circuit , sixth circuit and the court of appeals for the d.c. circuit have ruled in favor of the reform legislation while the eleventh circuit ruled the individual mandate within the reform legislation unconstitutional . the united states supreme court granted certiorari on or about november 14 , 2011 to hear the appeal of the eleventh circuit 's ruling , with oral argument set for march 26 through 28 , 2012. the supreme court will hear oral argument on four issues : ( 1 ) does the anti-injunction act bar a legal challenge to the individual mandate aspect of the reform legislation until that mandate takes effect in 2014 ; ( 2 ) is the individual mandate aspect of the reform legislation constitutional ; ( 3 ) if not , is the individual mandate aspect of the reform legislation severable from the reform legislation as a whole such that it may be stricken without nullifying the reform legislation in its entirety and ( 4 ) can the states be compelled by the federal government to expand their medicaid expenditures or risk losing federal funding if they refuse . we can not predict the impact the reform legislation may have on our business , results of operations , cash flow , capital resources and liquidity or the ultimate outcome of the supreme court case . furthermore , we can not predict whether we will be able to modify certain aspects of our operations to offset any potential adverse consequences from the reform legislation . in addition to the reform legislation , the american recovery and reinvestment act of 2009 included provisions for implementing health information technology under the health information technology for economic and clinical health act , or hitech . these provisions were designed to increase the use of electronic health records , or ehr , technology and establish the requirements for a medicare and medicaid incentive payments program 47 index to financial statements beginning in 2011 for eligible hospitals and providers that adopt and meaningfully use certified ehr technology . these incentive payments are intended to offset a portion of the costs incurred to implement and qualify as a meaningful user of ehr . rules adopted in july 2010 by the department of health and human services established an initial set of standards and certification criteria . our hospital facilities have begun to implement ehr technology on a facility-by-facility basis beginning in 2011. we anticipate recognizing incentive reimbursement related to the medicare or medicaid incentives as we are able to implement the certified ehr technology , meet the defined meaningful use criteria , and information from completed cost report periods is available from which to calculate the incentive reimbursement . the timing of recognizing incentive reimbursement will not correlate with the timing of recognizing operating expenses and incurring capital costs in connection with the implementation of ehr technology which may result in material period-to-period changes in our future results of operations . story_separator_special_tag hospitals that do not qualify as a meaningful user of ehr technology by 2015 are subject to a reduced market basket update to the inpatient prospective payment system standardized amount in 2015 and each subsequent fiscal year . although we believe that our hospital facilities will be in compliance with the ehr standards by 2015 , there can be no assurance that all of our facilities will be in compliance and therefore not subject to the penalty provisions of hitech . during the year ended december 31 , 2011 , we recognized approximately $ 63.4 million of hitech incentive reimbursements from medicaid , which are presented as a reduction of operating expenses . effective january 1 , 2012 , we completed the acquisition of moses taylor healthcare system , located in northeast pennsylvania . this healthcare system includes moses taylor hospital in scranton , pennsylvania ( 217 licensed beds ) and mid-valley hospital in peckville , pennsylvania ( 25 licensed beds ) . the total cash consideration paid at closing for long-lived assets was approximately $ 152.0 million and for preliminary net working capital was approximately $ 10.0 million . we have signed definitive agreements for the acquisition of two hospitals , located in york , pennsylvania and blue island , illinois , which are scheduled to close in 2012. in addition , effective february 2 , 2012 , we completed an amendment and restatement of our existing credit facility . the amendment extended by two and a half years the maturity date of $ 1.6 billion of our existing non-extended term loans under the credit facility to january 25 , 2017 ( subject to customary acceleration events ) or , if more than $ 50 million of our 8 7 / 8 % senior notes are outstanding on april 15 , 2015 , to april 15 , 2015. the amendment also increased the pricing on the newly extended term loans by 125 basis points and amended certain covenants and certain other terms and conditions of the credit facility . as a result of our current levels of cash , available borrowing capacity , long-term outlook on our debt repayments , the refinancing of our term loans and our continued projection of our ability to generate cash flows , we do not anticipate a significant impact on our ability to invest the necessary capital in our business over the next twelve months and into the foreseeable future . we believe there continues to be ample opportunity for growth in substantially all of our markets by decreasing the need for patients to travel outside their communities for healthcare services . furthermore , we continue to benefit from synergies from our acquisitions and will continue to strive to improve operating efficiencies and procedures in order to improve our profitability at all of our hospitals . acquisitions and divestitures effective october 22 , 2011 , we sold cleveland regional medical center , located in cleveland , texas , and other related healthcare assets affiliated with the hospital to new directions health systems , llc for approximately $ 0.9 million in cash . the carrying amount of the net assets sold in this transaction , including an allocation of reporting unit goodwill , was approximately $ 14.2 million . effective october 1 , 2011 , we completed the acquisition of tomball regional hospital ( 358 licensed beds ) located in tomball , texas . the total cash consideration paid for fixed assets and working capital was approximately $ 192.0 million and $ 17.5 million , respectively , with additional consideration of $ 15.8 million assumed in liabilities , for a total consideration of $ 225.3 million . based upon our preliminary purchase price allocation relating to this acquisition as of december 31 , 2011 , approximately $ 30.8 million of goodwill has been recorded . the preliminary allocation of the purchase price has been determined by us based on available information and is subject to settling amounts related to purchased working capital and final appraisals of tangible and intangible assets . adjustments to the purchase price allocation are not expected to be material . 48 index to financial statements effective september 1 , 2011 , we sold southcrest hospital , located in tulsa , oklahoma , claremore regional hospital , located in claremore , oklahoma , and other related healthcare assets affiliated with those hospitals to hillcrest healthcare system , part of ardent health services , for approximately $ 154.2 million in cash . the carrying amount of the net assets sold in this transaction , including an allocation of reporting unit goodwill , was approximately $ 193.0 million . effective may 1 , 2011 , we completed the acquisition of mercy health partners based in scranton , pennsylvania , which is a healthcare system comprised of two acute care hospitals , a long-term acute care facility and other healthcare providers . this healthcare system includes regional hospital of scranton ( 198 licensed beds ) located in scranton , pennsylvania , and tyler memorial hospital ( 48 licensed beds ) located in tunkhannock , pennsylvania . this healthcare system also includes a long-term acute care facility , special care hospital ( 67 licensed beds ) located in nanticoke , pennsylvania , as well as several outpatient clinics and other ancillary facilities . the total cash consideration paid for fixed assets was approximately $ 150.8 million , with additional consideration of $ 12.3 million assumed in liabilities as well as a credit applied at closing of $ 2.1 million for negative acquired working capital , for a total consideration of $ 161.0 million . based upon our final purchase price allocation relating to this acquisition as of december 31 , 2011 , approximately $ 43.1 million of goodwill has been recorded .
| the increased net operating revenues contributed by hospitals that we owned throughout both periods were primarily attributable to general rate and reimbursement increases including revenues from states with provider assessment programs . on a consolidated basis , inpatient admissions decreased by 0.5 % and adjusted admissions increased by 4.2 % . on a same-store basis , inpatient admissions decreased by 5.6 % and adjusted admissions decreased by 0.7 % during the year ended december 31 , 2011. this decrease in same-store inpatient admissions was due primarily to a decrease in admissions from women 's services including obstetrics and gynecology , reductions in one day stays from the emergency room , reductions in surgical inpatient admissions and reductions due to competition , weather and certain service closures in a few of our hospitals during the year ended december 31 , 2011 , as compared to the year ended december 31 , 2010. the reductions in surgical inpatient admissions were offset with a corresponding increase in outpatient surgical visits . operating expenses , excluding depreciation and amortization , as a percentage of net operating revenues , increased from 86.4 % in 2010 to 86.9 % in 2011. salaries and benefits , as a percentage of net operating revenues , increased from 40.3 % in 2010 to 40.9 % in 2011 as a result of recent acquisitions and an increase in the number of employed physicians . provision for bad debts , as a percentage of net revenues , increased from 12.1 % in 2010 to 12.6 % in 2011. this increase in the provision for bad debts primarily represents an increase in self-pay revenues as a percentage of our total net operating revenues . the increase does not reflect a further deterioration in our ability to collect self-pay accounts receivable , as our collection trends have remained relatively consistent over the prior period . supplies , as a percentage of net operating revenues , decreased from 13.8 % in 2010 to 13.5 % in 2011. this decrease in supplies expenses is due primarily to greater utilization of and improved pricing under our purchasing program .
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for ssg lima llc , included is approximately 12,683 square feet of non-storage commercial and student housing space . approximately 34 % of our total available units are climate-controlled , 58 % are traditional , and 8 % are parking . same-store self storage operations we consider our same-store portfolio to consist of only those stores owned and operated on a stabilized basis at the beginning and at the end of the applicable periods presented . we consider a store to be stabilized once it has achieved an occupancy rate that we believe , based on our assessment of market-specific data , is representative of similar self-storage assets in the applicable market for a full year measured as of the most recent january 1 and has not been significantly damaged by natural disaster or undergone significant renovation . same-store occupancy includes the impact from expansion projects at those stores . we believe that same-store results are useful to investors in evaluating our performance because they provide information relating to changes in store-level operating performance without taking into account the effects of acquisitions , dispositions or new ground-up developments . at december 31 , 2016 , we owned 7 same-store facilities and 4 non-same-store facilities . the company believes that by providing same-store results from a stabilized pool of stores , with accompanying operating metrics including , but not limited to , variances in occupancy , rental revenue , operating expenses , noi , etc. , stockholders and potential investors are able to evaluate operating performance without the effects of non-stabilized occupancy levels , rent levels , expense levels , acquisitions or completed developments . same-store results should not be used as a basis for future same-store performance or for the performance of the company 's stores as a whole . same-store occupancy for the three months and year ended december 31 , 2016 decreased by 3.0 % to 84.9 % from 87.9 % for the same period in 2015. this includes the impact from the bolingbrook expansion project completed during the quarter . excluding the additional vacancy created in this store , ending occupancy would have been 90.6 % , an increase of 2.7 % compared to the same period in 2015. we grew our top-line results by increasing same-store revenues by 10.7 % for the three months ended december 31 , 2016 versus the three months ended december 31 , 2015 , and by 8.4 % for the year ended december 31 , 2016 versus the year ended december 31 , 2015. same-store cost of operations increased by 12.0 % for the three months ended december 31 , 2016 versus the three months ended december 31 , 2015 , and by 9.3 % for the twelve months ended december 31 , 2016 versus the twelve months ended december 31 , 2015. same-store noi increased by 9.9 % for the three months ended december 31 , 2016 versus the three months ended december 31 , 2015 , and by 7.8 % for the twelve months ended december 31 , 2016 versus the twelve months ended december 31 , 2015. general and administrative expenses increased by 13.2 % for the three months ended december 31 , 2016 versus the three months ended december 31 , 2015 , and by 18.0 % for the period january 19 , 2016 to december 31 , 2016 versus the twelve months ended december 31 , 2015. the change is primarily attributable to $ 264,254 of increased legal , accounting , compliance , nasdaq listing fees , and investor relations and capital market consulting expenses . going forward , although we currently expect some general and administrative expense reductions associated with our discontinued registration as an investment company , we are incurring and expect to incur a number of new expenses related to , among other things , the company 's new reporting and regulatory requirements . we believe that our results were driven by , among other things , our internet and digital marketing initiatives which helped our overall average occupancy maintain in the mid-to-high 80 % range as of december 31 , 2016. also , contributing to our results were our customer service efforts which we believe were essential in building local brand loyalty resulting in powerful referral and word-of-mouth market demand for our storage units and services . another significant contributing factor to our results was our revenue rate management program which helped increase our total annualized revenue per leased square foot by 5.0 % for the three months ended december 31 , 2016 versus the three months ended december 31 , 2015 , and by 2.8 % for the twelve months ended december 31 , 2016 versus the twelve months ended december 31 , 2015 . 15 these results are summarized as follows : same - store properties replace_table_token_5_th same - store properties replace_table_token_6_th 16 analysis of same-store revenue for the three months ended december 31 , 2016 , the 10.7 % revenue increase was due primarily to a 4.9 % increase in total annualized revenue per leased square foot , a 5.4 % increase in net leased square footage . for the twelve months ended december 31 , 2016 , the 8.4 % revenue increase was due primarily to a 4.5 % increase in total annualized revenue per leased square foot and a 5.4 % increase in net leased square footage . the increase in total annualized revenue per leased square foot was due primarily to annual existing tenant rent increases , an increase in available climate-controlled leasable square feet compared to available leasable parking square feet , and , to a lesser extent , increased move-in rental rates and decreased move-in rent “ specials ” discounting . story_separator_special_tag same store average overall square foot occupancy for all of the company 's stores combined decreased to 84.9 % in the twelve months ended december 31 , 2016 from 87.9 % in the twelve months ended december 31 , 2015 primarily due to the vacancy added by the addition of the 44,260 leasable square feet expansion at our bolingbrook store during november 2016. we believe that high occupancies help maximize our rental income . we seek to maintain an average square foot occupancy level at about 90 % by regularly adjusting the rental rates and promotions offered to attract new tenants as well as adjusting our online marketing efforts in order to generate sufficient move-in volume to replace tenants that vacate . demand fluctuates due to various local and regional factors , including the overall economy . demand is generally higher in the summer months than in the winter months and , as a result , rental rates charged to new tenants are typically higher in the summer months than in the winter months . we currently expect rental income growth , if any , to come from a combination of the following : ( i ) continued existing tenant rent increases , ( ii ) higher rental rates charged to new tenants , ( iii ) lower promotional discounts , and ( iv ) higher occupancies . our future rental income growth will also be dependent upon many factors for each market that we operate in including , among other things , demand for self storage space , the level of competitor supply of self storage space , and the average length of stay of our tenants . increasing existing tenant rental rates , generally on an annual basis , is a key component of our revenue growth . we typically determine the level of rental increases based upon our expectations regarding the impact of existing tenant rate increases on incremental move-outs . we currently expect existing tenant rent increases in 2017 to be slightly less than the prior year . we believe that the current trends in move-in , move-out , in place contractual rents , and occupancy levels are consistent with our current expectation of continued revenue growth . however , such trends , when viewed in the short-term , are volatile and not necessarily predictive of our revenues going forward because they may be subject to many short-term factors . such factors include , among others , initial move-in rates , seasonal factors , the unit size and geographical mix of the specific tenants moving in or moving out , the length of stay of the tenants moving in or moving out , changes in our pricing strategies , and the degree and timing of rate increases previously passed to existing tenants . importantly , we continue to refine our ongoing revenue management program which includes regular internet data scraping of local competitors ' prices . we do this in order to maintain our competitive market price advantage for our various sized storage units at our stores . this program helps us maximize each store 's occupancies and our self storage revenue and noi . we believe that , through our various marketing initiatives , we can continue to attract high quality , long term tenants who we expect will be storing with us for years . currently , our average tenant duration of stay is approximately three years , up from approximately two years for the same period in 2015. analysis of same-store cost of operations same-store cost of operations increased 12.0 % or $ 53,784 for the three months ended december 31 , 2016 versus the three months ended december 31 , 2015 , and increased 9.3 % or $ 167,119 for the twelve months ended december 31 , 2016 versus the twelve months ended december 31 , 2015. this increase in same-store cost of operations was due primarily to increased store level employment costs , store property tax expense , repair and maintenance , and marketing expense , which were partially offset by decreases in professional , utilities , administrative , and lien administration costs . 17 on-site store manager , regional manager and district payroll expense increased 12.0 % or $ 15,585 for the three months ended december 31 , 2016 versus the three months ended december 31 , 2015 , and increased 14.5 % or $ 69,251 for the twelve months ended december 31 , 2016 as compared to the same period in 2015. this increase was due primarily to an increase in the number of store manager , regional an d district manager level employees , wage increases , and higher employee health plan expenses . we currently expect inflationary increases in compensation rates for existing employees and other increases in compensation costs as we potentially add new stores as well as district and regional managers . store property tax expense increased 0.03 % or $ 51 for the three months ended december 31 , 2016 versus the three months ended december 31 , 2015 , and increased 5.1 % or $ 28,818 for the twelve months ended december 31 , 2016 as compared to the same period in 2015 , due primarily to higher assessed store property values and tax rates , in particular for our sadsburyville , pa store . we currently expect store property tax expense growth of approximately the same amount in 2017. repairs and maintenance expense increased 109.6 % or $ 25,417 for the three months ended december 31 , 2016 versus the three months ended december 31 , 2015 , and increased 35.6 % or $ 35,443 for the twelve months ended december 31 , 2016 as compared to the same period in 2015 due primarily to performing certain mandatory repairs as part of our mortgage loan covenants and requirements in accordance with the loan documents .
| the foregoing description is qualified in its entirety by the full terms and conditions of the loan documents , filed as exhibits 10.1 , 10.2 , 10.3 and 10.4 t o the current report on form 8-k filed on june 30 , 2016. we intend to use the proceeds of such debt financing primarily in connection with future potential store acquisitions and development . as of december 31 , 2016 , we had capital resources totaling approximately $ 4.4 million comprised of $ 2.9 million of cash and cash equivalents and $ 1.5 million of marketable securities . capital resources derived from retained cash flow have been and are currently expected to continue to be negligible . retained operating cash flow represents our expected cash flow provided by operating activities , less stockholder distributions and capital expenditures to maintain stores . we have been actively reviewing a number of store and store portfolio acquisition candidates and have been working to further develop and expand our current stores . on may 9 , 2016 , one of our wholly owned subsidiaries entered into an agreement with gray eagle development , llp ( the “ indiana seller ” ) to acquire a store located in fishers , indiana ( the “ indiana property ” ) for the sum of $ 7,700,000. on september 26 , 2016 , the company completed the acquisition of the indiana property for approximately $ 7,700,000 in cash . on june 27 , 2016 , another one of our wholly owned subsidiaries entered into an agreement with west robb ave. , llc , wall & ceiling systems , inc. and victoria l. strickland ( collectively , the “ ohio seller ” ) to acquire a store located in lima , ohio ( the “ ohio property ” ) for the sum of $ 5,300,000. on august 29 , 2016 , the company completed the acquisition of the ohio property for $ 5,300,000 in cash . additionally , on november 23 , 2016 , the company entered into an agreement ( the “ purchase agreement ” ) with tuxis , a company affiliate , to acquire all
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net income decreased 1.2 % to $ 210.3 million in fiscal 2013. earnings per diluted share and dilutive shares outstanding were $ 2.03 and 103.8 million , respectively , in fiscal 2013 and $ 1.92 and 110.8 million , respectively , in fiscal 2012. liquidity and capital resources patterson 's operating cash flow has been our principal source of liquidity in the last three fiscal years . during fiscal 2014 and 2012 , we used our revolving credit facility periodically as a source of liquidity in addition to operating cash flow . operating activities generated cash of $ 195.8 million in fiscal 2014 , compared to $ 299.2 million in fiscal 2013 and $ 321.2 million in fiscal 2012. our operating activities are primarily driven by net income . capital expenditures were $ 40.3 , $ 22.0 and $ 29.7 million in fiscal years 2014 , 2013 and 2012 , respectively . significant expenditures in these years included the information technology initiative , purchase and expansion of distribution facilities to accommodate multiple business units and the construction of a new facility for the patterson technology center . in fiscal 2012 , a project to build-out a purchased building in indiana that serves as a distribution facility used by all three business units was completed . this facility replaced several smaller distribution facilities . in addition , the patterson technology center in illinois was completed in fiscal 2012. this 100,000 square foot state-of-the-art facility replaced a nearby-leased location and opened in the second quarter of fiscal 2012 . 43 we expect to invest approximately $ 45 million in capital expenditures during fiscal 2015 , our main investment is in information systems . we estimate that we will invest $ 45 million to $ 55 million over the next four years to transform our information systems . we estimate that approximately half of this amount with be capitalized over the project life . cash used for acquisitions and equity investments totaled $ 145.8 million in fiscal 2014 , $ 14.6 million in fiscal 2013 and $ 22.6 million in fiscal 2012. the majority of the cash used for acquisitions in fiscal 2014 related to the acquisitions of national veterinary supply and mercer mastery . in fiscal 2013 , the majority of the cash used for acquisitions related to the acquisitions of iowa dental supply and universal vaporizer support . the majority of the cash used for acquisitions in fiscal 2012 related to the acquisitions of american veterinary supply corporation and surgical synergies . in fiscal 2014 , we invested in three time deposits with total principal of $ 110,000 canadian dollars . our time deposit securities are classified as held-to-maturity securities and are carried at cost , adjusted for accrued interest and amortization . in fiscal 2013 , we retired $ 125 million of debt . in fiscal 2012 , we entered into a new debt agreement for $ 325 million ; see note 7 of the consolidated financial statements , long-term debt for further information . total dividends paid in fiscal 2014 , fiscal 2013 and fiscal 2012 were $ 85.7 million , $ 43.7 million and $ 54.7 million , respectively . we expect to continue to pay a quarterly cash dividend for the foreseeable future . in addition , during fiscal 2014 , we repurchased approximately 2.4 million shares of common stock for approximately $ 96 million . in fiscal 2013 , we repurchased approximately 5.2 million shares of common stock for approximately $ 180 million . in fiscal 2012 , we repurchased approximately 12.0 million shares of common stock for approximately $ 362 million . under a share repurchase plan authorized by the board of directors , as of march 19 , 2013 , patterson may repurchase up to 25 million shares of its common stock . this authorization remains in effect through march 19 , 2018. management expects funds generated from operations and existing cash to be sufficient to meet our working capital needs for the next fiscal year . we have $ 265 million in cash and cash equivalents of which $ 190 million is in foreign bank accounts . none of our cash balances are subject to any withdrawal restrictions . see note 11 , income taxes for further information regarding our intention to permanently reinvest these funds . we have a $ 250 million note due in the fourth quarter of fiscal year 2015. we have both the intent and ability to refinance at that time , therefore we have classified this balance as long term debt on the balance sheet as of april 26 , 2014. we expect to continue to obtain liquidity from the sale of equipment finance contracts . patterson 's existing debt facilities are believed to be adequate as a supplement to internally generated cash flows to fund anticipated expansion plans and strategic initiatives , including acquisitions . in addition , we have a $ 300 million revolving credit facility which expires in fiscal 2017. patterson sells a significant portion of our finance contracts ( see below ) to a commercial paper funded conduit managed by a third party bank , and as a result , commercial paper is indirectly an important source of liquidity for patterson . patterson is allowed to participate in the conduit due to the quality of our finance contracts and our financial strength . cash flows could be impaired if our financial strength diminishes to a level that precluded us from taking part in this facility or other similar facilities . also , market conditions outside of our control could adversely affect the ability for us to sell the contracts . customer financing arrangements patterson is a party to two arrangements under which we have sold finance contracts received from our customers to outside financial institutions . these arrangements provide sources of liquidity for us that would have to be replaced should any of the current financial institutions be unable or unwilling to continue under them . story_separator_special_tag 44 in december 2010 , the receivables purchase agreement was amended to make the bank of tokyo-mitsubishi ufj , ltd. ( btmu ) the managing agent . as of april 26 , 2014 , the total capacity under this agreement is $ 500 million , which includes $ 300 million with btmu and the remainder with royal bank of canada ( rbc ) . in august 2011 , fifth third bank ( ftb ) replaced u.s. bank national association as the agent under the contract purchase agreement , which has a capacity of $ 100 million as of april 26 , 2014. our financing business is described in further detail in note 6 , customer financing. of the notes to the consolidated financial statements in item 8 of this form 10-k. note 6 , discusses the nature and business purpose of the arrangements and the activity under each arrangement during fiscal 2014 , including the amount of finance contracts sold and the holdback receivable owed to us . contractual obligations a summary of patterson 's contractual obligations as of april 26 , 2014 follows ( in thousands ) : replace_table_token_10_th patterson is unable to determine its contractual obligations by year related to the provisions of asc topic 740 , income taxes , as the ultimate amount or timing of settlement of its reserves for income taxes can not be reasonably estimated . the total liability for unrecognized tax benefits including interest and penalties at april 26 , 2014 , is $ 21.8 million . for a more complete description of patterson 's contractual obligations , see notes 7 and 11 to the consolidated financial statements in item 8 of this form 10-k. outlook over the last ten years , we have been able to grow revenue and earnings through our strategy of emphasizing value-added , full-service capabilities , using technology to enhance customer service , continuing to improve operating efficiencies , and growing through internal expansion and acquisitions . while the weakness in the general economy that has existed during the last several years is expected to continue to affect our performance for at least the near term , patterson 's strategy will continue to focus on these key elements . with strong operating cash flow and available credit capacity , we are confident that we will be able to financially support our future growth . we believe that the strategic initiatives that we have implemented in the past several years , as well as those that will be implemented in fiscal 2015 and beyond , will strengthen our operational platform and contribute to future growth . given these factors , we consider ourselves well positioned to capitalize upon the growth opportunities in the dental , companion animal veterinary and the worldwide rehabilitation supply markets . asset management the following table summarizes patterson 's days sales outstanding ( dso ) and inventory turnover the past three fiscal years : replace_table_token_11_th ( 1 ) receivables as of april 26 , 2014 , april 27 , 2013 and april 28 , 2012 include approximately $ 7 million , $ 9 million and $ 20 million , respectively , of finance contracts received from customers related to certain 45 financing promotions in fiscal 2014 , 2013 and 2012. patterson has sold contracts in fiscal 2014 and expects to sell the contracts held as of april 26 , 2014 to outside institutions under an existing agreement during fiscal 2015. if these finance contracts are excluded from the calculation of dso , the pro forma dso would be 45 , 42 and 43 as of april 26 , 2014 , april 27 , 2013 and april 28 , 2012 , respectively . ( 2 ) the inventory values used in this calculation are the lifo inventory values for all inventories except for manufactured inventories and foreign inventories , which are valued using fifo inventory methods . foreign operations foreign sales derive primarily from patterson dental and patterson medical operations in canada , from patterson veterinary 's operations in the u.k. and from patterson medical operations in the u.k. , france , australia and thailand . fluctuations in currency exchange rates have not significantly impacted earnings . however , changes in exchange rates adversely affected net sales in fiscal 2014 and 2013 , and enhanced net sales in fiscal 2012. without foreign currency effects , net sales would have been $ 13.9 million higher , $ 5.6 million higher , and $ 6.1 million lower in fiscal years 2014 , 2013 and 2012 , respectively . changes in currency exchange rates are a risk accompanying foreign operations , but this risk is not considered material with respect to our consolidated operations . critical accounting policies and estimates patterson has adopted various accounting policies to prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states . management believes that our policies are conservative and our philosophy is to adopt accounting policies that minimize the risk of adverse events having a material impact on recorded assets and liabilities . however , the preparation of financial statements requires the use of estimates and judgments regarding the realization of assets and the settlement of liabilities based on the information available to management at the time . changes subsequent to the preparation of the financial statements in economic , technological and competitive conditions may materially impact the recorded values of patterson 's assets and liabilities . therefore , the users of the financial statements should read all the notes to the consolidated financial statements and be aware that conditions currently unknown to management may develop in the future . this may require a material adjustment to a recorded asset or liability to consistently apply to our significant accounting principles and policies that are discussed in note 1 to the consolidated financial statements . the financial performance and condition of patterson may also be materially impacted by transactions and events that we have not previously experienced and for which we have not been required to establish an accounting policy or adopt a generally accepted accounting principle .
| medical segment sales of $ 478.6 million decreased 4.7 % from fiscal 2013 , primarily as a result of reduced sales from the non-core product lines that were divested in the current year . fiscal 2014 sales were also impacted by continuing challenges in our international business due to austerity measures implemented over healthcare costs by foreign governments . foreign exchange rate changes had an unfavorable impact to current year sales growth of 0.2 % . gross margin . consolidated gross margin decreased 320 basis points from the prior year to 29.5 % . the nvs acquisition accounts for 250 basis points of the decrease and the medical restructuring accounts for 10 basis points resulting in a comparable decrease of 60 basis points from prior year of 32.7 % . veterinary gross margin decreased 430 basis points mainly due to the acquisition of nvs . operating expenses . the consolidated operating expense ratio of 21.0 % decreased 200 basis points from prior year at 23.0 % . the nvs acquisition accounts for 190 basis points of the decrease . the incremental 41 expenses from the information technology initiative increased operating expense by 30 basis points and the medical restructuring increased operating expenses by 30 basis points resulting in a comparable decrease of 70 basis points from prior period of 23.0 % . operating income . current year operating income was $ 345.8 million , or 8.5 % of net sales . in the prior year , operating income was $ 354.5 million , or 9.7 % of net sales . the decrease in the operating margin is due primarily to the nvs acquisition , the medical restructuring and the incremental expenses from the information technology initiative , which combined reduced the operating margin by 140 basis points , resulting in a comparable operating margin rate of 9.9 % . other ( expense ) income , net . net other expense was $ 32.8 million in the current year , a decrease of $ 0.5 million from the prior year . net other expense is comprised primarily of interest expense , partly offset by interest income . foreign currency had a negative impact of $
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restructuring activities and associated costs during 2015 are anticipated to deliver annual run-rate savings of approximately $ 45.7 million with payback periods ranging from one to three years among the plans . we anticipate completion of the current restructuring programs by early 2018. refer to note 7 restructuring charges , within the notes to consolidated financial statements in item 8 of this form 10-k. impairment charges there were no goodwill impairment charges during 2015 compared with goodwill impairment charges of $ 50.3 million for 2014. the 2014 charges related to the impairment of all goodwill within the flexible products & services segment . 22 non-cash asset impairment charges were $ 45.9 million for 2015 compared with $ 35.5 million for 2014. in 2015 , these charges were primarily related to venezuelan property , plants , and equipment , information technology software identified as obsolete , and plant closures within the rigid industrial packaging & services segment . charges in 2014 related to the fabric hub in the kingdom of saudi arabia in the flexible products & services segment , impairment of assets to be sold for a loss in the rigid industrial packaging & services segment , and other underutilized and damaged equipment in both the flexible products & services segment and rigid industrial packaging & services segment . gains on sales of timberland the gain on timberland sales was $ 24.3 million for 2015 compared with $ 17.1 million for 2014. gain on disposal of properties , plants and equipment , net the gain on disposal of properties , plants , and equipment , net was $ 7.0 million and $ 8.3 million for 2015 and 2014 , respectively . see note 5 assets and liabilities of businesses held for sale and disposals of properties , plants , and equipment , net , within the notes to consolidated financial statements in item 8 of this form 10-k. ( gain ) loss on disposal of businesses , net the ( gain ) loss on disposal of businesses was $ 9.2 million and ( $ 11.5 ) million for 2015 and 2014 , respectively . for 2015 , the loss was primarily related to the strategic divestments of non-core businesses in our rigid industrial packaging & services segment . for 2014 , the gain was primarily related to the sale of our multiwall packaging business . operating profit operating profit was $ 192.8 million for 2015 compared with $ 249.3 million for 2014. the $ 56.5 million decrease consisted of $ 42.0 million and $ 1.7 million increases in the flexible products & services segment and the land management segment respectively offset by $ 83.7 million and $ 16.5 million decrease in the rigid industrial packaging & services segment and the paper packaging segment respectively . factors that contributed to the $ 56.5 million decrease , when compared to 2014 , were lower gross profit of $ 141.2 million , primarily due to foreign exchange translation and pricing pressures , higher restructuring charges of $ 23.9 million , higher non-cash asset impairment charges of $ 10.4 million , lower gains on disposal of businesses , net of $ 20.7 million , and lower gains on disposal of properties , plants and equipment , net of $ 1.3 million , which were partially offset by lower sg & a expenses of $ 83.5 million , lower goodwill impairment charges of $ 50.3 million , and higher timberland gains of $ 7.2 million . ebitda ebitda was $ 324.2 million and $ 395.6 million for 2015 and 2014 , respectively . the $ 71.4 million decrease was primarily due to the same factors that impacted operating profit . depreciation , depletion and amortization expense was $ 134.6 million for 2015 compared with $ 155.8 million for 2014. the decrease in depreciation , depletion and amortization expense was primarily due to foreign currency translation and the impact of divestitures . trends in fiscal year 2016 , we expect our results to benefit from further execution of our transformation efforts . these improvements are expected to be achieved despite the continuation of a sluggish global industrial economy and continued strengthening of the u.s. dollar relative to other currencies adversely impacting our results . segment review rigid industrial packaging & services key factors influencing profitability in the rigid industrial packaging & services segment are : selling prices , product mix , customer demand and sales volumes ; raw material costs ( primarily steel , resin , containerboard and used industrial packaging for reconditioning ) ; energy and transportation costs ; benefits from executing the greif business system ; restructuring charges ; 23 divestiture of businesses and facilities ; and impact of foreign currency translation . net sales decreased 15.9 percent to $ 2,586.4 million in 2015 from $ 3,077.0 million in 2014. the decrease in net sales was primarily due to the negative impact of foreign currency translation of 10.3 percent . changes in prices and product mix decreased sales by 2.7 percent and a net volume decrease caused another 2.9 percent decline , primarily due to the impact of divestitures , from 2014 to 2015. volumes improved sales by 3.6 percent in europe , offset by a 6.2 percent impact due to decreased prices and product mix , whereas north america sales decreased 6.3 percent due to the impact of volumes and 5.2 percent due to the impact of price and product mix from 2014 to 2015. gross profit was $ 463.4 million for 2015 compared with $ 553.4 million for 2014. the $ 90.0 million decrease in gross profit was primarily due to the negative impact of foreign currency translation of $ 63.2 million , a writedown of the value of inventory in venezuela of $ 9.3 million as part of the overall balance sheet remeasurement as discussed in note 1 to the consolidated financial statements included in item 8 of this form 10-k , divestitures and facility closings , a decrease in raw material prices in north america and pricing pressure in europe and asia . story_separator_special_tag gross profit margins increased to 17.3 percent from 14.9 percent in asia pacific for 2015 compared to 2014 , respectively , and decreased to 11.1 percent from 14.4 percent in latin america for 2015 compared to 2014 , respectively . gross profit margins were flat in north america and europe . operating profit was $ 86.4 million for 2015 compared with $ 170.1 million for 2014. the $ 83.7 million decrease was primarily attributable to the approximately $ 20.6 million negative impact of foreign currency translation , higher restructuring and non-cash asset impairment charges of $ 51.8 million , and the same factors impacting the decline in gross profit , partially offset by a decrease of $ 7.6 million on loss on sale of properties , plants , equipment and businesses , net and reductions in sg & a as a result of our transformation efforts . on a geographic basis , for 2015 , operating profit increased $ 10.6 million in asia pacific and decreased $ 39.8 million in europe , $ 36.7 million in north america , and $ 25.9 million in latin america . the improvement in asia pacific was primarily due to improvements in gross profit margin discussed above as well as an increase in gain on sale of properties , plants and equipment and businesses , net of $ 8.3 million . the decrease in europe was primarily due to currency translation and higher non-cash asset impairment and restructuring charges of $ 21.4 million , partially offset by an increase in gain on sales of properties , plants and equipment and businesses , net of $ 11.0 million . the decrease in north america included a decrease in gain on sales of properties , plants and equipment and business , net of $ 14.2 million , an increase in non-cash asset impairment charges of $ 8.8 million , and an increase in restructuring charges of $ 7.1 million . excluding the impact of the above-noted items , operating profit in north america decreased $ 6.6 million for 2015 compared to 2014. the decrease in latin america was primarily due to the impact of the venezuela inventory adjustment and non-cash asset impairment charges totaling $ 24.5 million . ebitda was $ 179.1 million for 2015 compared with $ 271.7 million for 2014. the $ 92.6 million decrease was due to the same factors that impacted the segment 's operating profit , as described above . depreciation , depletion and amortization expense was $ 94.0 million for 2015 compared with $ 108.4 million for 2014. paper packaging key factors influencing profitability in the paper packaging segment are : selling prices , product mix , customer demand and sales volumes ; raw material costs , primarily old corrugated containers ; energy and transportation costs ; and benefits from executing the greif business system . net sales decreased 4.3 percent to $ 676.1 million for 2015 compared with $ 706.8 million for 2014. this decrease was attributable to the impact of 2014 divestitures , the extended maintenance outage at the riverville facility for a longer period of time in 2015 compared to 2014 due to a capital improvement project , partially offset by slightly higher volumes in our sheet business during 2015 compared to 2014. gross profit was $ 163.5 million for 2015 compared with $ 182.8 million for 2014. this decrease was due to the same factors that impacted the segment 's sales , as described above . the adjustments primarily impacted cost of products sold . gross profit margin was 24.2 percent and 25.9 percent for 2015 and 2014 , respectively . operating profit was $ 109.3 million for 2015 compared with $ 125.8 million for 2014. the decrease was primarily due to the same factors impacting net sales and gross profit , as described above . ebitda was $ 138.4 million for 2015 compared with $ 155.6 million for 2014. this decrease was due to the same factors that impacted the segment 's operating profit , as described above . depreciation , depletion and amortization expense was $ 28.7 million and $ 29.8 million for 2015 and 2014 , respectively . 24 flexible products & services key factors influencing profitability in the flexible products & services segment are : selling prices , product mix , customer demand and sales volumes ; raw material costs , primarily resin ; energy and transportation costs ; benefits from executing the greif business system ; restructuring charges ; divestiture of businesses and facilities ; and impact of foreign currency translation . net sales decreased 24.2 percent to $ 322.6 million for 2015 compared with $ 425.8 million for 2014. this decrease was attributable to volume decreases of 16.5 percent ( primarily due to reduced sales of $ 39.5 million as a result of the sale of our multiwall packaging business in august 2014 ) , and the negative impact of foreign currency translation of 11.7 percent for 2015 compared with 2014 , partially offset by an increase in selling prices . gross profit was $ 33.8 million for 2015 compared with $ 62.7 million for 2014 , a decrease of 46.1 percent . this decrease was due to the same factors impacting net sales , as described above . gross profit margin decreased to 10.5 percent for 2015 from 14.7 percent for 2014. operating loss was $ 36.6 million for 2015 compared with an operating loss of $ 78.6 million for 2014. this decrease in operating loss was primarily due to a decrease in non-cash asset impairment charges of $ 72.5 million for 2015 compared with 2014 and sg & a cost savings realized as part of our transformation efforts , partially offset by the same factors impacting the segment 's net sales . ebitda was negative $ 30.3 million for 2015 compared with negative $ 68.0 million for 2014. this improvement was due to the same factors that impacted the segment 's operating loss , as described above .
| gross profit was $ 182.8 million for 2014 compared with $ 179.8 million for 2013. this increase was primarily due to higher selling prices , partially offset by input and logistic costs associated with adverse weather-related conditions during the first two quarters of 2014. gross profit margin decreased to 25.9 percent from 26.6 percent for 2014 and 2013 , respectively . operating profit was $ 125.8 million and $ 123.8 million for 2014 and 2013 , respectively . the $ 2.0 million increase was primarily due to higher prices and higher volumes . ebitda was $ 155.6 million and $ 154.3 million for 2014 and 2013 , respectively . this increase was due to the same factors that impacted the segment 's operating profit . depreciation , depletion and amortization expense was $ 29.8 million for 2014 compared with $ 30.3 million for 2013. flexible products & services net sales were $ 425.8 million for 2014 compared with $ 448.7 million for 2013. the 5.1 percent decrease in net sales for 2014 compared with 2013 was primarily due to a 5.9 percent decrease in sales volumes related to the continuing impact of the occupation of our manufacturing facility in turkey during the second quarter of 2014 and reduced sales of approximately $ 13 million as the result of the sale of our multiwall packaging business during the fourth quarter of 2014 offset by a 0.6 percent increases in prices due to the pass-through of higher polypropylene costs to customers and a positive 0.2 percent impact of foreign currency translation compared with 2013. gross profit was $ 62.7 million for 2014 versus $ 80.5 million for 2013. gross profit margin was 14.7 percent and 17.9 percent for 2014 and 2013 , respectively . the decrease in gross profit margin was primarily due to the impact of the occupation of our manufacturing facility in turkey during the second quarter of 2014 , which has resulted in higher costs incurred to find alternative supply
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invesco has made significant progress toward the integration of the two firms through the combination of middle- and back- office , location strategy and leveraging the scale of the global operating platform . to date , invesco has achieved $ 501 million in annualized net expense synergies related to integration of the oppenheimerfunds business , which is in excess of our $ 475 million target and ahead of schedule . transaction , integration , and restructuring costs related to the acquisition are expected to increase from the original projection as a result of expenses related to fund mergers that were not contemplated at close , as well as incremental severance costs related to achieving increased net expense synergies . the company also will continue to incur incremental non-cash transaction , integration , and restructuring charges related to accelerated vesting of common share-based awards for terminated employees and acceleration of depreciation for software and leasehold improvement assets , as well as $ 120 million related to compensation payments to certain oppenheimerfunds employees , which were funded by massmutual under the terms of the acquisition . during the year , the company purchased $ 669.8 million of its common shares . this amount reflects $ 500 million ( 25.8 common shares ) through forward contracts , $ 110.8 million of common shares repurchased in the market at cost ( 5.6 million common shares ) and $ 59.0 million ( 3.3 million common shares ) relating to purchases of common shares from employees to satisfy tax withholding requirements at the time of common share vesting . at december 31 , 2019 , a balance of $ 732.2 million remains available under the common share repurchase authorization approved by the board on july 22 , 2016. since announcing the $ 1.2 billion stock repurchase plan in october 2018 , the company has repurchased $ 973 million of its common shares to date and is on target to repurchase the remaining $ 227 million by the first quarter of 2021. invesco continues to demonstrate its commitment to supporting financial advisors with industry leading tools and resources , such as jemstep , our advisor-powered digital advice capability , and intelliflo , our advisor-focused digital platform . the range of investment capabilities available through jemstep are broad across the firm 's active , alternative and etf offerings . additionally , jemstep offers open architecture to help advisors provide customized solutions for clients . as a market-leading provider of digital solutions , jemstep continues to expand its capabilities and market presence , and is an integral part of invesco 's growth strategy . presentation of management 's discussion and analysis of financial condition and results of operations -- impact of consolidated investment products the company provides investment management services to , and has transactions with , various retail mutual funds and similar entities , private equity , real estate , fund-of-funds , collateralized loan obligation products ( clos ) , and other investment entities sponsored by the company for the investment of client assets in the normal course of business . the company serves as the investment manager , making day-to-day investment decisions concerning the assets of the products . the company is required to consolidate certain of these managed funds from time-to-time , as discussed more fully in item 8 , financial statements and supplementary data , note 1 -- `` accounting policies -- basis of accounting and consolidation . '' investment products that are consolidated are referred to in this form 10-k ( report ) as consolidated investments products ( cip ) . the company 's economic risk with respect to each investment in cip is limited to its equity ownership and any uncollected management and performance fees . the majority of the company 's cip balances are clo-related . the collateral assets of the clos are held solely to satisfy the obligations of the clos . the company has no right to the benefits from , nor does it bear the risks associated with , the collateral assets held by the clos , beyond the company 's direct investments in , and management and performance fees generated from , the clos . if the company were to liquidate , the collateral assets would not be available to the general creditors of the company , and as a result , the company does not consider them to be company assets . likewise , the investors in the clos have no recourse to the general credit of the company for the notes issued by the clos . the company therefore does not consider this debt to be a company liability . 33 the impact of cip is so significant to the presentation of the company 's consolidated financial statements that the company has elected to deconsolidate these products in its non-gaap disclosures . the following discussion therefore combines the results presented under u.s. generally accepted accounting principles ( u.s. gaap ) with the company 's non-gaap presentation . this management 's discussion and analysis of financial condition and results of operations contains four distinct sections , which follow after the assets under management discussion : results of operations ( year ended december 31 , 2019 compared to december 31 , 2018 ) ; schedule of non-gaap information ; balance sheet discussion ; and liquidity and capital resources . to assess the impact of cip on the company 's results of operations and balance sheet discussion , refer to part ii , item 8 , financial statements , note 20 , `` consolidated investment products . '' the impact on the company 's results of operations is illustrated by a column which shows the dollar-value change in the consolidated figures , as caused by the consolidation of cip . for example , the impact of cip on operating revenues for the year ended december 31 , 2019 was a reduction of $ 33.5 million . this indicates that their consolidation reduced consolidated revenues by this amount , reflecting the elimination upon their consolidation of the operating revenues earned by invesco for managing these investment products . story_separator_special_tag wherever a non-gaap measure is referenced , a disclosure will follow in the narrative or in the note referring the reader to the schedule of non-gaap information , where additional details regarding the use of the non-gaap measure by the company are disclosed , along with reconciliations of the most directly comparable u.s. gaap measures to the non-gaap measures . to further enhance the readability of the results of operations section , separate tables for each of the revenue , expense , and other income and expenses ( non-operating income/expense ) sections of the income statement introduce the narrative that follows , providing a section-by-section review of the company 's income statements for the periods presented . summary operating information summary operating information for 2019 , 2018 and 2017 is presented in the table below . replace_table_token_5_th _ ( 1 ) net revenues is a non-gaap financial measure . net revenues are operating revenues plus the net revenues of our great wall joint venture ; less pass-through revenue adjustments to investment management fees , service and distribution fees and other ; plus management and performance fees earned from cip . see `` schedule of non-gaap information '' for the reconciliation of operating revenues to net revenues . ( 2 ) adjusted operating income and adjusted operating margin are non-gaap financial measures . adjusted operating margin is adjusted operating income divided by net revenues . adjusted operating income includes operating income plus the net 34 operating income of our joint venture investments , the operating income impact of the consolidation of investment products , transaction , integration and restructuring adjustments , compensation expense related to market valuation changes in deferred compensation plans and other reconciling items . see `` schedule of non-gaap information , '' for the reconciliation of operating income to adjusted operating income . ( 3 ) adjusted net income attributable to invesco ltd. and adjusted diluted eps are non-gaap financial measures . adjusted net income attributable to invesco ltd. is net income attributable to invesco ltd. adjusted to exclude the net income of cip , transaction , integration and restructuring adjustments , the net income impact of deferred compensation plans and other reconciling items . adjustments made to net income attributable to invesco ltd. are tax-affected in arriving at adjusted net income attributable to invesco ltd. by calculation , adjusted diluted eps is adjusted net income attributable to invesco ltd. divided by the weighted average number of common shares outstanding ( for diluted eps ) . see `` schedule of non-gaap information , '' for the reconciliation of net income attributable to invesco ltd. to adjusted net income attributable to invesco ltd .. investment capabilities performance overview invesco 's first strategic objective is to achieve strong investment performance over the long-term for our clients . as of december 31 , 2019 , 64 % , 53 % , 54 % , and 82 % of measured ranked actively managed assets performed in the top half of peer groups on a one- , three- , five- and ten-year basis , respectively . the table below presents the one- , three- , five- and ten-year performance of our measured ranked actively managed investment products measured by the percentage of aum ahead of benchmark and aum in the top half of peer group . ( 1 ) replace_table_token_6_th note : ( 1 ) excludes passive products , closed-end funds , private equity limited partnerships , non-discretionary funds , unit investment trusts , fund of funds with component funds managed by invesco , stable value building block funds and cdos . certain funds and products were excluded from the analysis because of limited benchmark or peer group data . had these been available , results may have been different . these results are preliminary and subject to revision . aum measured in the one , three , five and ten-year quartile rankings represents 58 % , 57 % , 57 % and 51 % of total invesco aum , respectively , and aum measured versus benchmark on a one , three , five and ten year basis represents 68 % , 67 % , 65 % and 57 % of total invesco aum as of 12/31/19 . peer group rankings are sourced from a widely-used third party ranking agency in each fund 's market ( lipper , morningstar , ia , russell , mercer , evestment alliance , sitca , value research ) and asset-weighted in usd . rankings are as of prior quarter-end for most institutional products and prior month-end for 35 australian retail funds due to their late release by third parties . rankings are calculated against all funds in each peer group . rankings for the primary share class of the most representative fund in each composite are applied to all products within each composite . performance assumes the reinvestment of dividends . past performance is not indicative of future results and may not reflect an investor 's experience . ( 2 ) numbers in parenthesis reflect percentage of total ranked aum . total ranked aum is $ 696.5 billion for the fourth quarter . foreign exchange impact on balance sheet , assets under management and results of operations a significant portion of our business is based outside of the u.s. the strengthening or weakening of the u.s. dollar against other currencies , primarily the pound sterling , euro and japanese yen , will impact our assets , liabilities , aum and reported revenues and expenses from period to period . the assets , liabilities and aum of foreign subsidiaries are translated at period end spot foreign currency exchange rates . the income statements of foreign currency subsidiaries are translated into u.s. dollars , the reporting currency of the company , using average foreign exchange rates for the relevant period . the table below sets forth the spot foreign exchange rates used for translation of non-u.s. dollar denominated asset , liabilities and aum into u.s. dollars : replace_table_token_7_th the table below sets forth the average foreign exchange rates used for translation of non-u.s. dollar denominated income , including revenues and expenses , into u.s.
| therefore , movements in global capital market levels , net business inflows ( or outflows ) and changes in the mix of investment products between asset classes and geographies may materially affect our revenues from period to period . as discussed in the executive overview , financial global markets were strong , and returns from capital markets were up in the year ended december 31 , 2019 . 45 investment management fees investment management fees increased by $ 424.0 million ( 10.4 % ) in the year ended december 31 , 2019 , to $ 4,506.3 million ( year ended december 31 , 2018 : $ 4,082.3 million ) . this compares to a 14.2 % increase in average aum . the impact of foreign exchange rate movements decreased investment management fees by $ 60.2 million during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . after allowing for foreign exchange movements , investment management fees increased by $ 484.2 million ( 11.9 % ) . the increase is primarily a result of revenues earned from the acquired oppenheimerfunds business ( acquired may 24 , 2019 ) . the acquisition added $ 219.9 billion in active aum at acquisition date . see the company 's disclosures regarding the changes in aum and revenue yields during the years ended december 31 , 2019 and december 31 , 2018 in the “ assets under management ” section above for additional information regarding the impact of changes in aum on management fee yields . service and distribution fees in the year ended december 31 , 2019 , service and distribution fees increased by $ 308.0 million ( 31.8 % ) to $ 1,276.5 million ( year ended december 31 , 2018 : $ 968.5 million ) . the total increase is made up of higher distribution fees of $ 180.3 million , transfer agency fees of $ 111.0 million , and administrative fees of $ 7.1 million . the increase is primarily a result of revenues earned from the acquired oppenheimerfunds business ( acquired may 24 , 2019 ) . performance
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it is currently in two physician-sponsored phase 1 clinical trials , one for adult gbm and another for pediatric brain tumors ( including dipg and medulloblastoma ) . we began and completed a `` proof-of-concept '' phase 1 clinical trial in 2019 in poland for a third drug , wp1220 ( a molecule in the wp1066 portfolio ) , for the topical treatment of cutaneous t-cell lymphoma ( ctcl ) . we are actively seeking collaboration with a strategic partner in the near term for external funding for the continued development of wp1220 in a phase 2 clinical trial as a topical therapy for ctcl . if we are not successful in this outreach , we may choose to use internal funds to generate additional human data to facilitate such outreach efforts . we are also engaged in preclinical development of additional drug candidates , including additional immune/transcription modulators , as well as antimetabolites , targeting glycolysis and glycosylation . 56 we consider annamycin to be a `` next generation '' anthracycline , unlike any currently approved anthracyclines , as it is designed to avoid multidrug resistance mechanisms with little to no cardiotoxicity ( the efficacy of all currently approved anthracyclines is limited by both multidrug resistance and cardiotoxicity ) . we have received an independent expert cardiology assessment confirming the absence of cardiotoxicity in the first 19 patients treated with annamycin in both our us and european phase 1 clinical trials . annamycin is currently in one phase 1/2 clinical trial in europe , and the phase 1 portion of another phase 1/2 aml trial in the us has been concluded , subject to final database lock and closure . the fda requested that we demonstrate that annamycin could be safely administered to patients up to the lifetime maximum allowable level of anthracycline ( ltmad ) established by the fda and the trial met this primary endpoint . the fda established the ltmad because of concerns about cardiotoxicity associated with currently approved anthracyclines when administered above the ltmad . of the first 19 patients in our trials , 11 have been treated above the ltmad ( one patient received more than double the ltmad ) and none have shown evidence of any cardiotoxicity . as a result of discussions with the fda , we will focus on establishing a recommended phase 2 dose ( rp2d ) in our trial in europe , and , as requested by the fda , we will generate additional safety and efficacy data . the trial in poland is in its fifth cohort , where patients are being treated at 240 mg/m2 . patient 2 in this cohort experienced a dose limiting toxicity ( dlt ) , related to liver function , secondarily related to concomitant medication not being withheld . although that dlt resolved , in accordance with the trial protocol , the cohort was expanded and has now enrolled a total of five patients . in march 2021 , patient 4 in this cohort experienced a similar dlt and , accordingly , no additional patients will be enrolled at this dose level beyond the five patients enrolled to date . the dlt for patient 4 is being monitored and , per protocol , other patients in this cohort are permitted to continue to receive the full dose of annamycin , at the discretion of their physicians and with the patients being notified of the reported dlts . we are planning to amend the protocol for this trial to allow exploration of an intermediate dose level between the 210 mg/m2 dose in the fourth cohort and the current 240 mg/m2 dose level , in order to establish the maximum tolerated dosage ( mtd ) and recommended phase 2 dose ( rp2d ) , which may be the same . while this will establish an mtd for annamycin in aml and inform the starting dose in our planned trials in soft tissue sarcoma ( sts ) lung metastases , we do not believe it will limit the dose escalation in our sts trials . because of the different indication and differences in dosing regimen , we expect to determine a separate mtd in the phase 1 portion of the sts trials . once the mtd in the single agent aml trial is established , we currently plan to begin the expansion phase 2 portion of this trial with relapsed patients at the rp2d , in order to determine the potential efficacy of annamycin as a second line , single agent treatment for relapsed aml . following on our preclinical research , we also intend to begin the phase 1 portion of an aml trial using annamycin in combination with ara-c , a drug commonly used as a single agent and in combination chemotherapy for aml . a preliminary review of the data in the completed cohorts in both trials , which is subject to update , indicates that patients received an average of 3+ and a maximum of 9 prior regimens . thus far in the completed cohorts of our us and european single agent aml trials , there are 13 relapsed patients who were enrolled after one or more relapses from the prior regimens . of these , 38 % had either a cri , pr or bridge to transplant . we view this as encouraging , because recruitment in the expansion phase 2 will be limited to patients with no more than a single relapse . this is in contrast to the phase 1 portion of the trial , where , in order to accelerate recruitment , we included a majority of patients who were primarily refractory or who had two or more relapses from alternate therapy . we believe this is significant because patients who are either refractory or have had two or more relapses are considered to be less likely to respond to therapy and especially to a single agent therapy . story_separator_special_tag as a result and considering that all patients in phase 2 will be treated at the rp2d , we believe the overall response in the expansion phase 2 may be better than the overall response in the phase 1 portion of the trial , although we can not be certain that actual results will reflect this . our preclinical work on annamycin demonstrated activity against certain cancers metastasized to the lungs . in december 2020 , we disclosed that the fda allowed our ind to go into effect to study annamycin for the treatment of soft tissue sarcoma lung metastases . this allows us to begin a phase 1b/2 clinical trial in the u.s. for patients with soft tissue sarcoma that has metastasized to the lungs after first-line therapy for their disease . we expect this trial to begin in the first half of 2021. later in december 2020 , we disclosed that the fda had granted orphan drug designation ( odd ) to annamycin for the treatment of soft tissue sarcomas , in addition to the existing odd for annamycin in relapsed or refractory aml . on february 2 , 2021 , we announced that a preclinical study in animals has confirmed a significant therapeutic benefit of annamycin against metastatic osteosarcoma . as of day 130 of the study , the survival rate for animals treated with annamycin was 100 % , compared with only 10 % for untreated animals . computerized tomography scans demonstrated that animals treated with annamycin exhibited suppression of tumor growth and not a single death was observed in the treated animals , whereas observed tumor burden was believed to have contributed to the rapid death of 90 % of untreated animals . we believe this data is a promising indication of the possibility of annamycin 's impact on other cancers metastasized to the lungs . we caution that this is preclinical animal data and we can provide no assurance that we will see similar results in our planned clinical trials . 57 wp1066 is one of several immune/transcription modulators designed to stimulate the immune response to tumors by inhibiting the errant activity of regulatory t-cells ( tregs ) while also inhibiting key oncogenic transcription factors , including p-stat3 ( phosphorylated signal transducer and activator of transcription 3 ) , c-myc ( a celluar signal transducer named after a homologous avian virus called myelocytomatosis ) and hif-1α ( hypoxia inducible factor 1α ) . these transcription factors are widely sought targets that are believed to contribute to an increase in cell survival and proliferation , and the angiogenesis ( coopting vasculature for blood supply ) , invasion , metastasis and inflammation associated with tumors . they may also play a role in the inability of immune checkpoint inhibitors to affect more resistant tumors . wp1066 is currently in two us physician-sponsored phase 1 trials , one at md anderson for the treatment of glioblastoma ( gbm ) in adults and another at emory university for the treatment of pediatric brain tumors . the trial at md anderson is in the fourth and final cohort in the dose escalation phase . in the first quarter of 2021 , we were notified that the physician sponsoring this trial is leaving mda . we can not be assured that this trial will continue at mda after her departure . several additional institutions have expressed an interest in sponsoring similar research on wp1066 in brain tumors , so to help ensure the potential continuation of this important research , regardless of the sponsoring institution , we have requested the ind for this trial to be transferred into our name with the fda , although we can provide no assurance as to when , or if , this transfer will be completed . while we are making arrangements to continue this research in additional physician-sponsored trials , we expect that continued research on wp1066 in adult gbm will be temporarily delayed in 2021. the emory trial for pediatric brain tumors has now treated three patients in the first cohort . the third and last patient in the second cohort has begun treatment at the dose level of 6mg/kg . in that trial , one of the patients in the first cohort with dipg showed an apparent response to the treatment with both clinical improvement and radiologic reduction of tumor size . we caution that this is preliminary data , and no conclusions should be drawn from this single event . another physician-sponsored phase 1 trial is being considered for the treatment of gbm with wp1066 in combination with radiation , although no assurances can be given that such trial will begin . we are also developing new compounds designed to exploit the potential uses of inhibitors of glycolysis such as 2-deoxy-d-glucose ( 2-dg ) , which we believe may provide an opportunity to cut off the fuel supply of tumors by taking advantage of their high level of dependence on glucose in comparison to healthy cells . a key drawback to 2-dg is its lack of drug-like properties , including a short circulation time and poor tissue/organ distribution characteristics . our lead metabolism/glycosylation inhibitor , wp1122 , is a prodrug of 2-dg that appears to improve the drug-like properties of 2-dg by increasing its circulation time and improving tissue/organ distribution . new research also points to the potential for 2-dg to be capable of enhancing the usefulness of checkpoint inhibitors . considering that 2-dg lacks sufficient drug-like properties to be practical in a clinical setting , we believe wp1122 has the opportunity to become an important drug to potentiate existing therapies , including checkpoint inhibitors . as the covid-19 pandemic unfolded , several independent research teams identified that 2-dg may have the potential to treat covid-19 , as well as other diseases caused by coronaviruses . similar to the dependence of many tumors on glucose , viruses like sars-cov-2 are highly dependent on both glycolysis and glycosylation ( and , therefore , glucose ) in order to successfully invade host cells and proliferate .
| 60 liquidity and capital resources as of december 31 , 2020 , we had cash and cash equivalents of $ 15.2 million and prepaid expenses and other expenses of $ 2.0 million . we also had $ 1.1 million of accounts payable and $ 1.8 million of accrued expenses and other current liabilities . a significant portion of the accounts payable and accrued expenses are due to work performed in relation to our preclinical activities and our clinical trials . for the years ended december 31 , 2020 and 2019 , we used approximately $ 17.8 million and $ 17.2 million of cash in operating activities , respectively , which represents cash outlays for research and development and general and administrative expenses in such periods . the increase in 2020 reflects the increase in preclinical and clinical activity over 2019. for the year ended december 31 , 2020 , net proceeds from financing activities were $ 22.5 million , predominately from the sale of our common stock and warrants . in 2019 , approximately $ 20.9 million was raised predominately through the sale of shares of common stock and the exercise of warrants . cash used in investing activities for the year ended december 31 , 2020 was approximately $ 0.4 million primarily related to mass spectrometer equipment purchased for the lab in 2020. the equipment will be used to analyze uptake , metabolism , and tissue organ distribution of anti-cancer and anti-viral agents , which is critical for determination of pharmacokinetic and pharmacodynamic parameters of the drug . subsequent to december 31 , 2020 , we issued equity and received gross proceeds of $ 80.9 million . during january 2021 we issued approximately 469,000 shares for gross proceeds of $ 2.9 million using our at the market agreement with oppenheimer & co. , inc. , discussed below . additionally , on february 3 , 2021 , we announced the pricing of an underwritten public offering of an aggregate of 14,273,684 shares of common stock at a public offering price of $ 4.75 per share .
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the echelon-1 and echelon-2 trials would fulfill post-approval commitment obligations for adcetris regarding drug efficacy , and positive results from either trial would form the basis for a submission to potentially convert the approval of adcetris in the united states from accelerated approval to regular approval in its currently approved indications . the primary endpoint in the echelon-1 and echelon-2 trials is pfs per independent review facility assessment in patients treated with adcetris compared to that achieved with therapy in the control arm . given pfs trends in our phase 1 data combining adcetris with standard chemotherapy regimens and the positive pfs outcome in the aethera trial , we and takeda are evaluating the potential that event rates may be slower than expected in both the echelon-1 and echelon-2 trials and are in discussions with appropriate regulatory agencies on proposed trial modifications . depending on the modifications , if any , agreed upon with the appropriate regulatory agencies , our ability to successfully complete these trials on a timely basis could be adversely affected . in this regard , earlier analysis or other trial modifications of either or both of the echelon-1 and echelon-2 trials could potentially make demonstrating a statistically significant improvement in pfs in these trials more difficult . the primary endpoint in the alcanza trial is overall response rate lasting at least four months in patients treated with adcetris compared to that achieved with therapy in the control arm . in addition to adcetris , our pipeline includes six clinical-stage adc programs consisting of sgn-cd33a , sgn-cd19a , sgn-liv1a , sgn-cd70a , asg-22me , and asg-15me , and sea-cd40 , which is based on our sugar-engineered antibody , or sea , technology . in addition , we have multiple preclinical and research-stage programs that employ our proprietary technologies . we also have collaborations for our adc technology with a number of biotechnology and pharmaceutical companies , including abbvie biotechnology ltd. , or abbvie ; bayer pharma ag , or bayer ; celldex therapeutics , inc. , or celldex ; genentech , inc. , a member of the roche group , or genentech ; glaxosmithkline llc , or gsk ; pfizer , inc. , or pfizer ; psma development company llc , a subsidiary of progenics pharmaceuticals inc. , or progenics ; and takeda ; as well as adc co-development agreements with agensys , inc. , an affiliate of astellas pharma , inc. , or agensys ; genmab a/s , or genmab ; and oxford biotherapeutics ltd. , or obt . our ongoing research , development and commercial activities will require substantial amounts of capital and may not ultimately be successful . our product candidates are in relatively early stages of development . these product candidates will require significant further development , financial resources and personnel to pursue and obtain regulatory approval and develop into commercially viable products , if at all . accordingly , over the next several years , we expect that we will incur substantial expenses , primarily as a result of activities related to the commercialization and continued development of adcetris . we will also continue to invest in research , development and manufacturing of our product candidates . our commitment of resources to the continuing 57 development , regulatory and commercialization activities for adcetris and the research , continued development and manufacturing of our product candidates may require us to raise substantial amounts of additional capital and our operating expenses will fluctuate as a result of such activities . in addition , we may incur significant milestone payment obligations as our product candidates progress through clinical trials towards potential commercialization . although we recognize revenue from adcetris product sales in the united states and canada , we have only been commercializing adcetris since august 2011 and our future adcetris product sales will be difficult to accurately predict from period to period . in this regard , our product sales have varied , and may continue to vary , significantly from period to period and may be affected by a variety of factors , including the incidence rate of new patients in adcetris ' approved indications , customer ordering patterns , the overall level of demand for adcetris , the duration of therapy for patients receiving adcetris , and the extent to which coverage and reimbursement for adcetris is available from government and other third-party payers , particularly in an increasingly challenging environment due to , among other things , the attention being paid to healthcare cost containment and other austerity measures in the u.s. and worldwide . we believe that the level of our ongoing adcetris sales in the united states is largely attributable to the incidence flow of patients eligible for treatment with adcetris , which could vary significantly from period to period . moreover , we believe that the incidence rate in adcetris ' approved indications is relatively low , particularly when compared to many other oncology indications . for these and other reasons , we expect that meaningful future adcetris sales growth , if any , will depend primarily on our ability to expand adcetris ' labeled indications of use . our efforts to expand adcetris ' labeled indications of use will continue to require additional time and investment in clinical trials to complete and we may not be successful . our ability to successfully commercialize adcetris and to expand its labeled indications of use are subject to a number of risks and uncertainties , including those discussed in part i , item 1a of this annual report on form 10-k. we also expect that amounts earned from our collaboration agreements will continue to be an important source of our revenues and cash flows . these revenues will be impacted by future development funding and the achievement of development , clinical and commercial milestones by our collaborators under our existing collaboration and license agreements , including , in particular , our adcetris collaboration with takeda , as well as entering into new collaboration and license agreements . story_separator_special_tag our results of operations may vary substantially from year to year and from quarter to quarter and , as a result , we believe that period to period comparisons of our operating results may not be meaningful and should not be relied upon as being indicative of our future performance . financial summary total revenues increased to $ 286.8 million in 2014 , compared to $ 269.3 million in 2013. this resulted from increased adcetris net product sales and royalty revenues , partially offset by a decrease in collaboration and license agreement revenues . total costs and expenses increased 10 % to $ 364.1 million in 2014 , compared to $ 332.1 million in 2013. this primarily reflects increased investment in our pipeline programs and clinical development efforts to explore additional potential applications of adcetris , offset by decreased costs attributable to our adcetris collaboration with takeda . as of december 31 , 2014 , we had $ 313.4 million in cash , cash equivalents and short-term investments , and $ 210.8 million in total stockholders ' equity . critical accounting policies the preparation of financial statements in accordance with generally accepted accounting principles , or gaap , requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . we believe the following critical accounting policies describe the more significant judgments and estimates used in the preparation of our financial statements . revenue recognition . our revenues are comprised of adcetris net product sales , amounts earned under our collaboration and licensing agreements and royalties . revenue recognition is predicated upon persuasive 58 evidence of an agreement existing , delivery of products or services being rendered , amounts payable being fixed or determinable , and collectibility being reasonably assured . net product sales we sell adcetris through a limited number of pharmaceutical distributors . customers order adcetris through these distributors and we typically ship product directly to the customer . we record product sales when title and risk of loss pass , which generally occurs upon delivery of the product to the customer . product sales are recorded net of estimated government-mandated rebates and chargebacks , distribution fees , estimated product returns and other deductions . accruals are established for these deductions and actual amounts incurred are offset against applicable accruals . we reflect these accruals as either a reduction in the related account receivable from the distributor , or as an accrued liability depending on the nature of the sales deduction . sales deductions are based on our estimates that consider payer mix in target markets , industry benchmarks and experience to date . these estimates involve a substantial degree of judgment . government-mandated rebates and chargebacks : we have entered into a medicaid drug rebate agreement with the centers for medicare & medicaid services . this agreement provides for a rebate to participating states based on covered purchases of adcetris . medicaid rebates are invoiced to us by participating states . we estimate medicaid rebates based on a third-party study of the payer mix for adcetris , information on utilization by medicaid-eligible patients who received assistance through seagen secure , our patient assistance program , and experience to date . we also have completed our federal supply schedule , or fss , agreement under which certain u.s. government purchasers receive a discount on eligible purchases of adcetris . we have entered into a pharmaceutical pricing agreement with the secretary of health and human services which enables certain entities that qualify for government pricing under the public health services act , or phs , to receive discounts on their qualified purchases of adcetris . under these agreements , distributors process a chargeback to us for the difference between wholesale acquisition cost and the applicable discounted price . as a result of our direct-ship distribution model , we can identify the entities purchasing adcetris and this information enables us to estimate expected chargebacks for fss and phs purchases based on each entity 's eligibility for the fss and phs programs . we also review actual rebate and chargeback information to further refine these estimates . distribution fees , product returns and other deductions : our distributors charge a volume-based fee for distribution services that they perform for us . we allow for the return of product that is within 30 days of its expiration date or that is damaged . we estimate product returns based on our experience to date . in addition , we consider our direct-ship distribution model , our belief that product is typically not held in the distribution channel , and the expected rapid use of the product by healthcare providers . we provide financial assistance to qualifying patients that are underinsured or can not cover the cost of commercial coinsurance amounts through seagen secure . seagen secure is available to patients in the u.s. and its territories who meet various financial and treatment need criteria . estimated contributions for commercial coinsurance under seagen secure are deducted from gross sales and are based on an analysis of expected plan utilization . these estimates are adjusted as necessary to reflect our actual experience . collaboration and license agreement revenues we have developed a proprietary technology for linking cytotoxic agents to monoclonal antibodies called antibody-drug conjugates , or adcs . this proprietary technology is the basis of adc collaborations that we have entered into in the ordinary course of our business with a number of biotechnology and pharmaceutical companies . under these adc collaboration agreements , we grant our collaborators research and commercial licenses to our technology and provide technology transfer services , technical advice , supplies and services for a period of time . if there are continuing performance obligations , we use a time-based proportional performance model to recognize revenue over our performance period for the related agreement . collaboration and license agreements 59 are evaluated to determine whether the multiple elements and associated deliverables can be considered separate units of accounting .
| we expect only moderate growth in adcetris sales in 2015 compared to 2014. in this regard , we continue to expect that meaningful future adcetris sales growth , if any , will be primarily dependent on our ability to expand the labeled indications of use . 63 we record product sales net of estimated government-mandated rebates and chargebacks , distribution fees , product returns and other deductions . these are generally referred to as gross-to-net deductions . gross-to-net deductions , net of related payments and credits , are summarized as follows : replace_table_token_7_th mandatory government discounts are the most significant component of our total gross to net deductions and the discount percentage has been increasing . these discount percentages increased during 2014 and 2013 as a result of price increases we have instituted that exceeded the rate of inflation . generally , the change in government prices is limited to the rate of inflation . we expect future gross-to-net deductions to fluctuate based on the volume of purchases eligible for government mandated discounts and rebates , as well as changes in the discount percentage which is impacted by potential future price increases , the rate of inflation , and other factors . we implemented a price increase at the beginning of 2015. as a result of this price increase , we expect gross-to-net deductions to increase in 2015. distribution fees , product returns and other gross to net deductions were virtually unchanged as a percentage of our gross sales among the three years presented above . collaboration and license agreement revenues collaboration and license agreement revenues reflect amounts earned under product collaborations and adc collaboration and co-development agreements . these revenues reflect the earned portion of payments received by us including technology access and maintenance fees , milestone payments and reimbursement payments for research and development support we provide to our collaborators . collaboration and license agreement revenues are summarized by collaborator as follows : replace_table_token_8_th revenues earned under our adcetris and adc collaborations with takeda represented 46 % of our collaboration and license agreement revenues in 2014 , 39 % in 2013 and 53 % in 2012. revenues from takeda
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per share ) compared to net income of $ 22.4 million ( $ 0.14 per share ) . the decrease in net income from continuing operations is primarily due to a significant tax benefit realized in 2016 and lower realized silver and gold prices , partially offset by a $ 21.1 million gain on the sale of the joaquin project , lower interest expense , lower all-in sustaining costs per silver equivalent ounce and higher silver and gold production . revenue metal sales were higher due to higher silver and gold production , partially offset by a decrease in average realized silver and gold prices of 2 % and 1 % , respectively . the company sold 12.7 million silver ounces and 410,604 gold ounces , compared to sales of 8.9 million silver ounces and 338,131 gold ounces . gold contributed 70 % of sales and silver contributed 30 % , compared to 73 % of sales from gold and 27 % from silver . metal sales were sourced primarily from north american operations . costs applicable to sales costs applicable to sales increased due to higher silver and gold ounces sold and higher costs applicable to sales per gold ounce . for a complete discussion of costs applicable to sales , see results of operations below . amortization amortization increased $ 30.0 million or 26 % , primarily due to higher silver and gold ounces produced at palmarejo . expenses general and administrative expenses increased 15 % due to higher compensation , severance and professional service costs . exploration expense increased $ 17.4 million , due to the company 's expansion of near-mine drilling at palmarejo , kensington and rochester , and regional exploration focused on projects in nevada and mexico . pre-development , reclamation , and other expenses increased 31 % due to additional work at la preciosa and silvertip acquisition costs . other income and expenses in 2017 , the company incurred a $ 9.3 million loss in connection with the repurchase of the 7.875 % senior notes due 2021 ( the “ 2021 senior notes ” ) concurrent with the completed offering of the 5.875 % senior notes due 2024 ( the “ 2024 senior notes ” ) compared to losses of $ 21.4 million on extinguishment of debt in 2016. non-cash fair value adjustments , net , were a loss of $ 0.9 million compared to a loss of $ 11.6 million due to diminishing effects related to the palmarejo gold production royalty which was terminated in the third quarter of 2016 and the rochester royalty obligation which was terminated in the second quarter of 2017. interest expense ( net of capitalized interest of $ 1.9 million ) decreased to $ 16.4 million from $ 36.9 million , primarily due to lower average debt levels and the lower 2024 senior notes interest rate . other , net increased to $ 26.6 million , primarily due to a $ 21.1 million gain on the sale of the joaquin project in argentina and a $ 2.3 million gain on the repurchase of the rochester royalty obligation . 39 income and mining taxes the company 's income and mining tax ( expense ) benefit consisted of : replace_table_token_18_th income and mining tax expense of approximately $ 29.0 million results in an effective tax rate of 73 % for 2017. this compares to income tax benefit of $ 33.2 million or effective tax rate of 308 % for 2016. the company 's effective tax rate is impacted by multiple factors as illustrated above . the 2017 effective tax rate differs from 2016 primarily due to favorable operating results at palmarejo contributing to higher income and mining tax expense and the 2016 completion of a legal entity reorganization to integrate recent acquisitions resulting in a valuation allowance release of $ 40.8 million . the company 's effective tax rate is impacted by recurring items , such as foreign exchange rates on deferred tax balances , mining tax expense , full valuation allowance on the deferred tax assets relating to losses in the united states and certain foreign jurisdictions , and uncertain tax positions . in addition , the company 's consolidated effective income tax rate is a function of the combined effective tax rates and foreign exchange rates in the jurisdictions in which it operates . variations in the jurisdictional mix of income and loss and foreign exchange rates result in significant fluctuations in its consolidated effective tax rate . the following table summarizes the components of the company 's income ( loss ) before tax and income and mining tax ( expense ) benefit : replace_table_token_19_th a valuation allowance is provided for deferred tax assets for which it is more likely than not that the related benefits will not be realized . the company analyzes its deferred tax assets and if it is determined that the company will not realize all or a portion of its deferred tax assets , it will record or increase a valuation allowance . conversely , if it is determined that the company will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided , all or a portion of the related valuation allowance will be reduced . there are a number of risk factors that could impact the company 's ability to realize its deferred tax assets . on december 22 , 2017 , the united states ( “ u.s. ” ) enacted significant changes to u.s. tax law following the passage and signing of h.r.1 , “ an act to provide for reconciliation pursuant to titles ii and v of the concurrent resolution on the budget for fiscal year 2018 ” which makes widespread changes to the internal revenue code , including , among other items , a reduction in the federal corporate tax rate to 21 % , effective january 1 , 2018 . story_separator_special_tag 40 the company is subject to the provisions of the financial accounting standards board ( “ fasb ” ) asc 740-10 , income taxes , which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted . the carrying value of our u.s. deferred taxes is determined by the enacted u.s. corporate income tax rate . consequently , the reduction in the u.s. corporate income tax rate impacts the carrying value of our deferred tax assets . under the new corporate income tax rate of 21 % , the u.s. net deferred tax asset position will decrease as will the related valuation allowance . the net effect of the tax reform enactment on the financial statements is minimal . while there are certain aspects of the new tax law that will not impact the company based on its tax structure , such as the one-time transition tax on unremitted foreign earnings ; there are other aspects of the law , which could have a positive impact on the company 's future u.s. income tax expense , including the elimination of the u.s. corporate alternative minimum tax . however , uncertainty regarding the impact of tax reform remains , as a result of factors including future regulatory and rulemaking processes , the prospects of additional corrective or supplemental legislation , potential trade or other litigation , and other factors . income ( loss ) from discontinued operations in respect of san bartolomé 's operating results , income decreased $ 45.2 million , primarily due to lower production , higher unit costs and a tax benefit realized in 2016 with regard to san bartolomé . 2016 compared to 2015 net income ( loss ) from continuing operations net income from continuing operations was $ 22.4 million ( $ 0.14 per share ) compared to net loss of $ 287.8 million ( $ 2.22 per share ) . the increase in net income from continuing operations is primarily due to asset write-downs in 2015 and higher gold production , a reduction in deferred tax valuation allowances and other deferred tax benefits , higher average realized silver and gold prices , lower all-in sustaining costs per silver equivalent ounce , and lower interest expense , partially offset by lower silver production and unfavorable fair value adjustments . revenue metal sales increased due to a 10 % and 8 % increase in average realized silver and gold prices , respectively . the company sold 8.9 million silver ounces and 338,131 gold ounces , compared to sales of 11.0 million silver ounces and 335,882 gold ounces . gold contributed 73 % of sales and silver contributed 27 % compared to 69 % of sales from gold and 31 % from silver . royalty revenue was lower due to the company 's divestiture of non-core royalty assets throughout 2016 and the first half of 2017. metal sales from north american operations provided 99 % of revenue , compared to 98 % . costs applicable to sales costs applicable to sales decreased due to lower silver and gold unit costs and lower silver ounces sold . for a complete discussion of costs applicable to sales , see results of operations below . amortization amortization decreased $ 9.4 million , or 7 % , primarily due to lower silver equivalent ounces sold and lower amortizable mineral interest and mining equipment that resulted from the 2015 write-down . expenses general and administrative expenses decreased 10 % due to lower professional services and compensation costs . exploration expense increased $ 1.4 million due to the company 's expansion of drilling activities at palmarejo , kensington and rochester as well as regional exploration with a focus on projects in nevada and chihuahua , mexico . write-downs were $ 4.4 million ( $ 3.9 million net of tax ) compared to $ 246.6 million ( $ 209.8 million net of tax ) . the $ 4.4 million ( $ 3.9 million net of tax ) write-downs in 2016 were primarily related to the company 's silver stream on the endeavor mine in australia as a result of the decision by the mine operator to significantly curtail production due to low lead and zinc prices . pre-development , reclamation , and other expenses decreased 11 % to $ 14.4 million as a result of lower transaction related costs . other income and expenses in 2016 , the company incurred a loss of $ 21.4 million on the extinguishment of debt in connection with the repayment of the term loan ( as defined below ) and a portion of its outstanding 2021 senior notes compared to a $ 15.9 million gain on the exchange of 2021 senior notes for common stock in 2015. non-cash fair value adjustments , net , were a loss of $ 11.6 million compared to a gain of $ 5.2 million , primarily due to 41 the impact of changes in future metal prices on the palmarejo gold production royalty ( termination effective in the third quarter of 2016 ) and the rochester nsr royalty obligation . interest expense ( net of capitalized interest of $ 1.2 million ) decreased to $ 36.9 million from $ 45.0 million , primarily due to the repayment of the term loan , the redemption of $ 200.8 million of 2021 senior notes and lower accretion of the terminated palmarejo gold production royalty obligation . other , net increased by $ 17.8 million , primarily due to a $ 5.3 million pre-tax gain on the sale of martha assets in argentina , a $ 7.8 million pre-tax gain on the sale of non-core royalty assets , and gains from the sale of investments .
| costs applicable to sales were $ 11.23 per silver equivalent ounce ( $ 10.29 per average spot silver equivalent ounce ) and $ 705 per gold equivalent ounce in the year ended december 31 , 2016 compared to $ 13.06 per silver equivalent ounce ( $ 11.90 per average spot silver equivalent ounce ) and $ 768 per gold equivalent ounce in the year ended december 31 , 2015 . costs applicable to sales per silver equivalent ounce decreased 14 % in the year ended december 31 , 2016 due to lower unit costs at palmarejo and rochester , partially offset by higher unit costs at endeavor . costs applicable to sales per gold equivalent ounce decreased 8 % in the year ended december 31 , 2016 due to lower unit costs at wharf and kensington . all-in sustaining costs were $ 15.95 per silver equivalent ounce ( $ 13.86 per average spot silver equivalent ounce ) in the year ended december 31 , 2017 , compared to $ 16.16 per silver equivalent ounce ( $ 14.05 per average spot silver equivalent ounce ) in the year ended december 31 , 2016 . the 1 % decrease was primarily due to lower sustaining capital , partially offset by higher costs applicable to sales per consolidated silver equivalent ounce , higher general and administrative costs and higher exploration expense . all-in sustaining costs were $ 16.16 per silver equivalent ounce ( $ 14.05 per average spot silver equivalent ounce ) in the year ended december 31 , 2016 , compared to $ 16.68 per silver equivalent ounce ( $ 14.50 per average spot silver equivalent ounce ) in the year ended december 31 , 2015 . the 3 % decrease in all-in sustaining costs per silver equivalent ounce in 2016 was primarily due to lower costs applicable to sales per consolidated silver equivalent ounce and lower general and administrative costs , partially offset by higher sustaining capital expenditures and exploration expense .
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as we progress through the current stage of the business model transition , annualized recurring revenue ( `` arr '' ) , growth of billings , and total subscriptions better reflect business momentum . to further analyze progress , we disaggregate our growth between the original maintenance model ( `` maintenance plan '' ) and the subscription plan model . maintenance plan subscriptions peaked in the fourth quarter of our fiscal 2016 as we discontinued selling new maintenance plan subscriptions in fiscal 2017 , and we expect them to decline slowly over time as maintenance plan customers continue to convert to our subscription plans . in order to support our strategic priorities of completing the subscription transition , digitizing the company , and re-imagining manufacturing , construction , and production , we commenced a world-wide restructuring plan in the fourth quarter of fiscal 2018. through the restructuring , we seek to reduce our investments in areas not aligned with our strategic priorities , including in areas related to research and development and go-to-market activities . at the same time , we plan to further invest in strategic priority areas related to digital infrastructure , customer success , and construction . by re-balancing resources to better align with our strategic priorities , we are positioning ourselves to meet our long-term goals , while keeping non-gaap spend flat in fiscal 2019. we anticipate incurring pre-tax restructuring charges of $ 135 million to $ 149 million , substantially all of which would result in cash expenditures , $ 124 million to $ 137 million of which would be for one-time employee termination benefits , and $ 11 million to $ 12 million of which would be for facilities-related and other costs . if we are unable to successfully complete our reorganizational efforts we may need to undertake additional restructuring efforts , and our business and operating results may be harmed . 2018 form 10-k 36 we sell our products and services globally , through a combination of indirect and direct channels . our indirect channels include value added resellers , direct market resellers , distributors , computer manufacturers , and other software developers . our direct channels include internal sales resources dedicated to selling in our largest accounts , our highly specialized products , and business transacted through our online autodesk branded store . the following chart shows our split between indirect and direct channels for the fiscal years ended january 31 , 2018 , 2017 and 2016 : we anticipate that our channel mix will continue to change as we scale our online autodesk branded store business and our largest accounts shift towards direct-only business models . however , we expect our indirect channel will continue to transact and support the majority of our customers and revenue as we move beyond the business model transition . we employ a variety of incentive programs and promotions to align our direct and indirect channels with our business strategies . in addition , we have a worldwide user group organization and we have created online user communities dedicated to the exchange of information related to the use of our products . one of our key strategies is to maintain an open-architecture design of our software products to facilitate third-party development of complementary products and industry-specific software solutions . this approach enables customers and third parties to customize solutions for a wide variety of highly specific uses . we offer several programs that provide strategic investment funding , technological platforms , user communities , technical support , forums , and events to developers who develop add-on applications for our products . for example , we have established the autodesk forge program to support innovators that build solutions to facilitate the development of a single connected ecosystem for the future of how things are designed , made , and used as well as support ideas that push the boundaries of 3d printing . in addition to the competitive advantages afforded by our technology , our large global network of distributors , resellers , third-party developers , customers , educational institutions , educators , and students is a key competitive advantage which has been cultivated over an extensive period of time . this network of partners and relationships provides us with a broad and deep reach into volume markets around the world . our distributor and reseller network is extensive and provides our customers with the resources to purchase , deploy , learn , and support our products quickly and easily . we have a significant number of registered third-party developers who create products that work well with our products and extend them for a variety of specialized applications . autodesk is committed to helping fuel a lifelong passion for design in students of all ages . we offer free educational licenses of autodesk software worldwide to students , educators , and accredited educational institutions . we inspire and support beginners with tinkercad , a simple online 3d design and 3d printing tool . through autodesk design academy , we provide 2018 form 10-k 37 secondary and postsecondary school markets hundreds of standards-aligned class projects to support design-based disciplines in science , technology , engineering , digital arts , and math ( steam ) while using autodesk 's professional-grade 3d design , engineering and entertainment software used in industry . we also have made autodesk design academy curricula available on itunes u and udemy . our intention is to make autodesk software ubiquitous and the design and making software of choice for those poised to become the next generation of professional users . our strategy includes improving our product functionality and expanding our product offerings through internal development as well as through the acquisition of products , technology , and businesses . acquisitions often increase the speed at which we can deliver product functionality to our customers ; however , they entail cost and integration challenges and may , in certain instances , negatively impact our operating margins . we continually review these trade-offs in making decisions regarding acquisitions . story_separator_special_tag we currently anticipate that we will continue to acquire products , technology , and businesses as compelling opportunities become available . our strategy depends upon a number of assumptions to successfully make the transition toward new cloud and mobile platforms , including : the related technology and business model shifts ; making our technology available to mainstream markets ; leveraging our large global network of distributors , resellers , third-party developers , customers , educational institutions , and students ; improving the performance and functionality of our products ; and adequately protecting our intellectual property . if the outcome of any of these assumptions differs from our expectations , we may not be able to implement our strategy , which could potentially adversely affect our business . for further discussion regarding these and related risks , see part i , item 1a , “ risk factors . ” critical accounting policies and estimates our consolidated financial statements are prepared in conformity with u.s. generally accepted accounting principles . in preparing our consolidated financial statements , we make assumptions , judgments , and estimates that can have a significant impact on amounts reported in our consolidated financial statements . we base our assumptions , judgments , and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . we regularly reevaluate our assumptions , judgments , and estimates . our significant accounting policies are described in note 1 , “ business and summary of significant accounting policies , ” in the notes to consolidated financial statements . we believe that of all our significant accounting policies , the following policies involve a higher degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . revenue recognition . we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable , and collection is probable . however , determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report . for multiple element arrangements containing only software and software-related elements , we allocate the sales price among each of the deliverables using the residual method , under which revenue is allocated to undelivered elements based on our vendor-specific objective evidence ( “ vsoe ” ) of fair value . vsoe is the price charged when an element is sold separately or a price set by management with the relevant authority . if we do not have vsoe of an undelivered software license , we defer revenue recognition on the entire sales arrangement until all elements for which we do not have vsoe are delivered . if we do not have vsoe for undelivered product subscriptions , maintenance or services , the revenue for the arrangement is recognized over the longest contractual service period in the arrangement . we are required to exercise judgment in determining whether vsoe exists for each undelivered element based on whether our pricing for these elements is sufficiently consistent . for multiple elements arrangements involving non-software elements , including cloud subscription services , our revenue recognition policy is based upon the accounting guidance contained in accounting standards codification ( `` asc '' ) 605 , revenue recognition . for these arrangements , we first allocate the total arrangement consideration based on the relative selling prices of the software group of elements as a whole and to the non-software elements . we then further allocate consideration within the software group to the respective elements within that group using the residual method as described above . we exercise judgment and use estimates in connection with the determination of the amount of revenue to be recognized in each accounting period . we allocate the total arrangement consideration among the various elements based on a selling price hierarchy . the selling price for a deliverable is based on its vsoe if available , third-party evidence ( `` tpe '' ) if vsoe is not available , or the best estimated selling price ( `` besp '' ) if neither vsoe nor tpe is available . besp represents the price at which autodesk would transact for the deliverable if it were sold regularly on a standalone basis . to establish besp for those elements for which 2018 form 10-k 38 neither vsoe nor tpe are available , we perform a quantitative analysis of pricing data points for historical standalone transactions involving such elements for a twelve-month period . as part of this analysis , we monitor and evaluate the besp against actual pricing to ensure that it continues to represent a reasonable estimate of the standalone selling price , considering several other external and internal factors including , but not limited to , pricing and discounting practices , contractually stated prices , the geographies in which we offer our products and services , and the type of customer ( i.e . distributor , value-added reseller , and direct end user , among others ) . we analyze besp at least annually or on a more frequent basis if a significant change in our business necessitates a more timely analysis or if we experience significant variances in our selling prices . in situations when we have multiple contracts with a single counterparty , we use the guidance in asc 985-605 to evaluate both the form and the substance of the arrangements to determine if they should be combined and accounted for as one arrangement or as separate arrangements . our assessment of the likelihood of collection is also a critical factor in determining the timing of revenue recognition . if we do not believe that collection is probable , the revenue will be deferred until payment is received .
| other revenue includes revenue such as consulting and training , and is recognized over time as the services are performed . 2018 form 10-k 45 fiscal year ended january 31 , 2018 change compared to prior fiscal year fiscal year ended january 31 , 2017 management comments ( in millions ) $ % net revenue : maintenance ( 1 ) $ 989.6 $ ( 113.5 ) ( 10 ) % $ 1,103.1 the decrease in maintenance revenue is driven by the discontinuation of new maintenance agreements . we expect maintenance revenue will slowly decline ; however , the rate of decline will vary based on the number of renewals , the renewal rate , and our ability to incentivize maintenance plan customers to switch over to subscription plan offerings . subscription ( 1 ) 894.3 451.2 102 % 443.1 the increase in subscription revenue is primarily a result of the business model transition . we saw growth across all subscription plan types , led by product subscriptions and enterprise business agreements . total maintenance and subscription revenue 1,883.9 337.7 22 % 1,546.2 license and other ( 1 ) ( 2 ) 172.7 ( 312.1 ) ( 64 ) % 484.8 the decrease in license revenue is driven by the business model transition , and the discontinuation of suite license sales , resulting in a decrease in revenue from perpetual licenses . $ 2,056.6 $ 25.6 1 % $ 2,031.0
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· deposit balances reflect net growth of $ 231 million , or 16 % . deposit growth in 2016 includes balances from the coast acquisition in july that totaled $ 129 million at the acquisition date , and deposits from our branch purchase in may which totaled $ 10 million at the acquisition date . we also increased our time deposits from the state of california by $ 20 million in the third quarter of 2016 . · total capital increased by $ 16 million , or 8 % , to $ 206 million at december 31 , 2016. the increase in capital is primarily the result of 599,226 shares issued as part of the consideration for the coast acquisition and a rising level of retained earnings , net of a drop in accumulated other comprehensive income and the cost of common stock repurchased by the company . the company 's regulatory capital ratios remain relatively robust , and at december 31 , 2016 our consolidated common equity tier one capital ratio was 14.09 % , our tier one risk-based capital ratio was 16.53 % , our total risk-based capital ratio was 17.25 % , and our tier one leverage ratio was 11.92 % . results of operations net income was $ 17.567 million in 2016 , a decline of $ 500,000 , or 3 % , relative to 2015. the company earns income from two primary sources . the first is net interest income , which is interest income generated by earning assets less interest expense on deposits and other borrowed money . the second is non-interest income , which primarily consists of customer service charges and fees but also comes from non-customer sources such as bank-owned life insurance and investment gains . the majority of the company 's non-interest expense is comprised of operating costs that facilitate offering a full range of banking services to our customers . net interest income and net interest margin net interest income was $ 65.182 million in 2016 , compared to $ 60.126 million in 2015 and $ 52.325 million in 2014. this equates to increases of 8 % in 2016 and 15 % in 2015. the level of net interest income we recognize in any given period depends on a combination of factors including the average volume and yield for interest-earning assets , the average volume and cost of interest-bearing liabilities , and the mix of products which comprise the company 's earning assets , deposits , and other interest-bearing liabilities . net interest income is also impacted by the reversal of interest for loans placed on non-accrual status during the reporting period , and the recovery of interest on loans that had been on non-accrual and were paid off , sold or returned to accrual status . the following table shows average balances for significant balance sheet categories and the amount of interest income or interest expense associated with each category for each of the past three years . the table also displays the calculated yields on each major component of the company 's investment and loan portfolios , the average rates paid on each key segment of the company 's interest-bearing liabilities , and our net interest margin for the noted periods . 28 distribution , rate & yield ( dollars in thousands , except footnotes ) replace_table_token_5_th ( 1 ) average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs . ( 2 ) yields and net interest margin have been computed on a tax equivalent basis . ( 3 ) loans are gross of the allowance for possible loan losses . net loan fees have been included in the calculation of interest income . net loan fees and loan acquisition fmv amortization were $ 461,003 , $ 276,596 and $ ( 731,316 ) for the years ended december 31 , 2016 , 2015 , and 2014 respectively . ( 4 ) non-accrual loans are slotted by loan type and have been included in total loans for purposes of total interest earning assets . ( 5 ) net interest margin represents net interest income as a percentage of average interest-earning assets ( tax-equivalent ) . 29 the volume and rate variances table below sets forth the dollar difference for the comparative periods in interest earned or paid for each major category of interest-earning assets and interest-bearing liabilities , and the amount of such change attributable to fluctuations in average balances ( volume ) or differences in average interest rates . volume variances are equal to the increase or decrease in average balances multiplied by prior period rates , and rate variances are equal to the change in rates multiplied by prior period average balances . variances attributable to both rate and volume changes , calculated by multiplying the change in rates by the change in average balances , have been allocated to the rate variance . volume & rate variances ( dollars in thousands ) replace_table_token_6_th ( 1 ) yields on tax exempt income have not been computed on a tax equivalent basis . 30 for net interest income in 2016 relative to 2015 , a favorable variance of $ 6.343 million attributable to volume changes was partially offset by an unfavorable rate variance of $ 1.287 million . the favorable volume variance was due to an increase of $ 143 million , or 9 % , in average interest-earning assets resulting from growth in loans and investments , including the impact of the coast acquisition . it was enhanced by strong growth in the average balance of loans relative to lower-yielding investments . the negative rate variance is the result of lower yields on investments and loans , combined with a slightly higher weighted average rate on interest-bearing liabilities . story_separator_special_tag our yield on investments dropped by 11 basis points due to the reinvestment of cash flows in a historically low interest rate environment , and our weighted average yield on loans was down three basis points due to continued competitive pressures on loan rates and a drop in nonrecurring interest income . nonrecurring interest income totaled $ 563,000 in 2016 and $ 825,000 in 2015 , and consists of interest recovered on nonaccrual loans and fees recognized from early loan payoffs , net of interest reversals for loans placed on non-accrual status . our weighted average cost of interest-bearing liabilities increased by five basis points primarily because of higher interest rates paid on trups , short-term borrowings and large time deposits . the unfavorable rate variance was also affected by the volume differential between interest-earning assets and interest-bearing liabilities . that differential averaged $ 476 million in 2015 , the base period for the rate variance calculation , thus the decrease in our earning asset yield was applied to a much higher balance than the rate increase for interest-bearing liabilities and had a proportionately greater impact on net interest income . the company 's net interest margin , which is tax-equivalent net interest income as a percentage of average interest-earning assets , was affected by the same factors discussed above relative to rate and volume variances . our net interest margin was 3.95 % in 2016 , four basis points lower than in 2015. the primary impact on our net interest margin in 2016 came from lower yields on loans and investments . the volume variance calculated for 2015 over 2014 was a favorable $ 8.819 million , due to a $ 203 million increase in the average balance of interest-earning assets resulting from our acquisition of scvb in late 2014 , as well as organic growth and loan purchases in 2015. the impact of interest rate changes resulted in an unfavorable rate variance of $ 1.018 million in net interest income for 2015 relative to 2014. despite the fact that our yield on earning assets and cost of interest-bearing liabilities were both down by six basis points , the rate variance was negative due to the volume differential between our interest-earning assets and interest-bearing liabilities , which averaged $ 422 million for 2014 , the base period for the rate variance calculation . our net interest margin was 3.99 % in 2015 , a drop of only 2 basis points relative to 2014. loan and investment yields declined and there was a shift within loans to lower-yielding loan segments , but those unfavorable changes were partially offset by higher nonrecurring interest income and lower deposit rates . provision for loan and lease losses credit risk is inherent in the business of making loans . the company sets aside an allowance for loan and lease losses , a contra-asset account , through periodic charges to earnings which are reflected in the income statement as the provision for loan and lease losses . a loan loss provision was not required for 2016 or 2015 , but we recorded a loan loss provision of $ 350,000 in 2014. even without a loan loss provision in recent periods we have been able to maintain our allowance for loan and lease losses at a level that , in management 's judgment , is adequate to absorb probable loan losses related to specifically-identified impaired loans as well as probable incurred losses in the remaining loan portfolio . specifically identifiable and quantifiable loan losses are immediately charged off against the allowance . the company experienced net loan charge-offs of $ 722,000 in 2016 , relative to $ 825,000 in 2015 and $ 779,000 in 2014. despite those charge-offs and continued growth in outstanding performing loan balances , a loan loss provision was not recorded in 2016 or 2015 due to the following factors : all of the loans acquired from coast were booked at their fair values , and thus did not initially require a loan loss allowance ; loan charge-offs have primarily been recorded against pre-established reserves , which alleviated what otherwise might have been a need for reserve replenishment ; organic growth in our performing loan portfolio has been concentrated in loan types with low historical loss rates , thus having a positive impact on general reserves for performing loans ; and , new loans booked since the great recession have been underwritten using tighter credit standards than was the case for many legacy loans . partially offsetting the favorable factors for 2016 was the upward adjustment of certain qualitative factors that are applied to historical loss factors in calculating required reserves for certain other performing loan categories . 31 the company 's policies for monitoring the adequacy of the allowance and determining loan amounts that should be charged off , and other detailed information with regard to changes in the allowance , are discussed in note 2 to the consolidated financial statements and below under “ allowance for loan and lease losses. ” the process utilized to establish an appropriate allowance for loan and lease losses can result in a high degree of variability in the company 's loan loss provision , and consequently in our net earnings . non-interest revenue and operating expense the table below sets forth the major components of the company 's non-interest revenue and operating expense for the years indicated , along with relevant ratios : non-interest income/expense ( dollars in thousands ) replace_table_token_7_th ( 1 ) tax equivalent the company 's results reflect increases in total non-interest income of $ 1.523 million , or 9 % , in 2016 over 2015 , and $ 1.884 million , or 12 % , in 2015 over 2014. while the primary reasons for the changes in non-interest income are discussed in greater detail below , several items of a nonrecurring nature have had a significant impact over the past few years .
| net interest income has also been impacted by nonrecurring items , which added $ 563,000 to interest income in 2016 , relative to $ 825,000 in 2015 and $ 505,000 in 2014 . 26 · we were not required to record a loan loss provision in 2016 or 2015 , as compared to a provision of $ 350,000 in 2014. during the recession and for several years thereafter , our loan loss provision was unusually high due to the establishment of specific reserves for impaired loans , the replenishment of reserves subsequent to loan charge-offs , and the buildup of general reserves for performing loans due to higher historical loss factors . the zero provisions for 2016 and 2015 were facilitated by the reduction of impaired loan balances , lower loan losses , and tighter underwriting standards for new and renewed loans . · non-interest income increased by $ 1.523 million , or 9 % , in 2016 over 2015 , and by $ 1.884 million , or 12 % , in 2015 compared to 2014. the increase in 2016 includes nonrecurring income comprised of net proceeds from life insurance policies , as well as core increases in fees earned on commercial accounts , debit card interchange income , and overdraft income . those increases were partially offset by lower investment gains . for 2015 over 2014 , we also saw increases in service charges on deposit accounts and debit card interchange income . other contributors to the 2015 increase include a special dividend from the federal home loan bank , and lower pass-through costs on our low-income housing tax credit investments . favorable variances in 2015 were partially offset by a drop in income on bank-owned life insurance ( “ boli ” ) associated with deferred compensation plans . · operating expense increased by $ 7.350 million , or 14 % , in 2016 compared to 2015 , and by $ 4.328 million , or 9 % , in 2015 over 2014. some of the 2016 increase came from $ 2.411 million in nonrecurring acquisition costs , but core operating costs in 2016 were also up due in part to ongoing expenses associated with
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the restructuring costs were $ 3,611 in 2011 , $ 4,180 in 2010 and $ 1,240 in 2009. telephonics revenue increased $ 20,837 , or 5 % , compared to the prior year . in 2011 , telephonics was awarded significant contracts with awards totaling $ 465,000. telephonics backlog at september 30 , 2011 was $ 417,000 , approximately 83 % of which is expected to be fulfilled in 2012. telephonics recognized $ 3,046 of restructuring charges in 2011 related to a voluntary early retirement plan and other restructuring costs , reducing headcount by 75. plastics ' revenue increased $ 65,599 , or 14 % , from the prior year due to higher unit volumes in north america and europe , the translation of european results into a weaker u.s. dollar and resin price pass through ; however , segment operating profit decreased $ 7,161 , or 35 % , driven by higher than anticipated start up costs in both germany and brazil , related to expanding capacity and product offerings to meet increased customer demand . over the past several years , the segment has successfully diversified its customer portfolio . 32 story_separator_special_tag align= '' justify '' > excluding these items from both reporting periods , 2011 income from continuing operations would have been $ 19,854 , or $ 0.34 per share compared to $ 33,274 , or $ 0.55 per share , as in 2010 . 34 2010 compared to 2009 revenue for the year ended september 30 , 2010 was $ 1,293,996 , compared to $ 1,194,050 in the prior year ; the increase was due to higher revenue at telephonics and plastics , partially offset by decreased revenue at cbp . gross profit for the year was $ 288,304 compared to $ 257,123 in 2009 , with gross margin as a percent of sales of 22 % in both years . sg & a expenses increased $ 30,667 to $ 261,403 in 2010 from $ 230,736 in 2009 primarily in support of increased sales . sg & a expenses include $ 9,805 of costs related to the att acquisition . sg & a expenses as a percent of revenue for 2010 increased to 20.2 % from 19.3 % in 2009 ; excluding the att 's related acquisition expenses , sg & a as a percent of revenue was 19.4 % in 2010. interest expense in 2010 decreased by $ 769 compared to the prior year , principally due to lower levels of outstanding borrowings . during 2010 , griffon recorded a $ 1,117 loss on extinguishment of debt resulting from the write-off of unamortized financing costs associated with the existing clopay asset based lending facility terminated upon the att acquisition . during 2009 , griffon recorded a non-cash pre-tax gain from extinguishment of debt of $ 4,488 , net of a proportionate write-off of deferred financing costs , which resulted from the purchase of $ 50,620 of its outstanding convertible notes at a discount . other income of $ 4,121 in 2010 and $ 1,522 in 2009 consists primarily of currency exchange transaction gains and losses from receivables and payables held in non functional currencies , and from gains on investments . griffon 's effective tax rate for continuing operations for 2010 was a provision of 31.2 % compared to 8.6 % in the prior year . the 2010 rate reflected net discrete tax benefits of $ 2,307 primarily from the resolution of foreign and domestic income tax audits . the 2009 reflected net discrete tax benefits of $ 3,776 from tax planning , primarily with respect to foreign tax credits , and the reversal of previously established reserves related to uncertain tax positions due to the lapse of applicable statutes of limitation . excluding the discrete tax items from both years , the 2010 tax benefit rate would have been 47.9 % and the 2009 tax provision rate would have been 27.9 % . the 2010 rate was also impacted $ 1,330 from permanent book to tax adjustments including non-deductible transaction costs of $ 3,800 related to the att acquisition . excluding the impact of the discrete and other period items noted above , the effective tax rate for continuing operations would have been 38.3 % in 2010 compared to 27.9 % in 2009. income from continuing operations was $ 9,504 , or $ 0.16 per diluted share , for 2010 compared to income of $ 17,918 or $ 0.30 cents per diluted share in the prior year . the 2010 results included the following : - att related acquisition costs of $ 9,805 ( $ 7,704 , net of tax , or $ 0.13 per share ) ; - restructuring charges of $ 4,180 ( $ 2,717 , net of tax , or $ 0.05 per share ) ; - charges of $ 1,117 ( $ 726 , net of tax , or $ 0.01 per share ) related to refinancing costs ; and - discrete tax benefits , net of $ 2,307 , or $ 0.04 per share . the 2009 results included the following : - a gain of $ 4,488 ( $ 2,917 , net of tax , or $ 0.05 per share ) related to debt extinguishment ; - restructuring charges of $ 1,240 ( $ 806 , net of tax , or $ 0.01 per share ) ; and - discrete tax benefits , net , of $ 3,776 , or $ 0.06 per share . excluding these items from both reporting periods , 2010 income from continuing operations would have been $ 18,344 , or $ 0.31 per share , compared to $ 12,031 , or $ 0.20 per share , in 2009 . 35 griffon evaluates performance based on earnings per share and income ( loss ) from continuing operations excluding restructuring charges , gain ( loss ) from debt extinguishment , discrete tax items , acquisition costs and costs related to the fair value of inventory for acquisitions . griffon believes this information is useful to investors for the same reason . story_separator_special_tag the following table provides a reconciliation of earnings per share and income ( loss ) from continuing operations to adjusted earnings per share and adjusted income ( loss ) from continuing operations : griffon corporation and subsidiaries reconciliation of income ( loss ) to adjusted income ( loss ) ( unaudited ) replace_table_token_3_th note : due to rounding , the sum of earnings ( loss ) per common share and adjusting items , net of tax , may not equal adjusted earnings per common share . 36 business segments griffon evaluates performance and allocates resources based on each segments ' operating results before interest income or expense , income taxes , depreciation and amortization , gain ( losses ) from debt extinguishment , unallocated amounts , restructuring charges , acquisition costs and costs related to the fair value of inventory for acquisitions . griffon believes this information is useful to investors for the same reason . the following table provides a reconciliation of segment operating profit before depreciation , amortization , acquisition costs , restructuring and fair value write up of acquired inventory sold to income before taxes and discontinued operations : replace_table_token_4_th unallocated amounts typically include general corporate expenses not attributable to reportable segment . 37 replace_table_token_5_th 2011 compared to 2010 segment revenue increased $ 450,370 , or 116 % , compared to the prior year primarily due to the acquisition of att . on a pro forma basis , as if att was purchased on october 1 , 2009 , revenue increased $ 6,736 , or 1 % , compared to the prior year . on this same pro forma basis , att 2011 revenue decreased 2 % from 2010 , driven mainly by lower volume , primarily lawn tools ; cbp 2011 revenue increased 4 % , driven mainly by a favorable shift in mix , partially offset by a 1 % decrease in volume . segment operating profit in 2011 was $ 28,228 compared to $ 4,986 in 2010 , with the inclusion of att operations the primary source of increase . att operating results in 2011 reflected $ 15,152 of costs of goods related to the sale of inventory recorded at fair value in connection with the att acquisition accounting . on a pro forma basis , as if att was purchased on october 1 , 2009 , segment operating profit in 2010 was $ 47,490 compared to $ 28,228 in 2011 ; the $ 15,152 inventory item was the primary cause of decline in 2011 , augmented by the impact of higher input costs , lower volume and a decline of $ 2,919 in byrd amendment receipts ( anti-dumping compensation from the u.s. government ) . the 2010 pro forma operating income included $ 7,986 of costs related to att acquisition . 2010 compared to 2009 cbp revenue declined $ 4,048 , or 1 % , compared to the prior year . sales of residential doors stabilized in line with the housing market , offset by a decline in commercial door revenue , reflecting continued weakness in the commercial construction market . overall , a 1 % volume increase coupled with a favorable translation benefit from a weaker u.s. dollar on canadian dollar-denominated sales were more than offset by a revenue decline due to a shift in product mix from higher-priced commercial doors to lower-priced residential doors . segment operating profit for 2010 was $ 4,986 , an improvement of $ 16,312 compared to the prior year . the improved operating performance was mainly driven by lower overall operating costs resulting from the various restructuring activities undertaken in the past two years , and the increased volume resulting in favorable absorption of fixed manufacturing costs . restructuring the consolidation of the cbp manufacturing facilities plan , announced in june 2009 , was completed in 2011. in completing the consolidation plan , cbp incurred total pre-tax exit and restructuring costs of $ 9,031 , substantially all of which were cash charges ; charges include $ 1,160 for one-time termination benefits and other personnel costs , $ 210 for excess facilities and related costs , and $ 7,661 for other exit costs , primarily in connection with production realignment , and had $ 10,365 of capital expenditures . the restructuring costs were $ 3,611 in 2011 , $ 4,180 in 2010 and $ 1,240 in 2009. in 2011 , att recognized $ 886 in restructuring costs primarily related to termination benefits , reducing administrative headcount by 25 . 38 telephonics replace_table_token_6_th 2011 compared to 2010 telephonics revenue increased $ 20,837 , or 5 % , compared to 2010 primarily due to increases in radar and electronic systems , partially offset by a decrease in communication systems . telephonics continued to benefit from strong demand for its intelligence , surveillance and reconnaissance products . electronic systems growth was primarily from ground surveillance radars ( gsr ) and mobile surveillance capability ( msc ) programs , and radar growth was driven by light airborne multi-purpose systems multi mode radar ( lamps mmr ) . the increases were partially offset by timing on the automatic radar periscope detection and discrimination ( arpdd ) program from the development to the production phase and the lower rate of production on the c-17 program . 2011 and 2010 revenue included $ 44,305 and $ 46,426 , respectively , related to revenue for counter remote control improvised explosive device electronic warfare 3.1 ( crew 3.1 ) program , where telephonics serves as a subcontractor .
| the pro forma 2010 sg & a expenses included $ 21,075 of costs related to the sale of att to griffon and other costs relating to att 's prior ownership , excluding these costs , sg & a expenses were $ 337,532 , or 19.4 % of pro forma revenue . interest expense in 2011 increased by $ 35,524 compared to the prior year , primarily as a result of the debt incurred as a result of the att acquisition . on march 17 , 2011 , griffon issued $ 550,000 aggregate principal amount of senior notes due 2018 ( senior notes ) , at par , and will pay interest semi-annually at a rate of 7.125 % per annum . the senior notes are senior unsecured obligations of griffon and are guaranteed by certain of its domestic subsidiaries . proceeds from issuance of the senior notes were used to repay the balances outstanding under the clopay ames true temper holding corp. ( clopay ames ) secured term loan ( term loan ) and the clopay ames asset based lending agreement ( abl ) . on march 18 , 2011 , griffon entered into a $ 200,000 five-year revolving credit facility that refinanced and replaced the existing revolving credit facilities at each of telephonics and clopay ames . the senior notes , along with the revolving credit facility , completed the refinancing of substantially all of griffon 's domestic subsidiary debt with new debt at the parent company level . during 2011 , in connection with the termination of the term loan , abl and telephonics credit agreement ( tca ) , griffon recorded a $ 26,164 loss on extinguishment of debt consisting of $ 21,617 of deferred financing charges and original issuer discounts , a call premium of $ 3,703 on the term loan , and $ 844 of swap and other breakage costs . during 2010 , griffon recorded a $ 1,117 loss on extinguishment of debt resulting from the write-off of unamortized financing costs associated with the existing abl facility terminated upon the att acquisition . other income of $
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we have formed the promotional products segment in 2016 as a result of this acquisition ; and we expect to strengthen our position in the promotional products and branded merchandise market as we believe this product line is a synergistic fit with our uniform business . year ended december 31 , 2016 vs . 2015 operations net sales replace_table_token_3_th net sales net sales for the company increased 20.1 % from $ 210,317,000 in 2015 to $ 252,596,000 in 2016. the aggregate increase in net sales is split between growth in our uniforms and related products segment ( contributing 5.8 % ) , increases in net sales after intersegment eliminations from our remote staffing solutions segment ( contributing 1.1 % ) and the effect of the acquisition of bamko in our new promotional products segment ( contributing 13.2 % ) . uniforms and related products net sales increased 6.1 % in 2016 compared to 2015. the increase in net sales is attributed primarily to our continued market penetration as well as continued increases in voluntary employee turnover in the marketplace . remote staffing solutions net sales increased 15.1 % before intersegment eliminations and 20.1 % after intersegment eliminations in 2016. these increases are attributed to continued market penetration in 2016 , both with respect to new and existing customers . promotional products net sales of $ 27,816,000 from the acquisition date of march 1 , 2016 through december 31 , 2016 represented 11.0 % of consolidated net sales in 2016. cost of goods sold cost of goods sold consists primarily of direct costs of acquiring inventory , including cost of merchandise , inbound freight charges , purchasing costs , and inspection costs for our uniforms and related products and promotional products segments . cost of goods sold for our remote staffing solutions segment includes salaries and payroll related benefits for agents . the company includes shipping and handling fees billed to customers in net sales . shipping and handling costs associated with out-bound freight are generally recorded in cost of goods sold . other shipping and handling costs are included in selling and administrative expenses . as a percentage of net sales , cost of goods sold for our uniforms and related products segment was 66.7 % in 2016 and 67.1 % in 2015. the decrease as a percentage of net sales is primarily attributed to a decrease in direct product costs as a percentage of net sales during 2016. as a percentage of net sales , cost of goods sold for our remote staffing solutions segment was 46.4 % in 2016 , and 45.0 % in 2015. the percentage increase in 2016 as compared to 2015 is primarily attributed to an increase in the percentage of segment revenue coming from the domestic portion of our remote staffing solutions segment from 23.7 % in 2015 to 29.1 % in 2016. the hourly rates charged for domestic services are higher than offshore services but the margin percentage earned is lower . 15 cost of goods sold for our promotional products segment was 65.2 % of net sales in 2016. selling and administrative expenses as a percentage of net sales , selling and administrative expenses for our uniforms and related products segment approximated 24.8 % in 2016 and 2015. favorable factors included higher net sales in 2016 to cover operating expenses ( contributing 1.5 % ) and a claim settlement ( contributing 0.2 % ) . these decreases were offset by increased salaries , wages and benefits exclusive of retirement plan expenses and medical costs as a result of the continuing growth in net sales ( contributing 0.9 % ) as well as higher ongoing pension and retirement plan expense primarily as a result of lower discount rates in 2016 as compared to 2015 ( contributing 0.2 % ) , higher medical costs in the company 's self-insured medical plan ( contributing 0.3 % ) and other minor increases ( contributing 0.3 % ) . as a percentage of net sales , selling and administrative expenses for our remote staffing solutions segment approximated 34.0 % in 2016 and 33.2 % in 2015. the increase as a percentage of net sales is attributed primarily to an increase in wages and benefits to support continuing growth ( contributing 2.3 % ) along with higher facilities costs and depreciation due to our expanded facility in el salvador ( contributing 1.4 % ) which was partially offset primarily by higher net sales to cover operating expenses . promotional products selling and administrative expenses were $ 10,386,000 from the acquisition date of march 1 , 2016 through december 31 , 2016. included within these expenses was approximately $ 1,119,000 of expenses associated with the acquisition . net of these acquisition related expenses , selling and administrative expenses would have been 33.3 % of net sales . interest expense and tax interest expense increased to $ 688,000 for the year ended december 31 , 2016 from $ 519,000 for the year ended december 31 , 2015. this increase is attributed primarily to higher average borrowings outstanding primarily due to the bamko acquisition . the effective income tax rate in 2016 was 26.4 % and in 2015 was 30.9 % . the 4.5 % decrease in the effective tax rate is attributed primarily to the early adoption of asu 2016-09 ( 4.4 % ) ( see note 1 ( y ) to the consolidated financial statements ) , an increase in the benefit related to federal tax credits ( 0.8 % ) and other items ( 0.2 % ) which was partially offset by a decrease in the benefit of foreign source income ( 0.9 % ) . year ended december 31 , 2015 vs . story_separator_special_tag 2014 operations net sales replace_table_token_4_th net sales net sales for the company increased 7.2 % from $ 196,249,000 in 2014 to $ 210,317,000 in 2015. the 7.2 % aggregate increase in net sales is split between growth in our uniforms and related products segment ( contributing 5.2 % ) and increases in net sales after intersegment eliminations from our remote staffing solutions segment ( contributing 2.0 % ) . intersegment eliminations reduce total net sales by the amount of sales of remote staffing solutions to the uniforms and related products segment by the remote staffing solutions segment . see note 17 to the consolidated financial statements for more information and a reconciliation of segment net sales to total net sales . uniforms and related products net sales increased 5.4 % in 2015. the increase in net sales is attributed primarily to our continued market penetration as well as continued improvement in the economy including increases in voluntary employee turnover in the marketplace . these increases were partially offset by the fact that the second quarter of 2014 included approximately $ 5,000,000 for a rollout of a new uniform program for an existing customer . while we continue to service this account , the sales in 2015 were significantly below the prior year amount . 16 remote staffing solutions net sales increased 36.6 % before intersegment eliminations and 49.0 % after intersegment eliminations in 2015. these increases are attributed to continued market penetration in 2015 , both with respect to new and existing customers . cost of goods sold cost of goods sold consists primarily of direct costs of acquiring inventory , including cost of merchandise , inbound freight charges , purchasing costs , and inspection costs for our uniforms and related products segment . cost of goods sold for our remote staffing solutions segment includes salaries and payroll related benefits for agents . the company includes shipping and handling fees billed to customers in net sales . shipping and handling costs associated with out-bound freight are generally recorded in cost of goods sold . other shipping and handling costs are included in selling and administrative expenses . as a percentage of net sales , cost of goods sold for our uniforms and related products segment was 67.1 % in 2015 and 65.7 % in 2014. the increase as a percentage of net sales is primarily attributed to an increase in direct product costs as a percentage of net sales during 2015 ( contributing 1.2 % ) . the increase in direct costs as a percentage of net sales is largely tied to the absence of the prior year rollout of the new uniform program for approximately $ 5,000,000 described above . the account related to this rollout had a higher gross margin than our average account , because it required a higher level of customer service , distribution and other related costs reflected in selling and administrative expenses over several quarters both prior to and during the rollout . the increase is also due to the addition of new business in 2015 that carries a lower gross margin percentage than our average account . this new business , however , requires a lower level of customer service , distribution and other related costs reflected in selling and administrative expenses . as a percentage of net sales , cost of goods sold for our remote staffing solutions segment was 45.0 % in 2015 , and 43.2 % in 2014. the percentage increase in 2015 as compared to 2014 is primarily attributed to an increase in the percentage of segment revenue coming from the domestic portion of our remote staffing solutions segment from 14.8 % in 2014 to 23.7 % in 2015. the hourly rates charged for domestic services are higher than offshore services but the margin percentage earned is lower . selling and administrative expenses as a percentage of net sales , selling and administrative expenses for our uniforms and related products segment approximated 24.8 % in 2015 and 26.0 % in 2014. the decrease as a percentage of net sales is attributed primarily to higher net sales in 2015 to cover operating expenses ( contributing 1.3 % ) . these decreases were partially offset by increased pension settlement losses recognized in 2015 ( contributing 0.1 % ) as well as higher ongoing pension and retirement plan expense primarily as a result of lower discount rates in 2015 as compared to 2014 ( contributing 0.2 % ) and other minor net decreases ( contributing 0.2 % ) . as a percentage of net sales , selling and administrative expenses for our remote staffing solutions segment approximated 33.2 % in 2015 and 35.3 % in 2014. the decrease as a percentage of net sales is attributed primarily to the impact in 2015 of higher net sales to cover operating expenses . interest expense and tax interest expense increased to $ 519,000 for the year ended december 31 , 2015 from $ 484,000 for the year ended december 31 , 2014. this increase is attributed primarily to an increase in the rate paid on a portion of the company 's long-term debt as a result of the interest rate swap that became effective on july 1 , 2014 , partially offset by lower average borrowings outstanding during the year . the effective income tax rate in 2015 was 30.9 % and in 2014 was 35.3 % . the 4.4 % decrease in such effective tax rate is attributed primarily to the reversal of deferred tax on income from foreign operations that was determined to be permanently invested ( 1.0 % ) , an increase in the tax benefit on foreign income ( 1.7 % ) , a decrease in non-deductible share based compensation as a percentage of taxable earnings ( contributing 0.3 % ) and other items ( 1.4 % ) . 17 liquidity and capital resources story_separator_special_tag margin : 0pt ; line-height : 1.25 '' > capital expenditures in the foreseeable future , the company will continue its ongoing capital expenditure program designed to maintain and improve its facilities .
| other intangible assets increased 63.4 % from $ 14,222,000 on december 31 , 2015 to $ 23,238,000 on december 31 , 2016. this increase is attributed to other intangible assets acquired as part of the bamko acquisition effective march 1 , 2016 of $ 11,360,000 , partially offset by scheduled amortization . accounts payable increased 14.7 % from $ 11,775,000 on december 31 , 2015 to $ 13,507,000 on december 31 , 2016. this increase is primarily due to the timing of inventory purchases and $ 1,119,000 in accounts payable due to bamko . other current liabilities increased 29.0 % from $ 8,307,000 on december 31 , 2015 to $ 10,716,000 on december 31 , 2016. the increase is primarily due to $ 1,137,000 of other current liabilities of bamko and an increase in income taxes payable . long-term acquisition related contingencies increased by 87.2 % from $ 3,866,000 on december 31 , 2015 to $ 7,238,000 as of december 31 , 2016. this increase is primarily due to $ 5,288,000 of contingent liability recorded as part of the bamko acquisition and the accretion of the liabilities as we move closer to the scheduled payment dates partially offset by the transfer of the $ 1,788,000 balance expected to be paid in april 2017 to current liabilities . the contingent liability recorded as part of the bamko acquisition reflects liabilities specified in the asset purchase agreement for contingent consideration subject to a number of conditions , including the acquired business exceeding specified earnings targets , which is subject to acceleration upon the occurrence of certain events specified in the asset purchase agreement . the company will continue to evaluate its contingent liabilities for remeasurement at the end of each reporting period and any change will be recorded in the company 's consolidated statement of comprehensive income . the carrying amount of the contingent liabilities may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liability . cash flows cash and cash equivalents increased by $ 2,613,000 from $ 1,036,000 on december 31 , 2015 to $ 3,649,000 as of december 31 , 2016. during the year ended december 31 , 2016 , the company generated cash
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the remaining domain names to be transferred to namecheap , as defined under a settlement agreement between the company and namecheap , are expected to be transferred to namecheap in the first quarter of 2019. in addition , one of the resellers for which the company registered domain names using the reseller 's accreditation , was acquired and the registrations were moved to the acquiring reseller , resulting in approximately 0.5 million domains being transferred in the first quarter of 2018. as the company does not defer revenue associated with hosted registry services , there was no impact on deferred revenue as a result of the transfer . our value-added services include hosted email which provides email delivery and webmail access to millions of mailboxes , internet security services , internet hosting , whois privacy , publishing tools and other value-added services . all of these services are made available to end-users through a network of 37,000 web hosts , isps and other resellers around the world . in addition , we also derive revenue by monetizing domain names which are near the end of their lifecycle through advertising revenue or auction sale . our retail domain name registration service , primarily the hover and enom portfolio of websites , including enom , enom central and bulkregister , derive revenues from the sale of domain name registration and email services to individuals and small businesses . retail domain service also includes our personal names service – based on over 36,000 surname domains – that allows roughly two-thirds of americans to purchase an email address based on their last name . portfolio generates revenue by offering names in our domain portfolio for resale through a number of distribution channels , and our reseller network . we also generate advertising revenue from our portfolio . key business metrics and non-gaap measure we regularly review a number of business metrics , including the following key metrics and non-gaap measure , to assist us in evaluating our business , measure the performance of our business model , identify trends impacting our business , determine resource allocations , formulate financial projections and make strategic business decisions . the following tables set forth the key business metrics which we believe are the primary indicators of our performance for the periods presented : 43 adjusted ebitda tucows reports all financial information in accordance with united states generally accepted accounting principles ( “ gaap ” ) . along with this information , to assist financial statement users in an assessment of our historical performance , we typically disclose and discuss a non-gaap financial measure , adjusted ebitda , on investor conference calls and related events that exclude certain non-cash and other charges as we believe that the non-gaap information enhances investors ' overall understanding of our financial performance . please see discussion of adjusted ebitda in the results of operations section below . replace_table_token_5_th ( 1 ) for a discussion of these period-to-period changes in subscribers and devices under management and how they impacted our financial results , see the net revenues discussion below . ( 2 ) subsequent to a review of our subscriber base in the first quarter of 2018 , our comparative 2017 and 2016 accounts under management were reduced by approximately 6 and 4 respectively . domain services replace_table_token_6_th ( 1 ) for a discussion of these period-to-period changes in the domains provisioned and domains under management and how they impacted our financial results see the net revenues discussion below . ( 2 ) throughout 2018 , the company completed bulk transfers of 2.8 million names , for domain names under management related to namecheap . opportunities , challenges and risks as a mvno our ting mobile service is reliant on our mobile network operators ( `` mnos '' ) providing competitive networks . our mnos each continue to invest in network expansion and modernization to improve their competitive positions . deployment of new and sophisticated technology on a very large-scale entails risks . should they fail to implement , maintain and expand their network capacity and coverage , adapt to future changes in technologies and continued access to and deployment of adequate spectrum successfully , our ability to provide wireless services to our subscribers , to retain and attract subscribers and to maintain and grow our subscriber revenues could be adversely affected , which would negatively impact our operating margins . ting mobile enjoyed rapid growth in its first four years of operation with the growth slowing for the past two year . during the rapid growth phase we were able to continue to grow gross customer additions and maintain a consistent churn rate , which allowed us to maintain net new customer additions despite the impact of churn on a fast-growing customer base . we have also been able to supplement organic growth with bulk migrations of customer bases of other mvnos . we expect price competition to grow more intense in the industry which could result in increased customer churn or reductions of customer acquisition rates either of which could result in a further slowing growth rate or in certain cases , our ability to maintain growth . as an isp , we have invested and expect to continue to invest in new fiber to the home ( “ ftth ” ) deployments in select markets in the united states . the investments are a reflection of our ongoing efforts to build ftth network via public-private partnerships in communities we identify as having strong , unmet demand for ftth services . given the significant upfront build and operational investments for these ftth deployments , there is risk that future technological and regulatory changes as well as competitive responses from incumbent local providers , may result in us not fully recovering these investments . 44 the communications industry continues to compete on the basis of network reach and performance , types of services and devices offered , and price . story_separator_special_tag the increased competition in the market for internet services in recent years , which we expect will continue to intensify in the short and long term , poses a material risk for us . as new registrars are introduced , existing competitors expand service offerings and competitors offer price discounts to gain market share , we face pricing pressure , which can adversely impact our revenues and profitability . to address these risks , we have focused on leveraging the scalability of our infrastructure and our ability to provide proactive and attentive customer service to aggressively compete to attract new customers and to maintain existing customers . substantially all of our domain services revenue is derived from domain name registrations and related value-added services from wholesale and retail customers using our provisioning and management platforms . the market for wholesale registrar services is both price sensitive and competitive and is evolving with the introduction of new gtlds , particularly for large volume customers , such as large web hosting companies and owners of large portfolios of domain names . we have a relatively limited ability to increase the pricing of domain name registrations without negatively impacting our ability to maintain or grow our customer base . growth in our domain services revenue is dependent upon our ability to continue to attract and retain customers by maintaining consistent domain name registration and value-added service renewal rates and to grow our customer relationships through refining , evolving and improving our provisioning platforms and customer service for both resellers and end-users . in addition , we also generate revenue through pay-per-click advertising and the sale of names from our portfolio of domain names and through the opensrs domain expiry stream . the revenue associated with names sales and advertising has recently experienced flat to declining trends due to the uncertainty around the implementation of icann 's new gtld program , lower traffic and advertising yields in the marketplace , which we expect to continue . from time-to-time certain of our vendors provide us with market development funds to expand or maintain the market position for their services . any decision by these vendors to cancel or amend these programs for any reason may result in payments in future periods not being commensurate with what we have achieved during past periods . sales of domain names from our domain portfolio have a negative impact on our advertising revenue as these names are no longer available for advertising purposes . in addition , the timing of larger domain names portfolio sales is unpredictable and may lead to significant quarterly and annual fluctuations in our portfolio revenue . our revenue is primarily realized in u.s. dollars and a major portion of our operating expenses are paid in canadian dollars . fluctuations in the exchange rate between the u.s. dollar and the canadian dollar may have a material effect on our business , financial condition and results from operations . in particular , we may be adversely affected by a significant weakening of the u.s. dollar against the canadian dollar on a quarterly and an annual basis . our policy with respect to foreign currency exposure is to manage our financial exposure to certain foreign exchange fluctuations with the objective of neutralizing some or all of the impact of foreign currency exchange movements by entering into foreign exchange forward contracts to mitigate the exchange risk on a portion of our canadian dollar exposure . we may not always enter into such forward contracts and such contracts may not always be available and economical for us . additionally , the forward rates established by the contracts may be less advantageous than the market rate upon settlement . 45 net revenues network access services the company generates network access services revenues primarily through the provisioning of mobile services . other sources of revenue include the provisioning of fixed high-speed internet access as well as billing solutions to isps . mobile ting mobile wireless usage contracts grant customers access to standard talk , text and data mobile services . ting mobile contracts are billed based on the actual amount of monthly services utilized by each customer during their billing cycle and charged to customers on a postpaid basis . voice minutes , text messages and megabytes of data are each billed separately based on a tiered pricing program . the company recognizes revenue for ting mobile usage based on the actual amount of monthly services utilized by each customer . ting mobile services are primarily contracted through the ting website , for one month at a time and contain no commitment to renew the contract following each customer 's monthly billing cycle . the company 's billing cycle for all ting mobile customers is computed based on the customer 's activation date . in order to recognize revenue as the company satisfies its obligations , we compute the amount of revenues earned but not billed from the end of each billing cycle to the end of each reporting period . in addition , revenues associated with the sale of wireless devices and accessories are recognized when title and risk of loss is transferred to the customer and shipment has occurred . incentive marketing credits given to customers are recorded as a reduction of revenue . our roam mobility brands also offer standard talk , text and data mobile services . roam customers prepay for their usage through the roam mobility website . when prepayments are received the amount is deferred , and subsequently recognized as the company satisfies its obligation to provide mobile services . in addition , revenues associated with the sale of sim cards are recognized when title and risk of loss is transferred to the subscriber and shipment has occurred . incentive marketing credits given to customers are recorded as a reduction of revenue . other services other services derive revenues from providing ting internet to individuals and small businesses in select cities .
| impairment of indefinite life intangible assets replace_table_token_31_th as part of our normal renewal process during fiscal 2017 and fiscal 2016 , we assessed that certain domain names acquired in the june 2006 acquisition of mailbank.com inc. should not be renewed and were allowed to expire . accordingly , these domain names , with a book value of $ 0.1 million and less than $ 0.1 million have been written off and recorded as impairment of indefinite life intangible assets for fiscal 2017 and fiscal 2016 , respectively . loss ( gain ) on currency forward contracts although our functional currency is the u.s. dollar , a major portion of our fixed expenses are incurred in canadian dollars . our goal with regard to foreign currency exposure is , to the extent possible , to achieve operational cost certainty , manage financial exposure to certain foreign exchange fluctuations and to neutralize some of the impact of foreign currency exchange movements . accordingly , we enter into foreign exchange contracts to mitigate the exchange rate risk on portions of our canadian dollar exposure . replace_table_token_32_th we have entered into certain forward exchange contracts that do not comply with the requirements of hedge accounting to meet a portion of our future canadian dollar requirements through december 2017. the impact of the fair value adjustment on outstanding contracts for fiscal 2017 was a net loss of less than $ 0.1 million compared to net gain of $ 0.3 million for fiscal 2016. the impact of the fair value adjustment on outstanding contracts was decreased by a realized gain upon settlement of currency forward contracts of $ 0.1 million for fiscal 2017 compared to a realized loss of $ 0.2 million for fiscal 2016. at december 31 , 2017 , we did not hold any forward contracts . 72 other income and ( expenses ) replace_table_token_33_th other income decreased by $ 3.1 million when compared to fiscal 2016 primarily due to interest incurred on our credit facility with the
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2012 compared to 2011 revenues revenues for the year ended december 31 , 2012 totaled $ 90.8 million , compared to $ 80.5 million for the year ended december 31 , 2011. this 13 % increase was due to higher demand for the company 's it staffing services during 2012. billable it consultant headcount at december 31 , 2012 totaled 632-consultants compared to 555-consultants one-year earlier . the impact of a higher level of billable consultants in 2012 was partially offset by a lower average bill rate ( $ 73.58 in 2012 versus $ 74.02 in 2011 ) . revenues from our wholesale it channel increased 11 % in 2012 compared to 2011. higher revenue levels from staffing clients ( up 28 % ) were driven by strong demand for our it services . revenue from our integrator clients were largely flat in 2012 , compared to 2011 , as lower levels of erp assignments in 2012 impacted our overall growth rate with these clients . retail it channel revenues increased by 19 % in 2012 compared to a year earlier . essentially all of this growth came from higher demand at many of our msp clients . revenues from direct end-user clients were impacted by the late 2011 closure of several under-performing branch operations . permanent placement / fee revenues declined in 2012 by approximately $ 0.2 million from 2011. this decline was largely due to several branch closures in late 2011 , which were areas of high permanent placement opportunities . in 2012 , we had three clients that represented more than 10 % of total revenues ( ibm = 13.3 % ; tek systems = 12.0 % ; and kaiser permanente = 11.8 % ) . in 2011 , we had three clients that represented more than 10 % of revenues ( ibm = 16.5 % ; tek systems = 12.0 % ; and kaiser permanente = 10.7 % ) . our top ten clients represented 60 % of total revenues in 2012 compared to 63 % of total revenues in 2011 . 23 gross margin gross profit increased to $ 17.2 million in 2012 compared to $ 15.9 million in 2011. this improvement in gross profit was due to our revenue growth in 2012. gross profit as a percentage of revenue was 18.9 % in 2012 compared to 19.7 % in 2011. the 80 basis point decline in gross margin reflected lower levels of permanent placement / fee revenues and various levels of margin compression in each of our sales channels . wholesale it channel gross margins decreased by 50 basis points in 2012 compared to 2011. this performance reflected a lower level of erp assignments at integrator clients and lower margins at our staffing clients . in our retail it channel , gross margins declined by 90 basis points from 2011 levels . this decline largely reflected a shift of revenues toward msp clients and away from direct end-user clients . this shift in revenues was largely due to the closure of several under-performing branch operations in late 2011. selling , general and administrative ( s , g & a ) expenses s , g & a expenses in 2012 totaled $ 13.8 million and represented 15.2 % of revenues , compared to $ 13.7 million or 17.0 % of revenues in 2011. excluding severance expenses in 2012 and 2011 of $ 120,000 and $ 277,000 , respectively , s , g & a expenses would have represented 15.1 % of revenues in 2012 compared to 16.6 % in 2011. below is a variance analysis by expense category related to s , g & a expense in 2012 compared to 2011 : sales expense decreased by $ 0.8 million and reflected savings associated with the realignment of our sales leadership structure and the late 2011 closure of several branch operations . recruiting expenses increased by $ 0.7 million due to staff increases of $ 0.3 million ; higher commission and bonus expense of $ 0.1 million ; and higher activity-base expenses of $ 0.4 million ( h1-b processing fees , job board access fees and background check expenses ) ; partially off-set by lower facility costs of $ 0.1 million , which reflected our new office lease arrangement in new delhi , india . general and administrative expenses increased by $ 0.2 million . the increase reflected higher compensation and benefit expense of $ 0.2 million and higher expenditures on outside consulting services of approximately of $ 0.1 million . additionally , we had lower severance expense of approximately $ 0.2 million and higher bad debt expense of $ 0.1 million in the 2012 period . it should be noted that the higher bad debt expense variance related to a $ 0.1 million reversal ( credit ) of bad debt expense in 2011. other income / ( expense ) components in 2012 , other income / ( expense ) consisted of net interest expense of $ 68,000 and foreign exchange gains of $ 36,000. in 2011 , other income / ( expense ) consisted of $ 38,000 of net interest expense , foreign exchange losses of $ 26,000 and a $ 5,000 loss related to the closure of a joint venture . higher net interest expense in 2012 was due to higher unused credit line fees on our expanded credit facility and higher amortization of loan origination costs incurred in august 2011. net foreign exchange gains and losses in 2012 and 2011 reflected exchange rate variations between the indian rupee and the u.s. dollar . income tax expense income tax expense for 2012 was $ 1.3 million and represented an effective tax rate on pre-tax income of 38.4 % compared to $ 795,000 for 2011 , which represented an effective tax rate on pre-tax income of 37.0 % . the higher effective tax rate in 2012 was largely due to a higher aggregate state income tax rate . story_separator_special_tag results of discontinued operations net income from discontinued operations in 2013 totaled $ 536,000 and included a net gain of $ 442,000 related to the sale of the healthcare staffing business . in 2012 , net income from discontinued operations totaled $ 81,000 compared to a loss of ( $ 242,000 ) in 2011 . 24 liquidity and capital resources financial condition and liquidity at december 31 , 2013 , we had cash balances on hand of $ 412,000 , net of outstanding borrowings and approximately $ 15.4 million of borrowing capacity under our existing credit facility . this financial position reflects returning $ 2.1 million of capital to our shareholders during 2013 in the form of a year-end cash dividend . the cash dividend was declared by our board of directors as a one-time dividend reflective of the company 's 2013 financial results and the divestiture of our healthcare segment . at this time , we do not anticipate adopting a recurring dividend program and future dividends will be based on the board 's assessment of a variety of factors , both internal and external to our business . historically , we have funded our business needs with cash generated from operating activities . in the staffing services industry , investment in operating working capital levels ( defined as current assets minus cash and cash equivalents and current liabilities , excluding short-term borrowings ) is a significant use of cash . controlling our operating working capital levels by closely managing our accounts receivable balance is an important element of cash preservation . our accounts receivable days sales outstanding ( dso's ) measurement was 48 days at december 31 , 2013 and 47 days at december 31 , 2012. we believe that effectively managing our dso 's has been an important factor in maximizing our cash flows in recent years . cash provided by operating activities , our cash and cash equivalents balances on hand at december 31 , 2013 and current availability under our credit facility are expected to be adequate to fund our business needs over the next 12 months . below is a tabular presentation of cash flow activities for the periods discussed : replace_table_token_6_th operating activities cash provided by operating activities for the years ended december 31 , 2013 , 2012 and 2011 totaled $ 1.9 million , $ 0.9 million and $ 0.9 million , respectively . factors contributing to cash flows during the 2013 period included net income of $ 3.3 million and non-cash charges of $ 0.6 million , offset by an increase in operating working capital of $ 2.0 million . in 2012 , cash flows from operating activities included net income of $ 2.1 million and non-cash charges of $ 0.5 million , offset by an increase in operating working capital of $ 1.7 million . in 2011 , cash flows from operating activities included net income of $ 1.4 million , non-cash charges of $ 0.2 million and an offsetting increase in operating working capital of $ 0.7 million . the increases in operating working capital during 2013 , 2012 and 2011 were in support of higher activity levels and revenue expansion . we would expect operating working capital levels to increase should revenue growth continue in 2014. similar to previous years , such an increase would have a negative impact on cash generated from operating activities . we believe that dso 's are likely to remain in the 48 to 52-day range during 2014. investing activities cash used in investing activities for the years ended december 31 , 2013 , 2012 and 2011 totaled approximately $ 0.1 million , $ 0.2 million and $ 0.3 million , respectively . in 2013 and 2012 capital expenditures largely accounted for all uses of cash in investing activities . in 2011 , capital expenditures and long-term facility lease deposits of $ 0.1 million ( offshore facility leases ) accounted for our uses of cash in investing activities . 25 we believe that investments in capital expenditures and facility lease deposits should approximate $ 0.3 million in 2014. financing activities in 2013 , cash used in financing activities totaled $ 4.3 million and included $ 2.1 million of dividend payments and $ 2.6 million of debt repayments , partially offset by stock option activities . in 2012 , cash used in financing activities totaled $ 5.9 million and included $ 6.7 million of dividend payments on common stock , $ 2.5 million of purchases under the company 's share repurchase program , partially offset by $ 2.6 million of borrowings under our revolving loan facility and $ 0.7 million of proceeds related to stock option exercises . in 2011 , cash used in financing activities totaled $ 0.7 million and principally related to share repurchases and deferred financing costs incurred in connection with our amended credit facility with pnc bank . discontinued operations activities in 2013 , discontinued operations generated cash of $ 2.3 million related to proceeds from the sale of the business and the wind-down of retained operating working capital levels . in 2012 and 2011 , discontinued operations generated cash of $ 0.1 million and utilized cash of $ 0.5 million , respectively . contractual obligations and off-balance sheet arrangements we have financial commitments related to existing operating leases , primarily for office space that we occupy , and borrowings under our existing credit facility . our commitments are as follows : replace_table_token_7_th we do not have any off-balance sheet arrangements . inflation we do not believe that inflation had a significant impact on our results of operations for the periods presented . on an ongoing basis , we attempt to minimize any effects of inflation on our operating results by controlling operating costs and , whenever possible , seek to ensure that billing rates reflect increases in costs due to inflation . seasonality our operations are generally not affected by seasonal fluctuations . however , our consultants ' billable hours are affected by national holidays and vacation patterns .
| retail it channel revenues declined by 10 % in 2013 compared to a year earlier . this decline reflected lower revenues from direct end-user clients . revenues from msp clients were largely flat in 2013 , after a significant run-up in revenues during 2012. the 2013 decision to wind down business activities with a low-margin msp client impacted revenues in this channel during the year . permanent placement / fee revenues declined in 2013 by approximately $ 0.1 million from 2012. with the closure of several branch offices in late 2011 , permanent placement opportunities have been less prevalent over the last two years . in 2013 , we had one client that represented more than 10 % of total revenues ( accenture = 11.4 % ) . in 2012 , we had three clients that represented more than 10 % of revenues ( ibm = 13.3 % , tek systems = $ 12.0 % ; and kaiser permanente = 11.8 % ) . our top ten clients represented 57 % of total revenues in 2013 compared to 60 % of total revenues in 2012. gross margin gross profit increased to $ 20.1 million in 2013 compared to $ 17.2 million in 2012. this improvement in gross profit was due to strong revenue growth during the 2013 period . gross profit as a percentage of revenue was 18.8 % in 2013 compared to 18.9 % in 2012. the 10 basis point decline in gross margin reflected lower levels of permanent placement / fee revenues , as higher margins in our retail channel essentially offset slightly lower gross margins from our wholesale channel . wholesale it channel gross margins decreased by 20 basis points in 2013 compared to 2012. this slight decline was largely due to consultant compensation increases on existing assignments that out-paced bill rate increases during 2013. with assignment durations increasing over the last several years , this issue continues to have a greater impact on our overall gross margin performance . in our retail it channel , gross margins increased by 120 basis points
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26 in fiscal 2014 , comparable store net sales increased by 4.3 % . the comparable store net sales increase was the result of a 3.4 % increase in the number of transactions and a 0.9 % increase in average ticket . we believe comparable store net sales continued to be positively affected by a number of our initiatives , as debit and credit card penetration continued to increase in 2014 , and we continued the roll-out of frozen and refrigerated merchandise to more of our stores . at january 31 , 2015 we had frozen and refrigerated merchandise in approximately 3,620 stores compared to approximately 3,160 stores at february 1 , 2014 . we believe that the addition of frozen and refrigerated product enables us to increase sales and earnings by increasing the number of shopping trips made by our customers . in addition , we accept food stamps ( under the supplemental nutrition assistance program ( “ snap ” ) ) in approximately 5,000 qualified stores compared to 4,620 at the end of 2013 . our point-of-sale technology provides us with valuable sales and inventory information to assist our buyers and improve our merchandise allocation to our stores . we believe that this has enabled us to better manage our inventory flow resulting in more efficient distribution and store operations . we must continue to control our merchandise costs , inventory levels and our general and administrative expenses as increases in these line items could negatively impact our operating results . pending acquisition on july 27 , 2014 , we executed an agreement and plan of merger ( the `` merger agreement '' ) to acquire family dollar in a cash and stock transaction ( the “ acquisition ” ) . under the acquisition , which was approved by family dollar shareholders on january 22 , 2015 , the family dollar shareholders will receive $ 59.60 in cash plus no more than 0.3036 and no less than 0.2484 shares of our common stock for each share of family dollar common stock they own . on january 31 , 2015 , family dollar had approximately 114.5 million outstanding shares of common stock . due to the vesting of outstanding equity awards , family dollar is expected to have up to an additional 2.0 million shares of common stock outstanding at closing in connection with the acquisition . family dollar stock options and rsus will convert into options and rsus in our common stock . after the acquisition , we expect that former family dollar stockholders will own no more than 15.1 % and no less than 12.7 % of the outstanding shares of dollar tree common stock . the transaction is subject to expiration or termination of the applicable waiting period under the hart-scott-rodino antitrust improvements act ( `` hsr act '' ) and satisfaction or waiver of the other customary closing conditions . on or before closing , we expect to incur approximately $ 210.0 million in acquisition-related expenses , of which $ 75.2 million were incurred in 2014 including $ 33.5 million that was paid in 2014. during 2014 , $ 28.5 million of acquisition-related expenses were recorded in `` selling , general and administrative expenses '' and $ 46.7 million related to commitment fees were recorded in `` interest expense , net . '' we expect to incur an additional $ 22.6 million in commitment fees in the first quarter of fiscal 2015. we also expect to expend approximately $ 174.0 million in capitalizable debt issuance costs related to the financing of the acquisition . in connection with the acquisition , we expect to pay off most of our and family dollar 's existing debt , and obtain approximately $ 9.5 billion in bank and bond financing to recapitalize the combined company and finance the acquisition and ongoing operations . on february 23 , 2015 we completed the offering of $ 3.25 billion of acquisition notes and on march 9 , 2015 we received funding under the $ 3.95 billion term loan b in connection with the financing . the proceeds of the acquisition notes and term loan b are being held in escrow pending consummation of the acquisition . please see `` note 11 - pending acquisition and related debt '' beginning on page 61 of this form 10-k included in `` part ii . item 8. financial statements and supplementary data '' for more information on the financing . we expect to achieve approximately $ 300 million in annual cost savings synergies by the end of the third year after closing , and that we will incur $ 300 million in one-time costs to achieve those synergies . we project that the acquisition will be dilutive to earnings per share in the first twelve months following closing on a gaap basis ; however , we expect it will be accretive excluding the one-time costs to achieve synergies . 27 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > . operating income margin was 12.4 % in 2013 and 2012 due to the reasons noted above . other ( income ) expense , net . other ( income ) expense , net in 2012 includes a $ 60.8 million gain on the sale of our investment in ollie 's holdings , inc. income taxes . our effective tax rate was 37.5 % in 2013 compared to 36.7 % in 2012. the rate increase is the result of statute expirations and the settlement of state tax audits in 2012. liquidity and capital resources our business requires capital to build and open new stores , expand our distribution network and operate and expand existing stores . our working capital requirements for existing stores are seasonal and usually reach their peak in september and october . historically , we have satisfied our seasonal working capital requirements for existing stores and have funded our store opening and distribution network expansion programs from internally generated funds and borrowings under our credit facilities . story_separator_special_tag the following table compares cash-flow related information for the years ended january 31 , 2015 , february 1 , 2014 and february 2 , 2013 : replace_table_token_10_th net cash provided by operating activities increased $ 132.7 million in 2014 compared to 2013 due primarily to an increase in accrued expenditures related to the family dollar acquisition and a decrease in cash used to purchase merchandise inventories . 29 net cash provided by operating activities increased $ 115.8 million in 2013 compared to 2012 due to a decrease in cash used for prepaid rent and purchasing merchandise inventory partially offset by a decrease in income taxes payable . net cash used in investing activities decreased $ 10.0 million in 2014 compared with 2013 primarily due to reduced capital expenditures , increased proceeds on fixed asset dispositions and reduced purchases of restricted investments . net cash used in investing activities increased $ 63.1 million in 2013 primarily due to the impact from $ 62.3 million in proceeds from the sale of the investment in ollie 's holdings , inc. in 2012. in 2014 , net cash used in financing activities decreased $ 583.2 million compared to 2013 primarily due to $ 1.1 billion of share repurchases and the repayment of $ 250.0 million in long-term debt in 2013 partially offset by the issuance of the $ 750.0 million of senior notes in 2013. in 2013 , net cash used in financing activities increased $ 294.4 million as a result of an increase in share repurchases in 2013 and the repayment of the $ 250.0 million outstanding on the revolving credit facility partially offset by $ 750.0 million of proceeds from the issuance of the senior notes . at january 31 , 2015 , our long-term borrowings were $ 757.0 million . we also have $ 110.0 million , $ 100.0 million and $ 20.0 million letter of credit reimbursement and security agreements , under which approximately $ 162.9 million were committed to letters of credit issued for routine purchases of imported merchandise at january 31 , 2015 . in september 2013 , we entered into a note purchase agreement with institutional accredited investors in which we issued and sold $ 750.0 million of senior notes ( the `` notes '' ) in an offering exempt from the registration requirements of the securities act of 1933. the notes consist of three tranches : $ 300.0 million of 4.03 % senior notes due september 16 , 2020 ; $ 350.0 million of 4.63 % senior notes due september 16 , 2023 ; and $ 100.0 million of 4.78 % senior notes due september 16 , 2025 . interest on the notes is payable semi-annually on january 15 and july 15 of each year . the notes are unsecured and rank pari passu in right of repayment with our other senior unsecured indebtedness . we may prepay some or all of the notes at any time in an amount not less than 5 % of the original aggregate principal amount of the notes to be prepaid , at a price equal to the sum of ( a ) 100 % of the principal amount thereof , plus accrued and unpaid interest , and ( b ) the applicable make-whole amount . in the event of a change in control ( as defined in the note purchase agreement ) , we may be required to prepay the notes . the note purchase agreement contains customary affirmative and restrictive covenants . we used the net proceeds of the notes to finance share repurchases . on january 20 , 2015 , we entered into the first amendment ( the “ notes amendment ” ) to the note purchase agreement , with a majority of the noteholders party thereto . the notes amendment was entered into in connection with our pending acquisition ( the “ acquisition ” ) of family dollar stores , inc. ( “ family dollar ” ) . the notes amendment will , among other things , allow a newly-formed subsidiary of dollar tree to issue debt and hold the proceeds in escrow pending consummation of the acquisition ( such debt , the “ escrow debt ” ) . pursuant to the terms of the notes amendment , in certain circumstances the amount of interest due on the notes may increase by 1.0 % per annum . the notes amendment also contains certain negative covenants and other restrictions applicable during the period in which any escrow debt is outstanding . upon closing of the acquisition , we expect to fully repay the notes which will result in the repayment of the $ 750.0 million outstanding and the payment of approximately $ 121.2 million of prepayment fees . in june 2012 , we entered into a five-year $ 750.0 million unsecured credit agreement ( the agreement ) . the agreement provides for a $ 750.0 million revolving line of credit , including up to $ 150.0 million in available letters of credit . the interest rate on the agreement is based , at our option , on a libor rate , plus a margin , or an alternate base rate , plus a margin . the agreement also bears a facilities fee , calculated as a percentage , as defined , of the amount available under the line of credit , payable quarterly . the agreement also bears an administrative fee payable annually . the agreement , among other things , requires the maintenance of certain specified financial ratios , restricts the payment of certain distributions and prohibits the incurrence of certain new indebtedness . as of january 31 , 2015 , no amount was outstanding under the $ 750.0 million revolving line of credit . in september 2013 , we amended the agreement to enable the issuance of the notes . on august 15 , 2014 , we entered into an amendment ( the `` credit amendment '' ) to the agreement . the credit amendment further amends the agreement to facilitate the issuance and or borrowings of certain third-party debt financing that we may use to finance the acquisition .
| interest expense , net increased $ 64.7 million due to $ 46.7 million of commitment fees related to the financing of the family dollar acquisition and a full year of interest expense on the $ 750.0 million of senior notes issued in september 2013. other ( income ) expense , net . other ( income ) expense , net in 2014 increased $ 5.6 million primarily due to unfavorable fair market value adjustments for our diesel fuel hedges . income taxes . our effective tax rate was 37.2 % in 2014 compared to 37.5 % in 2013. the rate decrease is the result of lower state tax rates and additional work opportunity tax credits in 2014 . 28 fiscal year ended february 1 , 2014 compared to fiscal year ended february 2 , 2013 net sales . net sales increased 6.0 % , or $ 445.8 million , in 2013 compared to 2012 , resulting from sales in our new stores and a 2.4 % increase in comparable store net sales . excluding the 53rd week in 2012 , which accounted for approximately $ 125.0 million of sales , net sales increased 7.9 % , or $ 570.8 million . the comparable store net sales increase is based on the comparable 52 weeks for both years . comparable store net sales are positively affected by our expanded and relocated stores , which we include in the calculation , and , to a lesser extent , are negatively affected when we open new stores or expand stores near existing ones . the following table summarizes the components of the changes in our store count for fiscal years ended february 1 , 2014 and february 2 , 2013 . replace_table_token_9_th of the 2.7 million selling square foot increase in 2013 approximately 0.2 million was added by expanding existing stores . gross profit . gross profit margin was 35.6 % in 2013 compared to 35.9 % in 2012 due to loss of leverage in occupancy and distribution cost from the 53rd week of sales in 2012. selling , general and administrative
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we recognize compensation costs resulting from the issuance of stock‑based awards to employees , non‑employees and directors as an expense in our statement of operations over the service period based on a measure of fair value for each stock‑based award . the fair value of each option grant is estimated as of the date of grant using the black‑scholes option pricing model . the fair value is amortized as a compensation cost on a straight‑line basis over the requisite service period of the award , which is generally the vesting period . the expected term of any options granted under our stock plans is based on the average of the contractual term ( generally , 10 years ) and the vesting period ( generally , 48 months ) . the risk‑free rate is based on the yield of a u.s. treasury security with a term consistent with the expected term of the option . see note 11 , “ stock options , ” in the notes to consolidated financial statements in item 8 of this annual report on form 10‑k for more information about the assumptions underlying these estimates . derivative instruments certain of our issued and outstanding warrants to purchase common stock previously contained anti‑dilution provisions . these warrants did not meet the requirements for classification as equity and were thus recorded as derivative warrant liabilities . we used valuation methods and assumptions that considered , among other factors , the fair value of the underlying stock , risk‑free interest rate , volatility , expected life and dividend rates consistent with those discussed in note 10 , “ derivative instruments ” , in the notes to consolidated financial statements in item 8 of this annual report on form 10‑k , in estimating the fair value for these warrants . such derivative warrant liabilities were initially recorded at fair value , with subsequent changes in fair value charged ( credited ) to operations during each reporting period . the fair value of such derivative warrant liabilities was most sensitive to changes in the fair value of the underlying common stock and the estimated volatility of our common stock . as of december 31 , 2018 , we did not have any liability classified warrants . see note 10 , “ derivative instruments , ” in the notes to consolidated financial statements in item 8 of this annual report on form 10-k for more information about the derivative activity during the year . 43 research and development expense our research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : · employee related expenses , including salaries , benefits , travel , and stock based compensation expense ; · expenses incurred under agreements with contract research organization ( “ cros ” ) , and clinical sites that conduct our clinical studies ; · facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance , and other supplies ; · costs associated with our research platform and preclinical activities ; · costs associated with our regulatory , quality assurance , and quality control operations ; and · amortization of intangible assets . our research and development costs are expensed as incurred . we are required to estimate our accrued research and development expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs . we make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrued expense accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period . to date , we have not made any material adjustments to our prior estimates of accrued research and development expenses . recent accounting pronouncements in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( “ asu 2014-09 ” ) , to provide updated guidance on revenue recognition . asu 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services . in march 2016 , the fasb issued asu no . 2016-08 , revenue from contracts with customers ( topic 606 ) : principal versus agent considerations ( reporting revenue gross versus net ) , which clarifies the implementation guidance on principal versus agent considerations . in april 2016 , the fasb issued asu no . 2016-10 , revenue from contracts with customers ( topic 606 ) : identifying performance obligations and licensing , which clarifies certain aspects of identifying performance obligations and licensing implementation guidance . in may 2016 , the fasb issued asu no . 2016-12 , revenue from contracts with customers ( topic 606 ) : narrow-scope improvements and practical expedients , which relates to disclosures of remaining performance obligations , as well as other amendments to guidance on collectability , non-cash consideration , and the presentation of sales and other similar taxes collected from customers . collectively , these standards are effective for annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within each annual reporting period . story_separator_special_tag we adopted asu 2014-09 on january 1 , 2018 , and it did not have any impact on the financial position , results of operations or disclosures , as we currently do not generate any revenue . in january 2016 , the fasb issued asu no . 2016-01 , financial instruments - overall ( subtopic 825-10 ) - recognition and measurement of financial assets and financial liabilities ( “ asu 2016-01 ” ) . asu 2016-01 is intended to improve the recognition and measurement of financial instruments by : requiring equity investments to be measured at fair value with changes in fair value recognized in net income ; requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes ; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements ; eliminating the requirement for public business entities to disclose the 44 method ( s ) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured and amortized at cost on the balance sheet ; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments . asu 2016-01 is effective for annual periods and interim periods within those annual periods , beginning after december 15 , 2017. the amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption . the amendments related to equity securities without readily determinable fair values ( including disclosure requirements ) should be applied prospectively to equity investments that exist as of the date of adoption . in february 2018 , the fasb issued asu no . 2018-03 which includes technical corrections and improvements to clarify the guidance in asu no . 2016-01. we adopted asu 2016-01 on january 1 , 2018 , and it did not have any impact on the accounting for equity investments , fair value disclosures or other disclosure requirements . in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) . the guidance in this asu supersedes the leasing guidance in topic 840 , leases . under the new guidance , lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance leases or operating leases , with classification affecting the pattern of expense recognition in the statement of operations . the fasb has subsequently issued amendments to the guidance , including the addition of an optional transition method and provided clarifications to address potential narrow-scope implementation issues . the adoption of asu 2016-02 will result in an increase to our consolidated balance sheets for right-of-use assets and lease liabilities . we adopted asu 2016- 02 effective january 1 , 2019 and elected the optional transition method for adoption . we also took advantage of the transition package of practical expedients permitted within asu 2016-02 , which among other things , allowed us to carryforward historical lease classifications . we also elected to keep leases with an initial term of 12 months or less off of the balance sheet as a policy election and will recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term . based on our current lease portfolio , we estimate that the adoption of this standard will result in approximately $ 1.5 million of additional assets and liabilities being reflected on our consolidated balance sheets on january 1 , 2019 ; however , there will not be a material impact to our consolidated statement of operations or cash flows . in august 2016 , the fasb issued asu no . 2016-15 , statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash payments ( “ asu no . 2016-15 ” ) , which clarifies the classification of certain cash receipts and cash payments in the statement of cash flows , including debt prepayment or extinguishment costs , settlement of contingent consideration arising from a business combination and insurance settlement proceeds . we adopted asu 2016-15 on january 1 , 2018 , and it did not result in any changes to the presentation of amounts shown on the consolidated statements of cash flows for all periods presented . in november 2016 , the fasb issued asu no . 2016-18 , statement of cash flows ( topic 230 ) : restricted cash ( a consensus of the fasb emerging issues task force ) ( “ asu no 2016-18 ” ) . the amendments in this update require that a statement of cash flows explain the change during the period in the total of cash , cash equivalents , and amounts generally described as restricted cash or restricted cash equivalents . therefore , amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows . we adopted asu no . 2016-18 in the first quarter of 2018 and applied the guidance retrospectively to the prior period consolidated statement of cash flows . the following table provides a reconciliation of cash , cash equivalents , and restricted cash within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows . replace_table_token_1_th in may 2017 , the fasb issued asu no .
| general and administrative expenses general and administrative expenses decreased by $ 5.7 million to $ 7.8 million for the year ended december 31 , 2018 from $ 13.5 million for year ended december 31 , 2017. this decrease in general and administrative expenses is attributable to a decrease in stock compensation and compensation related expenses of $ 2.6 million and $ 1.5 million respectively , driven by the restructuring activities from 2017 , a decrease in facilities and rent expenses of $ 0.8 million as a result of the cambridge lease assignment , a decrease in legal fees of $ 0.7 million , a decrease in administrative and operating costs of $ 0.3 million , a decrease in travel related expenses of $ 0.1 million and a decrease in depreciation expense of $ 0.1 million . these decreases were partially offset by increases in consulting and recruiting expenses of $ 0.2 million each . interest income / ( expense ) interest income increased by $ 91 thousand to $ 206 thousand for the year ended december 31 , 2018 from $ 115 thousand for the year ended december 31 , 2017. this increase is due to a higher average balance of funds in our cash and cash equivalents balances in 2018 and a decrease in interest expense due to lower average borrowings in 2018. derivatives gain / ( loss ) derivatives loss for the year ended december 31 , 2018 was $ 12.2 million compared to a loss of $ 2.3 million for the year ended december 31 , 2017. the loss of $ 12.2 million for the year ended december 31 , 2018 can be attributed to the issuance of the liability classified warrants in 2018 and the subsequent change in fair value through the date of warrant exercises or reclassification to equity . 47 other income other income for the year ended december 31 , 2018 was $ 1.3 million primarily due to a settlement agreement with a former vendor . we did not generate any other income for the year ended december 2017. liquidity and capital resources since inception , we have devoted substantially all of our efforts to business planning , research and development , recruiting management and technical staff , acquiring operating assets , and raising capital . at december 31 , 2018 , our accumulated deficit was $ 207.3 million . at december 31 , 2018 , we had total assets of $ 18.4 million , total liabilities of $ 2.3 million , and total stockholders ' equity of $ 16.1 million . we recorded a net loss of $
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control investments in corporate operating companies – this strategy involves acquiring controlling stakes in non-financial operating companies . our investments in these companies are generally structured as a combination of yield-producing debt and equity . we provide certainty of closure to our counterparties , give the seller personal liquidity and generally look for management to continue on in their current roles . this strategy has comprised approximately 10 % -15 % of our business . control investments in financial companies – this strategy involves acquiring controlling stakes in financial companies , including consumer direct lending , sub-prime auto lending and other strategies . our investments in these companies are generally structured as a combination of yield-producing debt and equity . these investments are often structured in a tax-efficient ric-compliant partnership , enhancing returns . this strategy has comprised approximately 5 % -15 % of our business . investments in structured credit – we make investments in clos , generally taking a significant position in the subordinated interests ( equity ) of the clos . the clos include a diversified portfolio of broadly syndicated loans and do not have direct exposure to real estate , mortgages , sub-prime debt or consumer based debt . the clos in which we invest are managed by top-tier collateral managers that have been thoroughly diligenced prior to investment . this strategy has comprised approximately 10 % -20 % of our business . real estate investments – we make investments in real estate through our three wholly-owned tax-efficient real estate investment trusts ( “ reits ” ) , american property reit corp. ( “ aprc ” ) , national property reit corp. ( “ nprc ” ) and united property reit corp. ( “ uprc ” and collectively with aprc and nprc , “ our reits ” ) . our real estate investments are in various classes of fully developed and occupied real estate properties that generate current yields . we seek to identify properties that have historically high occupancy and steady cash flow generation . our reits partner with established property managers with experience in managing the property type to manage such properties after acquisition . this is a more recent investment strategy that has comprised approximately 5 % -10 % of our business . investments in syndicated debt – on an opportunistic basis , we make investments in loans and high yield bonds that have been sold to a syndicate of buyers . here we look for investments with attractive risk-adjusted returns after we have completed a fundamental credit analysis . these investments are purchased with a long term , buy-and-hold outlook and we look to provide significant structuring input by providing anchoring orders . this strategy has comprised approximately 5 % -10 % of our business . aircraft leasing – we invest debt as well as equity in aircraft assets subject to commercial leases to credit-worthy airlines across the globe . these investments present attractive return opportunities due to cash flow consistency from long-lived assets coupled with hard asset collateral . we seek to deliver risk-adjusted returns with strong downside protection by analyzing relative value characteristics across the spectrum of aircraft types of all vintages . our target portfolio includes both in-production and out-of-production jet and turboprop aircraft and engines , operated by airlines across the globe . this strategy comprised approximately 1.5 % of our business in the fiscal year ended june 30 , 2014 and approximately 1 % as of june 30 , 2015 . online lending – we make investments in loans originated by certain consumer loan and small and medium sized business ( “ sme ” ) originators . we purchase each loan in its entirety ( i.e. , a “ whole loan ” ) . the borrowers are consumers and smes . the loans are typically serviced by the originators of the loans . this strategy comprised approximately 1 % of our business in the fiscal year ended june 30 , 2014 and less than 5 % as of june 30 , 2015 . we invest primarily in first and second lien secured loans and unsecured debt , which in some cases includes an equity component . first and second lien secured loans generally are senior debt instruments that rank ahead of unsecured debt of a given portfolio company . these loans also have the benefit of security interests on the assets of the portfolio company , which may rank ahead of or be junior to other security interests . our investments in clos are subordinated to senior loans and are generally unsecured . we invest in debt and equity positions of clos which are a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches . our clo investments are derived from portfolios of corporate debt securities which are generally risk rated from bb to b . 63 we hold many of our control investments in a two-tier structure consisting of a holding company and one or more related operating companies for tax purposes . these holding companies serve various business purposes including concentration of management teams , optimization of third party borrowing costs , improvement of supplier , customer , and insurance terms , and enhancement of co-investments by the management teams . in these cases , our investment in the holding company , generally as equity , its equity investment in the operating company and along with any debt from us directly to the operating company structure represents our total exposure for the investment . as of june 30 , 2015 , as shown in our consolidated schedule of investments , the cost basis and fair value of our investments in controlled companies was $ 1,894,644 and $ 1,974,202 , respectively . this structure gives rise to several of the risks described in our public documents and highlighted elsewhere in this annual report . on july 1 , 2014 , we began consolidating all wholly-owned and substantially wholly-owned holding companies formed by us for the purpose of holding our controlled investments in operating companies . story_separator_special_tag there were no significant effects of consolidating these holding companies as they hold minimal assets other than their investments in the controlled operating companies . investment company accounting prohibits the consolidation of any operating companies . we seek to be a long-term investor with our portfolio companies . the aggregate fair value of our portfolio investments was $ 6,609,558 and $ 6,253,739 as of june 30 , 2015 and june 30 , 2014 , respectively . during the year ended june 30 , 2015 , our net cost of investments increased by $ 187,854 , or 2.9 % , as a result of the following : twenty-three new investments , several follow-on investments , and thirteen revolver advances totaling $ 2,059,711 ( including structuring fees of $ 20,916 ) ; payment-in-kind interest of $ 29,277 ; net amortization of discounts and premiums of $ 87,638 ; and full repayments on eighteen investments , sale of twelve investments , and several partial prepayments and amortization payments totaling $ 1,633,073 , net of realized losses totaling $ 180,423 . compared to the end of last fiscal year ( ended june 30 , 2014 ) , net assets increased by $ 84,867 , or 2.3 % , during the year ended june 30 , 2015 , from $ 3,618,182 to $ 3,703,049 . this increase resulted from the issuance of new shares of our common stock ( less offering costs ) in the amount of $ 145,441 , dividend reinvestments of $ 14,681 , and $ 346,339 from operations . these increases , in turn , were offset by $ 421,594 in dividend distributions to our stockholders . the $ 346,339 from operations is net of the following : net investment income of $ 362,747 , net realized losses on investments of $ 180,423 , net change in unrealized appreciation on investments of $ 167,965 , and net realized losses on extinguishment of debt of $ 3,950 . fourth quarter highlights investment transactions during the three months ended june 30 , 2015 , we acquired $ 257,053 of new investments , completed follow-on investments in existing portfolio companies totaling approximately $ 171,426 , funded $ 18,696 of revolver advances , and recorded pik interest of $ 12,792 , resulting in gross investment originations of $ 459,967 . during the three months ended june 30 , 2015 , we received full repayments on eight investments and received several partial prepayments and amortization payments totaling $ 437,729 , including realized losses totaling $ 29,450 . the more significant of these transactions are discussed in “ portfolio investment activity. ” debt issuances and redemptions during the three months ended june 30 , 2015 , we issued $ 50,729 aggregate principal amount of prospect capital internotes® for net proceeds of $ 49,910 . these notes were issued with stated interest rates ranging from 3.375 % to 5.10 % with a weighted average interest rate of 4.74 % . these notes mature between august 15 , 2020 and june 15 , 2022 . the following table summarizes the prospect capital internotes® issued during the three months ended june 30 , 2015 . replace_table_token_6_th 64 on may 15 , 2015 , we redeemed $ 100,000 aggregate principal amount of the 2022 notes ( as defined below ) at par . as a result of this transaction , we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the notes , net of the proportionate amount of unamortized debt issuance costs . the net loss on the extinguishment of the 2022 notes in the three months ended june 30 , 2015 was $ 2,600 . during the three months ended june 30 , 2015 , we repaid $ 2,005 aggregate principal amount of prospect capital internotes® at par in accordance with the survivor 's option , as defined in the internotes® offering prospectus . as a result of these transactions , we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the notes , net of the proportionate amount of unamortized debt issuance costs . the net loss on the extinguishment of prospect capital internotes® in the three months ended june 30 , 2015 was $ 126 . equity issuances on april 23 , 2015 , may 21 , 2015 and june 18 , 2015 , we issued 131,971 , 137,878 and 159,469 shares of our common stock in connection with the dividend reinvestment plan , respectively . “ spin-offs ” of certain business strategies we previously announced that we intend to unlock value by “ spinning off ” certain “ pure play ” business strategies to our shareholders . we desire through these transactions to ( i ) transform some of the business strategies we have successfully grown and developed inside prospect into pure play public companies with the potential for increased earnings multiples , ( ii ) allow for continued revenue and earnings growth through more flexible non-bdc formats ( which are expected to benefit from not having one or more of the ( a ) 30 % basket , ( b ) leverage , and ( c ) control basket constraints with which bdcs must comply ) , and ( iii ) free up our 30 % basket and leverage capacity for new originations at prospect . the business strategies we intend to enable our shareholders to participate in on a “ pure play ” basis have grown faster than our overall growth rate in the past few years , with outlets in less constraining structures required to continue this strong growth . we anticipate these non-bdc companies will have tax efficient structures . we initially intend on focusing these efforts on three separate companies consisting of portions of our ( i ) consumer online lending business , ( ii ) real estate business and ( iii ) structured credit business . we are seeking to divest these businesses in conjunction with rights offering capital raises in which existing prospect shareholders could elect to participate in each offering or sell their rights .
| these decreases were partially offset by a $ 65,865 favorable decrease in net realized and unrealized losses on investments . ( see “ net realized losses ” and “ net change in unrealized appreciation ( depreciation ) ” for further discussion . ) net increase in net assets resulting from operations for the years ended june 30 , 2015 , 2014 and 2013 was $ 0.98 , $ 1.06 and $ 1.07 per weighted average share , respectively . during the year ended june 30 , 2015 , the decrease is primarily due to a $ 0.14 per weighted average share decrease in other income driven by reduced structuring fees and a $ 0.07 per weighted average share decrease in dividend income received from our investments in airmall , borga , and credit central . these decreases were partially offset by a $ 0.04 per weighted average share decrease in income incentive fees and a $ 0.09 per weighted average share favorable decrease in net realized and unrealized losses on investments . during the year ended june 30 , 2014 , the decrease is primarily due to a $ 0.41 per weighted average share decrease in investment income driven by a $ 0.31 per weighted average share decrease in dividend income received from our investment in energy solutions . the decrease is also attributable to a $ 0.06 per weighted average share increase in interest costs from the leverage utilized . these decreases were partially offset by a $ 0.09 per weighted average share decrease in income incentive fees and a $ 0.37 per weighted average share favorable decrease in net realized and unrealized losses on investments . while we seek to maximize gains and minimize losses , our investments in portfolio companies can expose our capital to risks greater than those we may anticipate . these companies are typically not issuing securities rated investment grade , have limited resources , have limited operating history , have concentrated product lines or customers , are generally private companies with limited operating information available and are likely to
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we agreed to provide hardware products as an accommodation to this important customer . royalties royalties consist primarily of royalty payments we receive under dsl silicon contracts with two customers that incorporate our silicon intellectual property ( “ ip ” ) in their dsl chipsets . we sold the assets of our dsl ip business in 2009 , but we continue to receive royalty payments from these customers . royalties are reported in continuing operations in accordance with asc 205-20 , reporting discontinued operations , because we have continuing ongoing cash flows from this business . royalties decreased 43 % from $ 0.3 million in 2016 to $ 0.2 million in 2017. as a percentage of total revenue , royalties were 1 % in 2016 and 2017. royalties decreased 30 % from $ 0.4 million in 2015 to $ 0.3 million in 2016. as a percentage of total revenue , royalties decreased from 2 % in 2015 to 1 % in 2016. the royalty dollar decrease in 2017 and 2016 was primarily due to lower dsl royalties from both of our licensees . one of our royalty customers reported no royalties in 2017 and the other customer is likely to satisfy its royalty obligation in 2018. we do not consider dsl royalties to be a key element of our business and we expect that this revenue will continue to decline in future periods . cost of software licenses cost of software licenses consists primarily of the cost of third party software included in certain software products delivered to the navy and usmc . 30 cost of software licenses decreased 75 % from $ 1.1 million in 2016 to $ 0.3 million in 2017. cost of software licenses as a percentage of software license sales was 3 % in 2017 , which means that gross margins were 97 % . the dollar decrease in cost of software licenses was primarily due to lower sales of software to the usmc and navy that included third party software . cost of software licenses increased from zero in 2015 to $ 1.1 million in 2016. cost of software licenses as a percentage of software license sales was 8 % in 2016 , which means that gross margins were 92 % . the dollar increase in cost of software licenses was due to the delivery of software to the usmc and navy that included third party software . cost of services cost of services consists of engineering costs to perform customer services projects . such costs primarily include : i ) engineering salaries , stock-based compensation , fringe benefits , and facilities ; and ii ) engineering consultants and contractors . cost of services decreased 22 % from $ 0.8 million in 2016 to $ 0.6 million in 2017. cost of services as a percentage of services increased from 44 % in 2016 to 48 % in 2017 , which means that gross margins on services decreased from 56 % to 52 % . the dollar decrease in cost of services was attributable to a decrease in services revenue . cost of services decreased 57 % from $ 1.8 million in 2015 to $ 0.8 million in 2016. cost of services as a percentage of services decreased from 54 % in 2015 to 44 % in 2016 , which means that gross margins on services increased from 46 % to 56 % . the dollar decrease in cost of services was attributable to a decrease in services revenue . gross margins on services of 52 % , 56 % , and 46 % in 2017 , 2016 and 2015 , respectively , were a function of : i ) the nature of the projects ; ii ) the level of engineering difficulty and labor hours required to complete project tasks ; and iii ) how much we were able to charge . gross margins in these years reflect the profitability mix of customer projects . we expect that gross margins on services will continue to fluctuate in future periods based on the nature , complexity , and pricing of future projects . cost of hardware cost of hardware consists primarily of the cost of third party equipment and software included in hardware shipments . cost of hardware decreased 100 % from $ 0.2 million in 2016 to zero in 2017. the dollar decrease in cost of hardware was due to the delivery of replacement parts to the navy in 2016 , whereas we had no hardware shipments in 2017. cost of hardware decreased by 67 % from $ 0.7 million in 2015 to $ 0.2 million in 2016. cost of hardware as a percentage of hardware revenue increased from 65 % in 2015 to 74 % in 2016 , which means that product gross margins decreased from 35 % in 2015 to 26 % in 2016. the 67 % dollar decrease in cost of hardware was attributable to a 71 % decrease in hardware revenue . research and development expense research and development expense consists of costs for : i ) engineering personnel , including salaries , stock-based compensation , fringe benefits , and facilities ; ii ) engineering consultants and contractors , and iii ) other engineering expenses such as supplies , equipment depreciation , dues and memberships and travel . engineering costs incurred to develop our technology and products are classified as research and development expense . as described in the cost of services section , engineering costs incurred to provide engineering services for customer projects are classified as cost of services , and are not included in research and development expense . story_separator_special_tag 31 the classification of total engineering costs to research and development expense and cost of services was ( in thousands ) : replace_table_token_4_th research and development expense increased 12 % from $ 6.9 million in 2016 to $ 7.8 million in 2017. as a percentage of total revenue , research and development expense increased from 32 % in 2016 to 48 % in 2017. the increase in research and development expense was primarily due to the reallocation of engineers from customer services projects to internal development projects . as the table above indicates , total engineering costs increased from $ 7.7 million in 2016 to $ 8.4 million in 2017. the $ 0.7 million spending increase was primarily due to the engagement of a third party software development company to assist us in the development of an important new product . work with the development company commenced in the fourth quarter of 2016 and was completed in 2017. there is no further third party expense associated with this project as all expenses have been incurred . in addition to the above , slightly higher employee costs were partially offset by lower amortization costs . our engineering headcount was the same in 2016 and 2017. we believe our engineering organization was adequately staffed as of december 31 , 2017. research and development expense increased 20 % from $ 5.8 million in 2015 to $ 6.9 million in 2016. as a percentage of total revenue , research and development expense increased from 29 % in 2015 to 32 % in 2016. the increase in research and development expense was primarily due to the reallocation of engineers from customer services projects to internal development projects . as the table above indicates , total engineering costs increased from $ 7.6 million in 2015 to $ 7.7 million in 2016. the $ 0.1 million spending increase was due to the following factors : i ) higher compensation expenses for engineers as a result of merit increases ; ii ) higher third party software development costs ; and iii ) lower contractor expenses due to the termination of contractors working on government service projects . our engineering headcount declined by one head in 2016. we believe our engineering organization was adequately staffed as of december 31 , 2016. as we described in the strategy section in part 1 of this form 10-k , we intend to introduce new products that will allow us to offer more complete biometrics solutions . we believe this strategy will allow us to sell more software into biometrics systems projects in order to grow our revenue . our preference is to develop such products internally , however to the extent we are unable to do that , we may purchase or license technologies from third parties . we anticipate that we will continue to focus our future research and development activities on enhancing existing products and developing new products . selling and marketing expense selling and marketing expense primarily consists of costs for : i ) sales and marketing personnel , including salaries , sales commissions , stock-based compensation , fringe benefits , travel , and facilities ; and ii ) advertising and promotion expenses . sales and marketing expense decreased 3 % from $ 4.1 million in 2016 to $ 4.0 million in 2017. as a percentage of total revenue , sales and marketing expense increased from 19 % in 2016 to 25 % in 2017. the dollar decrease in selling and marketing expense was primarily due to lower spending on sales commissions , travel and sales agents , which were partially offset by higher salaries and advertising and tradeshow costs . sales and marketing expense increased 5 % from $ 3.9 million in 2015 to $ 4.1 million in 2016. as a percentage of total revenue , sales and marketing expense decreased from 20 % in 2015 to 19 % in 2016. the dollar increase in selling and marketing expense was primarily due to increased spending on sales agents , travel and tradeshows , which was partially offset by lower sales commissions and salaries . 32 general and administrative expense general and administrative expense consists primarily of costs for : i ) officers , directors and administrative personnel , including salaries , bonuses , director compensation , stock-based compensation , fringe benefits , and facilities ; ii ) professional fees , including legal and audit fees ; iii ) public company expenses ; and iv ) other administrative expenses , such as insurance costs and bad debt provisions . general and administrative expense increased 3 % from $ 3.3 million in 2016 to $ 3.4 million in 2017. as a percentage of total revenue , general and administrative expense increased from 15 % in 2016 to 21 % in 2017. the increase in general and administrative expense in 2017 was primarily due to higher professional fees and stock-based compensation which was partially offset by lower employee costs . higher professional fees were primarily due to services related to the implementation of the new revenue standard . general and administrative expense decreased 6 % from $ 3.5 million in 2015 to $ 3.3 million in 2016. as a percentage of total revenue , general and administrative expense decreased from 18 % in 2015 to 15 % in 2016. the decrease in general and administrative expense in 2016 was primarily due to lower stock-based compensation and lower legal fees related to corporate matters and patents . patent related income the composition of patent related income in 2017 , 2016 and 2015 was as follows : year ended december 31 , 2017. we had $ 1.6 million of income from a patent arrangement in 2017. we entered into an arrangement with an unaffiliated third party in 2010 under which we assigned certain patents in return for royalties on proceeds from patent monetization efforts by the third party . such third party has engaged in various patent monetization activities , including enforcement , litigation and licensing .
| higher imaging product license sales were related to a $ 4.5 million license sale in 2015 that we recognized over the period october 2015 to october 2016. higher software license revenue was partially offset by lower services and hardware revenue . services revenue declined because we completed significant projects with commercial and government customers in 2015 that were not replaced with projects of a similar size . hardware revenue declined because the navy completed the bulk of its hardware purchases in 2015. operating income increased by $ 2.0 million in 2016 because : i ) the $ 2.0 million revenue increase resulted in $ 1.2 million more operating income ; and ii ) patent related income increased by $ 0.8 million . software licenses software licenses consist of revenue from the sale of biometrics and imaging software products . software licenses sold to the navy and usmc may also include third party software bundled with aware software . sales of software products depend on our ability to win proposals to supply software for biometrics systems projects either directly to end user customers or indirectly through channel partners . software license revenue decreased 29 % from $ 14.1 million in 2016 to $ 9.9 million in 2017. as a percentage of total revenue , software license revenue decreased from 65 % in 2016 to 61 % in 2017. the $ 4.2 million decrease in software license revenue was primarily due to : i ) a $ 2.8 million decrease in biometrics software license sales ; and ii ) a $ 1.4 million decrease in imaging software license sales . the reasons for the decreases in biometrics and imaging software licenses were : i ) biometrics software licenses – biometrics software license sales were $ 6.8 million in 2017 versus $ 9.6 in 2016. the decrease was primarily due to : i ) software sales of $ 3.8 million to the usmc and the navy in 2016 versus $ 1.1 million in 2017 ; and ii ) a larger software license sale to a systems integrator/u.s .
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as of december 31 , 2017 , the company had a $ 21.8 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 7.5 years . the company actively works to maximize the amount and timing of cash flows generated by its ffelp portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow . however , due to the continued amortization of the company 's ffelp loan portfolio and anticipated increases in interest rates , the company 's net income generated by the agm segment will continue to decrease . the company currently believes that in the short-term it will most likely not be able to invest the excess cash generated from the ffelp loan portfolio into assets that immediately generate the rates of return historically realized from that portfolio . in addition , the company earns fee-based revenue through the following reportable operating segments : loan systems and servicing ( `` lss '' ) - referred to as nelnet diversified solutions ( `` nds '' ) tuition payment processing and campus commerce ( `` tpp & cc '' ) - referred to as nelnet business solutions ( `` nbs '' ) communications - referred to as allo communications ( `` allo '' ) other business activities and operating segments that are not reportable are combined and included in corporate and other activities ( `` corporate '' ) . corporate and other activities also includes income earned on certain investments and interest expense incurred on unsecured debt transactions . 38 the information below provides the operating results for each reportable operating segment and corporate and other activities for the years ended december 31 , 2017 , 2016 , and 2015 ( dollars in millions ) . see `` results of operations '' for each reportable operating segment under this item 7 for additional detail . ( a ) revenue includes intersegment revenue earned by lss as a result of servicing loans for agm . ( b ) total revenue includes `` net interest income after provision for loan losses '' and `` total other income '' from the company 's segment statements of income , excluding the impact from changes in fair values of derivatives and foreign currency transaction adjustments . net income excludes changes in fair values of derivatives and foreign currency transaction adjustments , net of tax . for information regarding the exclusion of the impact from changes in fair values of derivatives and foreign currency transaction adjustments , see `` gaap net income and non-gaap net income , excluding adjustments '' above . certain events and transactions from 2017 , which have impacted or will impact the operating results of the company and its operating segments , are discussed below . loan systems and servicing the company and great lakes continue to develop a new , state-of-the-art servicing system for government-owned student loans through their greatnet joint venture . the servicing platform under development will utilize modern technology to effectively scale for additional volume , protect customer information , and support enhanced borrower experience initiatives . the company 's share of costs incurred in 2017 to develop this platform was $ 12.6 million ( pre-tax ) , which decreased the operating margin of this business from historical periods . tuition payment processing and campus commerce the company continues to make investments in new payment products and services , primarily under the paymentspring brand name , that will create additional card processing solutions for the company 's customers . the company currently offers payment services including electronic transfer and credit card processing , reporting , billing and invoicing , mobile and virtual terminal solutions , and specialized integrations to business software . the company incurred $ 5.7 million in net operating costs related to providing and developing these products and services in 2017. the company currently anticipates making additional investments in payment products and services which will impact this segment 's operating results over the next several years . communications in the fourth quarter of 2017 , allo announced plans to expand its network to make services available in hastings , nebraska and fort morgan , colorado . this will expand total households in allo 's current markets from 137,500 to over 152,000. in december 2017 , the fort morgan city council approved a 40-year agreement with allo for allo to provide broadband service over a fiber network that the city will build and own , and allo will lease and operate to provide services to subscribers . allo plans to continue expansion to additional communities in nebraska and colorado over the next several years . 39 the company currently anticipates allo 's operating results will be dilutive to the company 's consolidated earnings as it continues to build its network in lincoln , nebraska , and other communities , due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs . asset generation and management during 2017 , the company began to purchase consumer loans . as the company 's ffelp loans continue to amortize , the company is actively expanding its private education and consumer loan portfolios . other corporate activities as of december 31 , 2017 , whitetail rock capital management , llc ( “ wrcm ” ) , the company 's sec-registered investment advisor subsidiary , had $ 874.3 million in asset-backed security assets , consisting primarily of student loan asset-backed securities , under management for third-party customers . wrcm earns annual management fees of 25 basis points for assets under management and up to 50 percent of the gains from the sale of securities or securities being called prior to the full contractual maturity for which it provides advisory services . during 2017 , wrcm traded almost $ 1.3 billion for their customers , generating $ 10.1 million in performance fees . assuming assets under management remain at their current levels , management fees should be relatively stable in future years . story_separator_special_tag however , the company currently anticipates that opportunities for wrcm to earn performance fees could be limited in future years . on december 31 , 2017 , the company sold peterson 's , its college planning , digital marketing , and content solutions subsidiary . peterson 's revenue in 2017 was $ 12.6 million , a decrease from $ 14.3 million in 2016 and $ 19.6 million in 2015. during the fourth quarter of 2017 , the company recognized an impairment charge of $ 3.6 million ( pre-tax ) related to goodwill initially recorded upon the acquisition of peterson 's in 2006. the tax cuts and jobs act ( the “ act ” ) , signed into law on december 22 , 2017 , reduced the corporate statutory federal tax rate from 35 percent to 21 percent . as a result of the act , in december 2017 , the company re-measured its net deferred tax liabilities to reflect the new statutory rate , resulting in a decrease to income tax expense of $ 19.3 million , resulting in a 2017 effective tax rate of 27.25 percent . the company currently anticipates its effective tax rate will range between 23 to 24 percent in 2018 and future periods , as compared to its historical effective tax rate that ranged between 35 to 38 percent . liquidity and capital resources the company has historically generated positive cash flow from operations . for the year ended december 31 , 2017 , the company 's net cash provided by operating activities was $ 227.5 million . the majority of the company 's portfolio of student loans is funded in asset-backed securitizations that will generate significant earnings and cash flow over the life of these transactions . as of december 31 , 2017 , the company currently expects future undiscounted cash flows from its securitization portfolio to be approximately $ 1.92 billion , of which approximately $ 1.34 billion will be generated over the next five years . the company intends to use its liquidity position to capitalize on market opportunities , including ffelp , private education , and consumer loan acquisitions ; strategic acquisitions and investments ; expansion of allo 's telecommunications network ; and capital management initiatives , including stock repurchases , debt repurchases , and dividend distributions . the timing and size of these opportunities will vary and will have a direct impact on the company 's cash and investment balances . recent events acquisition of great lakes on february 7 , 2018 , the company acquired 100 percent of the outstanding stock of great lakes for a purchase price of $ 150.0 million in cash . the company and great lakes are two of the four large private sector companies ( referred to as title iv additional servicers , or “ tivas ” ) that have student loan servicing contracts awarded by the department in june 2009 to provide servicing for loans owned by the department . these contracts are currently scheduled to expire on june 16 , 2019 . 40 going forward , great lakes and the company will continue to service their respective government-owned portfolios on behalf of the department , while maintaining their distinct brands , independent servicing operations , and teams . likewise , each entity will continue to compete for new student loan volume under its respective existing contract with the department . nelnet will integrate technology , as well as shared services and other activities , to become more efficient and effective in meeting borrower needs . the company and great lakes have also been working together for almost two years to develop a new , state-of-the-art servicing system for government-owned student loans through their greatnet joint venture . the efficiencies gained by leveraging a single platform for government-owned loans supporting millions more borrowers will give the company and great lakes opportunities to invest in strategies to further enhance borrower experiences . headquartered in madison , wisconsin , great lakes has approximately 1,800 employees . as of december 31 , 2017 , great lakes was servicing $ 224.4 billion in government-owned student loans for 7.5 million borrowers , $ 10.7 billion in ffel program loans for almost 479,000 borrowers , and $ 8.5 billion in private or consumer loans for over 415,000 borrowers . during 2017 , great lakes recognized approximately $ 230 million in servicing revenue . as of december 31 , 2017 ( on a pro-forma basis ) , the combined companies serviced $ 455 billion of loans for 16.2 million borrowers , including $ 397 billion in government-owned student loans for 13.4 million borrowers , $ 38 billion in ffel program loans for 1.9 million borrowers , and $ 20 billion in private or consumer loans for almost 918,000 borrowers . department of education servicing contract on february 20 , 2018 , the department 's office of federal student aid ( `` fsa '' ) released information regarding a new contract procurement process to service all student loans owned by the department . the contract solicitation process is divided into two phases . responses for phase one are due on april 6 , 2018. the contract solicitation requests responses from interested vendors for nine components , including : component a : enterprise-wide digital platform and related middleware component b : enterprise-wide contact center platform , customer relationship management ( crm ) , and related middleware component c : solution 3.0 ( core processing , related middleware , and rules engine ) component d : solution 2.0 ( core processing , related middleware , and rules engine ) component e : solution 3.0 business process operations component f : solution 2.0 business process operations component g : enterprise-wide data management platform component h : enterprise-wide identity and access management ( iam ) component i : cybersecurity and data protection the solicitation indicates component c ( solution 3.0 ) is anticipated to be tailored for new customers and component d ( solution 2.0 ) is anticipated to serve as the primary environment for fsa 's existing customers .
| derivative accounting requires that net settlements with respect to derivatives that do not qualify for `` hedge treatment '' under gaap be recorded in a separate income statement line item below net interest income . the company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility . as such , management believes derivative settlements for each applicable period should be evaluated with the company 's net interest income as presented in the table below . net interest income ( net of settlements on derivatives ) is a non-gaap financial measure , and the company reports this non-gaap information because the company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management . there is no comprehensive , authoritative guidance for the presentation of such non-gaap information , which is only meant to supplement gaap results by providing additional information that management utilizes to assess performance . see note 6 of the notes to consolidated financial statements included in this report for additional information on the company 's derivative instruments , including the net settlement activity recognized by the company for each type of derivative for the periods presented in the table under the caption `` income statement '' in note 6 and in the table below . replace_table_token_8_th 43 the following table summarizes the components of `` other income . '' replace_table_token_9_th ( a ) the company provides investment advisory services through wrcm under various arrangements and earns annual fees of 25 basis points on the outstanding balance of investments and up to 50 percent of the gains from the sale of securities or securities being called prior to the full contractual maturity for which it provides advisory services . as of december 31 , 2017 , the outstanding balance of investments subject to these arrangements was $ 874.3 million . ( b ) the year over year decrease in revenue was due to the loss of rights to a certain
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in recent years , india has also been a source of emerging market sales growth due to increased life science research activities , as well as our acquisition of our distribution channel for laboratory products in 2005. in addition , russia has also been an important growth driver in recent years due in part to the expansion of its local economy . local currency sales growth in emerging markets slowed during the fourth quarter of 2008 and we anticipate future sales will continue to be adversely affected by weak global economic conditions . to reduce costs , we are also shifting more of our manufacturing to china where our three facilities manufacture for the local markets as well as for export . extending our technology lead . we continue to focus on product innovation . in the last three years , we spent between 5.1 % and 5.2 % of net sales on research and development . we seek to drive shorter product life cycles , as well as improve our product offerings and their capabilities with additional integrated technologies and software . in addition , we aim to create value for our customers by having an intimate knowledge of their processes via our significant installed product base . during 2008 , we also introduced quantos , our new automated powder dosing solution for small sample sizes , which is controlled and monitored by the laboratory balance . 24 maintaining cost leadership . we continue to strive to improve our margins by reducing our cost structure . as previously mentioned , shifting production to china has been an important component of our cost savings initiatives . we have also implemented global procurement and supply chain management programs over the last several years aimed at lowering supply costs . our cost leadership initiatives are also focused on continuously improving our invested capital efficiency , such as reducing our working capital levels and ensuring appropriate returns on our expenditures . during the fourth quarter of 2008 , we also initiated a global cost reduction program in response to the global economic slowdown . our cost reduction program is focused on reducing our spending levels in most cost categories and will also include workforce reductions ( including employees and temporary personnel ) of approximately 600 or 5 % of our total workforce . pursuing strategic acquisitions . while we have not completed a significant acquisition since 2001 , acquisitions remain part of our growth strategy . we seek to pursue acquisitions that may leverage our global sales and service network , respected brand , extensive distribution channels and technological leadership . we have identified life sciences , product inspection and process analytics as three key areas for acquisitions . results of operations consolidated net sales net sales were $ 1,973.3 million for the year ended december 31 , 2008 , compared to $ 1,793.7 million in 2007 and $ 1,594.9 million in 2006. this represents increases in 2008 and 2007 of 10 % and 12 % in u.s. dollars and 6 % and 8 % in local currencies , respectively . in 2008 , our net sales by geographic destination increased in local currencies by 2 % in the americas , 6 % in europe and 16 % in asia/rest of world . a discussion of sales by operating segment is included below . as described in note 16 to our consolidated financial statements , our net sales comprise product sales of precision instruments and related services . service revenues are primarily derived from repair and other services , including regulatory compliance qualification , calibration , certification , preventative maintenance and spare parts . net sales of products increased in 2008 and 2007 by 10 % and 13 % in u.s. dollars and by 7 % and 8 % in local currencies , respectively . service revenue ( including spare parts ) increased in 2008 and 2007 by 8 % and 11 % in u.s. dollars and by 5 % and 6 % in local currencies , respectively . net sales of our laboratory-related products increased by 6 % in local currencies during 2008 principally driven by strong growth across most product categories , especially analytical instruments , pipettes and process analytics . our laboratory-related product sales were also reduced by 1 % during 2008 due to product line exits . net sales of our industrial-related products increased by 7 % in local currencies during 2008. we experienced strong sales growth in our core industrial products throughout most geographies , particularly china , as well as solid sales growth in our product inspection products . we also experienced strong sales growth in transportation and logistics products in the united states and western europe related to increased project activity . in our food retailing markets , net sales increased by 4 % in local currencies during 2008 over the previous year due to strong project activity in europe and continued growth in asia/rest of world despite decreased sales in the u.s. as discussed above , net sales growth in the fourth quarter of 2008 decreased from the results of the first nine months in 2008. we expect market conditions to further deteriorate from the levels experienced in the fourth quarter of 2008 ; however , the level of this deterioration is unknown . 25 gross profit gross profit as a percentage of net sales was 50.3 % for 2008 , compared to 50.0 % for 2007 and 49.6 % for 2006. gross profit as a percentage of net sales for products was 54.2 % for 2008 , compared to 53.8 % for 2007 and 53.3 % for 2006. gross profit as a percentage of net sales for services ( including spare parts ) was 36.8 % for 2008 , compared to 36.9 % for both 2007 and 2006. the increase in gross profit reflects several factors , including increased sales volume leveraging our fixed production costs , partially offset by the weakening u.s. dollar and increased material costs , most notably steel prices . story_separator_special_tag research and development and selling , general and administrative expenses research and development expenses as a percentage of net sales were 5.2 % for 2008 , 5.1 % for 2007 and 5.2 % for 2006. research and development expenses increased by 4 % in 2008 and increased by 7 % in 2007 in local currencies . our research and development spending levels reflect increased research and development investments . selling , general and administrative expenses as a percentage of net sales decreased to 29.4 % for 2008 , compared to 29.5 % for 2007 and 30.2 % for 2006. selling , general and administrative expenses increased by 5 % in both 2008 and 2007 in local currencies . this is primarily due to continued sales and marketing investments , especially in china and other emerging market countries , and expenses associated with product launches . we also incurred certain expenses associated with a multi-year information technology investment . other charges ( income ) , net other charges ( income ) , net consisted of other charges , net of $ 9.0 million in 2008 , compared to other income , net of $ 0.9 million in 2007 and other income , net of $ 7.9 million in 2006. other charges ( income ) , net consisted primarily of restructuring charges , interest income , ( gains ) losses from foreign currency transactions and other items . other charges ( income ) , net in 2008 includes restructuring charges of $ 6.4 million related to our global cost reduction program as further described below . other charges ( income ) , net for 2008 compared to the prior year was also impacted by unfavorable foreign currency fluctuations and reduced interest income associated with lower cash balances . in 2007 , other charges ( income ) , net reflected reduced interest income compared to the prior year associated with lower cash balances resulting from share repurchases . in 2006 , other charges ( income ) , net included increased interest income associated with higher cash balances in the u.s. as a result of our foreign earnings repatriation during 2005 associated with the american jobs creation act of 2004. during the fourth quarter of 2008 , we initiated a global cost reduction program . charges under the program will primarily comprise severance costs and are expected to be approximately $ 15 to $ 20 million , of which $ 6.4 million was recorded in other charges ( income ) , net during the year ended december 31 , 2008. cash paid for severance during the fourth quarter of 2008 totaled $ 0.7 million . under the program , our workforce ( including employees and temporary personnel ) will be reduced by approximately 600. the program is expected to be substantially completed by the end of 2009. as a result of the reduction in workforce , we anticipate personnel costs to be reduced by approximately $ 25 million on an annual basis . interest expense and taxes interest expense was $ 25.4 million for 2008 , compared to $ 21.0 million for 2007 and $ 17.5 million for 2006. the increase in 2008 is due primarily to increased borrowings compared to 2007. the increase in 2007 is due to higher average borrowing rates offset in part by reduced average borrowings versus 2006. during the first quarter of 2008 , we recorded a discrete tax benefit of $ 2.5 million related to favorable withholding tax law changes in china . during the third quarter of 2008 , we recorded discrete tax items resulting in a net tax benefit of $ 3.5 million primarily related to the closure of certain tax matters . 26 during the third quarter of 2007 , we recorded certain discrete tax items which resulted in a net tax benefit of $ 1.1 million . the discrete items include a benefit of $ 3.4 million related to a favorable resolution of certain tax matters and other adjustments related to prior years , which were partially offset by a charge of $ 2.3 million primarily due to a tax law change in germany . during the third quarter of 2006 , we implemented a legal reorganization that resulted in a reduction of the estimated annual effective tax rate before discrete items from 30 % to 27 % . in addition to the change in our annual effective tax rate , we recorded three discrete tax items : a charge of $ 10.5 million related to the establishment of a valuation allowance on foreign tax credit carryforwards , a benefit of $ 13.4 million associated with a reduction of a liability previously established for estimated costs to repatriate unremitted earnings of foreign subsidiaries , and a favorable tax law change resulting in a benefit of $ 5.1 million . our annual effective tax rate was 24 % , 27 % and 23 % for 2008 , 2007 and 2006 , respectively . the previously described discrete tax items had the effect of lowering our annual effective tax rate by 2 % in 2008 and 4 % in 2006. results of operations by operating segment the following is a discussion of the financial results of our operating segments . we currently have five reportable segments : u.s. operations , swiss operations , western european operations , chinese operations and other . a more detailed description of these segments is outlined in note 16 to our consolidated financial statements . u.s. operations ( amounts in thousands ) replace_table_token_3_th ( 1 ) represents u.s. dollar growth for net sales and segment profit . the increase in total net sales during 2008 reflects growth across most product lines , particularly our laboratory-related and industrial-related products . our laboratory-related and industrial-related products experienced especially strong growth in analytical instruments and product inspection , respectively . net sales were reduced by 1 % related to product line exits . net sales to external customers declined 4 % during the fourth quarter of 2008 which included a decrease in most product categories related to the global economic slowdown .
| in addition to the effects of exchange rate movements on operating profits , our debt levels can fluctuate due to changes in exchange rates , particularly between the u.s. dollar and the swiss franc . based on our outstanding debt at december 31 , 2008 , we estimate that a 10 % weakening of the u.s. dollar against the currencies in which our debt is denominated would result in an increase of approximately $ 5.0 million in the reported u.s. dollar value of the debt . taxes we are subject to taxation in many jurisdictions throughout the world . our effective tax rate and tax liability will be affected by a number of factors , such as the amount of taxable income in particular 32 jurisdictions , the tax rates in such jurisdictions , tax treaties between jurisdictions , the extent to which we transfer funds between jurisdictions , earnings repatriations between jurisdictions and changes in law . generally , the tax liability for each taxpayer within the group is determined either ( i ) on a non-consolidated/non-combined basis or ( ii ) on a consolidated/combined basis only with other eligible entities subject to tax in the same jurisdiction , in either case without regard to the taxable losses of non-consolidated/non-combined affiliated legal entities . environmental matters we are subject to environmental laws and regulations in the jurisdictions in which we operate . we own or lease a number of properties and manufacturing facilities around the world . like many of our competitors , we have incurred , and will continue to incur , capital and operating expenditures and other costs in complying with such laws and regulations . we are currently involved in , or have potential liability with respect to , the remediation of past contamination in certain of our facilities in both the united states and abroad . our former subsidiary , hi-speed , was one of two private parties ordered to perform certain ground water contamination monitoring under an administrative consent order that njdep signed on june 13 , 1988
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impaired loans are measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate , or , as a practical expedient , at the loan 's observable market price , or the fair value of the underlying collateral . the fair value of collateral , reduced by costs to sell on a discounted basis , is used if a loan is collateral-dependent . 42 income taxes income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities . deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities , computed using enacted tax rates . a valuation allowance , if needed , reduces deferred tax assets to the amount expected to be realized . the company follows the provisions of asc 740-10 , income taxes . asc 740-10 establishes a single model to address accounting for uncertain tax positions . asc 740-10 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements . asc 740-10 also provides guidance on derecognition measurement classification interest and penalties , accounting in interim periods , disclosure , and transition . asc 740-10 provides a two-step process in the evaluation of a tax position . the first step is recognition . a company determines whether it is more likely than not that a tax position will be sustained upon examination , including a resolution of any related appeals or litigation processes , based upon the technical merits of the position . the second step is measurement . a tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefit that is greater than 50 % likely of being realized upon ultimate settlement . story_separator_special_tag serif ; font-size:10pt ; margin:0pt ; text-align : center ; '' > on a fully taxable-equivalent basis for the year ended december 31 , ( in thousands , except average yields and rates ) replace_table_token_10_th ( 1 ) non-accrual loans are included in average loan balances in all periods . loan fees of $ 4,744 , $ 3,733 and $ 3,259 are included in interest income in 2019 , 2018 and 2017 , respectively . ( 2 ) accretion on acquired loan discounts of $ 90 , 163 and $ 464 are included in interest income in 2019 , 2018 and 2017 , respectively . ( 3 ) interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21 % for 2019 and 2018 , and 35 % for 2017 . ( 4 ) unrealized gains ( losses ) of $ 1,607 , $ ( 8,808 ) and $ 755 are excluded from the yield calculation in 2019 , 2018 and 2017 , respectively . 45 the following table reflects changes in our net interest margin as a result of changes in the volume and rate of our interest-bearing assets and liabilities . for the year ended december 31 , 2019 compared to 2018 increase ( decrease ) in interest income and expense due to changes in : 2018 compared to 2017 increase ( decrease ) in interest income and expense due to changes in : volume rate total volume rate total interest-earning assets : loans , net of unearned income : taxable $ 37,250 $ 11,590 $ 48,840 $ 38,265 $ 20,595 $ 58,860 tax-exempt 62 69 131 ( 148 ) ( 364 ) ( 512 ) total loans , net of unearned income 37,312 11,659 48,971 38,117 20,231 58,348 mortgage loans held for sale 48 ( 38 ) 10 ( 83 ) 16 ( 67 ) debt securities : taxable 3,258 1,096 4,354 2,187 1,350 3,537 tax-exempt ( 930 ) ( 230 ) ( 1,160 ) ( 679 ) ( 1,018 ) ( 1,697 ) total debt securities 2,328 866 3,194 1,508 332 1,840 federal funds sold 2,839 96 2,935 ( 62 ) 1,472 1,410 interest-bearing balances with banks 8,667 259 8,926 ( 791 ) 1,569 778 total interest-earning assets 51,194 12,842 64,036 38,689 23,620 62,309 interest-bearing liabilities : interest-bearing demand deposits 427 1,793 2,220 201 1,775 1,976 savings 16 75 91 15 61 76 money market 11,311 16,525 27,836 3,685 17,151 20,836 time deposits 1,289 4,020 5,309 952 2,831 3,783 total interest-bearing deposits 13,043 22,413 35,456 4,853 21,818 26,671 federal funds purchased 2,809 945 3,754 ( 528 ) 2,262 1,734 other borrowed funds ( 1 ) 1 - 401 ( 191 ) 210 total interest-bearing liabilities 15,851 23,359 39,210 4,726 23,889 28,615 increase ( decrease ) in net interest income $ 35,343 $ ( 10,517 ) $ 24,826 $ 33,963 $ ( 269 ) $ 33,694 in the table above , changes in net interest income are attributable to ( a ) changes in average balances ( volume variance ) , ( b ) changes in rates ( rate variance ) , or ( c ) changes in rate and average balances ( rate/volume variance ) . the volume variance is calculated as the change in average balances times the old rate . the rate variance is calculated as the change in rates times the old average balance . the rate/volume variance is calculated as the change in rates times the change in average balances . the rate/volume variance is allocated on a pro rata basis between the volume variance and the rate variance in the table above . from 2018 to 2019 , growth in loans was the primary driver of our volume component change and overall favorable change . the rate component was unfavorable as average rates paid on interest-bearing liabilities increased 42 basis points while yields on average earning assets increased 3 basis points . story_separator_special_tag increased rates paid on deposits were primarily the result of increases in rates by the federal reserve bank during 2018. our average rates paid on interest-bearing deposits have come back down since the federal reserve started lowering rates during the second half of 2019. growth in non-interest-bearing deposits and equity also contributed to the improvement in net interest margin in 2019 . 46 from 2017 to 2018 , growth in loans was the primary driver of our volume component change and overall favorable change . the rate component was unfavorable as average rates paid on interest-bearing liabilities increased 47 basis points while loan yields increased 36 basis points . increased rates and yields were primarily the result of increases in rates by the federal reserve bank during 2018. growth in non-interest-bearing deposits and equity also contributed to the improvement in net interest margin in 2018. the two primary factors that make up the spread are the interest rates received on loans and the interest rates paid on deposits . we have been disciplined in raising interest rates on deposits only as the market demanded and thereby managing our cost of funds . also , we have not competed for new loans on interest rate alone , but rather we have relied significantly on effective marketing to business customers . our net interest spread and net interest margin were 3.02 % and 3.46 % , respectively , for the year ended december 31 , 2019 , compared to 3.41 % and 3.75 % , respectively , for the year ended december 31 , 2018. the decrease in net interest spread and net interest margin in 2019 was due increases in deposit rates we paid resulting from increases in market interest rates during 2018. our average interest-earning assets for the year ended december 31 , 2019 increased $ 1.32 billion , or 18.8 % , to $ 8.33 billion from $ 7.01 billion for the year ended december 31 , 2018. this increase in our average interest-earning assets was due to continued core growth in our markets and increased loan production . our average interest-bearing liabilities increased $ 1.07 billion , or 20.9 % , to $ 6.19 billion for the year ended december 31 , 2019 from $ 5.12 billion for the year ended december 31 , 2018. all but one of our markets had an increase in total deposits during 2019. the ratio of our average interest-earning assets to average interest-bearing liabilities decreased from 136.9 % for the year ended december 31 , 2018 to 134.6 % for the year ended december 31 , 2019 , as average noninterest-bearing deposits and stockholders ' equity grew by a combined $ 277.2 million , or 13.0 % , from 2018 to 2019. our average interest-earning assets produced a taxable equivalent yield of 4.69 % for the year ended december 31 , 2019 , compared to 4.66 % for the year ended december 31 , 2018. the average rate paid on interest-bearing liabilities was 1.67 % for the year ended december 31 , 2019 , compared to 1.25 % for the year ended december 31 , 2018. our net interest spread and net interest margin were 3.41 % and 3.75 % , respectively , for the year ended december 31 , 2018 , compared to 3.48 % and 3.68 % , respectively , for the year ended december 31 , 2017. the decrease in net interest spread was the result of a 48 basis point increase in the rate paid on total average interest-bearing liabilities but only a 41 basis point increase in the yield on total average earning assets . the increase in net interest margin was primarily the result of growth in total average interest-earning assets in excess of growth in total average interest-bearing liabilities . our average interest-earning assets for the year ended december 31 , 2018 increased $ 781.7 million , or 12.5 % , to $ 7.01 billion from $ 6.23 billion for the year ended december 31 , 2017. our average interest-bearing liabilities increased $ 561.5 million , or 12.3 % , to $ 5.12 billion for the year ended december 31 , 2018 from $ 4.56 billion for the year ended december 31 , 2017. all but one of our markets had an increase in total deposits during 2018. the ratio of our average interest-earning assets to average interest-bearing liabilities was 136.9 % and 136.7 % for the years ended december 31 , 2018 and 2017 , respectively . our average interest-earning assets produced a taxable equivalent yield of 4.66 % for the year ended december 31 , 2018 , compared to 4.25 % for the year ended december 31 , 2017. the average rate paid on interest-bearing liabilities was 1.25 % for the year ended december 31 , 2018 , compared to 0.77 % for the year ended december 31 , 2017. provision for loan losses the provision for loan losses represents the amount determined by management to be necessary to maintain the alll at a level capable of absorbing inherent losses in the loan portfolio . see the section captioned “ allowance for loan losses ” located elsewhere in this item for additional discussion related to provision for loan losses . the provision expense for loan losses was $ 22.6 million for the year ended december 31 , 2019 , an increase of $ 1.2 million from $ 21.4 million in 2018. nonperforming loans increased to $ 36.1 million , or 0.50 % of total loans , at december 31 , 2019 from $ 27.8 million , or 0.43 % of total loans , at december 31 , 2018. during 2019 , we had net charged-off loans totaling $ 22.1 million , compared to net charged-off loans of $ 12.2 million for 2018. of the net charge-offs recorded in 2019 , $ 6.0 million were related to commercial loans that were specifically reserved for in previous years whereby the associated provision expense was recorded prior to 2019. we also received a $ 7.4 million payment resulting from the termination of a loan guarantee program operated by the state of alabama
| 2017. noninterest expense increased by $ 8.1 million , or 9.4 % , to $ 94.0 million in 2018 from $ 85.9 million in 2017. basic and diluted net income per common share were $ 2.57 and $ 2.53 , respectively , for the year ended december 31 , 2018 , compared to $ 1.76 and $ 1.72 , respectively , for the year ended december 31 , 2017. return on average assets was 1.88 % in 2018 , compared to 1.43 % in 2017 , and return on average stockholders ' equity was 20.96 % in 2018 , compared to 16.38 % in 2017. the following table presents some ratios of our results of operations for the years ended december 31 , 2019 , 2018 and 2017. replace_table_token_7_th 43 the following tables present a summary of our statements of income , including the percent change in each category , for the years ended december 31 , 2019 compared to 2018 , and for the years ended december 31 , 2018 compared to 2017 , respectively . replace_table_token_8_th replace_table_token_9_th net interest income net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing liabilities used to support such assets . the major factors which affect net interest income are changes in volumes , the yield on interest-earning assets and the cost of interest-bearing liabilities . our management 's ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of our primary source of earnings . net interest income increased $ 25.0 million , 9.5 % , to $ 287.6 million for the year ended december 31 , 2019 from $ 262.7 million for the year ended december 31 , 2018. total interest income increased $ 64.2 million , or 19.7 % , to $ 390.8 million from $ 326.6 million year-over-year , while total interest expense increased $ 39.2 million , or 61.3 % , to $ 103.2
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c. we recognized no revenue from sales of lcfs credits during the third and fourth quarters of 2017 because ( i ) the majority of the lcfs credits we had generated were sold in the bp transaction and ( ii ) we could not sell our remaining lcfs credits due to restrictions imposed on our credit account pending completion of an ongoing administrative review by carb , which was completed in november 2017. see “ key trends ” below for more information . ( 2 ) we completed the cec combination on december 29 , 2017 ( see note 4 ) . as a result , no revenue for compressor sales has been or will be received or recorded after that date . ( 3 ) represents the aftc , an alternative fuels tax credit , which expired on december 31 , 2016 , but in february 2018 , was reinstated for vehicle fuel sales made in 2017. in december 2019 , the aftc was reinstated retroactively for vehicle fuels sales made in 2018 through 2020. see “ 2018‑2020 developments ” below for more information . ( 4 ) included in other revenue for the years ended december 31 , 2017 and 2018 is sales of used natural gas heavy-duty trucks of $ 0.6 million and $ 7.5 million , respectively , which we purchased in 2017 and 2018. key operating data in evaluating our operating performance , our management focuses primarily on : ( 1 ) the amount of rng , cng and lng gasoline gallon equivalents delivered ( which we define as ( i ) the volume of gasoline gallon equivalents we sell to our customers as fuel , plus ( ii ) the volume of gasoline gallon equivalents dispensed at facilities we do not own but where we provide o & m services on a per-gallon or fixed fee basis , plus ( iii ) our proportionate share of the gasoline gallon equivalents sold as cng by our joint venture with mansfield ventures , llc called mansfield clean energy partners , llc ( “ mcep ” ) , plus ( iv ) for periods before completion of the bp transaction , our proportionate share ( as applicable ) of the gasoline gallon equivalents of rng produced and sold as pipeline quality natural gas by our former rng production facilities , which we sold in the bp transaction ) , ( 2 ) our station construction cost of sales , ( 3 ) our gross margin ( which we define as revenue minus cost of sales ) , and ( 4 ) net income ( loss ) attributable to us . the following tables present our key operating data for the years ended december 31 , 2017 , 2018 , and 2019 : replace_table_token_6_th rng sold as vehicle fuel under the brand name redeem tm is included in the cng or lng amounts in the table above as applicable based on the form in which it was sold . gges of redeem sold for the years ended december 31 , 2017 , 2018 and 2019 were as follows : 34 replace_table_token_7_th replace_table_token_8_th replace_table_token_9_th ( 1 ) as noted above , amounts include our proportionate share of the gges sold as cng by our joint venture mcep . gges sold by this joint venture were 0.5 million , 0.5 million and 0.4 million for the years ended december 31 , 2017 , 2018 and 2019 , respectively . ( 2 ) represents rng sold as non-vehicle fuel . rng sold as vehicle fuel , is sold under the brand name redeem and is included in this table in the cng or lng amounts as applicable based on the form in which it was sold . ( 3 ) represents gasoline gallon equivalents at stations where we provide both fuel and o & m services . ( 4 ) includes the following amounts of aftc revenue : $ 0.0 million , $ 26.7 million and $ 47.1 million for the years ended december 31 , 2017 , 2018 , and 2019 , respectively . ( 5 ) for the year ended december 31 , 2017 , gross margin includes an inventory valuation provision of $ 13.2 million . see note 3 for more information regarding the inventory valuation provision . ( 6 ) for the years ended december 31 , 2018 and 2019 , gross margin includes an unrealized gain ( loss ) from the change in fair value of commodity swap and customer contracts of $ 10.3 million and $ ( 6.6 ) million , respectively . see note 8 for more information regarding the commodity swap and customer contracts . 2018 -2020 developments zero now truck financing program . we launched the zero now truck financing program , which is intended to facilitate and increase the deployment of commercially available ultra-low nox natural gas heavy-duty trucks in the united states and encourage these operators to fuel their trucks at our stations . the zero now program is unique and complex , and has involved our entry into various arrangements in order to launch the program , including a term credit agreement for delayed draw loans of up to $ 100.0 million ; a credit support agreement with thusa , a wholly owned subsidiary of total , under which thusa has guaranteed our obligations under the term credit agreement in exchange for a quarterly fee ; and commodity swap arrangements with an affiliate of thusa and total covering five million diesel gallons of natural gas fuel volume annually from april 2019 through june 2024 , which are intended to manage diesel price fluctuation risks related to the natural gas fuel supply commitments we expect to make in our anticipated fueling agreements with fleet operators that participate in the zero now program . see the disclosure under “ customer markets-zero now ” in “ item 1. business ” of this report for information about these agreements and the structure of the program . debt repurchase . story_separator_special_tag in december 2018 , we purchased from the holders thereof all outstanding 7.5 % convertible notes due july 2019 , having an aggregate outstanding principal amount of $ 50.0 million , for a cash purchase price of $ 50.5 million . upon such purchase , all such notes were surrendered and canceled in full and we have no further obligations under these notes . as a result of the early retirement of these notes we saved $ 1.7 million in interest expense in 2019. see note 13 for more information about our outstanding debt . 35 expanded bp rng supply agreement . in october 2018 , our supply agreement with bp was amended to extend the term and add additional rng supply . we share with bp in the rins and lcfs credits generated from the increased rng supply sold through our vehicle fueling infrastructure and to other customers . full cash repayment of 5.25 % notes . on october 1 , 2018 , we paid to the holders of our 5.25 % convertible senior notes due october 2018 , in cash , all amounts then owed under the notes , totaling an aggregate of $ 110.5 million in principal amount plus $ 2.9 million in accrued and unpaid interest . upon such payment , all such notes were surrendered and canceled in full and we have no further obligations under these notes . total private placement . on may 9 , 2018 , we entered into a stock purchase agreement with total marketing services , s.a. ( “ total ” ) , a wholly owned subsidiary of total , for the sale and issuance to total of up to 50,856,296 shares of our common stock for a per share purchase price of $ 1.64 and an aggregate purchase price of $ 83.4 million , all in a private placement ( the “ total private placement ” ) . the total private placement closed on june 13 , 2018 , upon the satisfaction of all conditions to closing . we used the net proceeds from the total private placement for working capital and general corporate purposes , which included retiring a portion of our outstanding indebtedness . the agreements related to the total private placement also contain representations , warranties and covenants made by us and total regarding , among other matters , certain director designation rights we have granted to total ( along with undertakings by certain of our stockholders , including all of our directors and executive officers , to vote their shares in favor of such director designees in future elections of directors ) , certain registration rights we have granted to total for the shares that were issued and sold , certain limitations on total 's purchase of additional securities of our company without the approval of our board of directors , and various other matters that are customary for transactions of this nature . aftc . the aftc , which had previously expired on december 31 , 2016 , was reinstated on february 9 , 2018 to apply to vehicle fuel sales made from january 1 , 2017 through december 31 , 2017. as a result , all aftc revenue for vehicle fuel we sold in the 2017 calendar year , which totaled $ 25.2 million , was recognized and collected during the year ended december 31 , 2018. in addition , during the year ended december 31 , 2018 , the internal revenue service approved , and we recognized as revenue , $ 1.5 million of aftc credit claims related to prior years . on december 20 , 2019 , aftc was retroactively extended beginning january 1 , 2018 through december 31 , 2020. as a result , aftc revenue for vehicle fuel we sold in 2018 and 2019 , which totaled $ 47.1 million , was recognized during the year ended december 31 , 2019. the aftc credit for 2017 , 2018 and 2019 was equal to $ 0.50 per gasoline gallon equivalent of cng that we sold as vehicle fuel , and $ 0.50 per diesel gallon of lng that we sold as vehicle fuel . aftc is currently available through december 31 , 2020 and may not be reinstated for vehicle fuel sales made after that date . ng advantage . during the year ended december 31 , 2019 , we loaned to our subsidiary ng advantage , llc ( “ ng advantage ” ) an aggregate of $ 26.7 million , all of which remained outstanding as of december 31 , 2019. all such debt was governed by the terms of a delayed draw convertible note that permitted ng advantage to draw up to $ 26.7 million , subject to certain conditions . all outstanding principal under the note bore interest at a rate of 12.0 % per annum , and all unpaid principal and accrued interest under the note was due on the earlier of december 31 , 2019 , subject to extension at the company 's discretion , or the occurrence of an event of default ( subject to notice requirements and cure periods in certain circumstances ) . in connection with this debt , on june 28 , 2019 and november 27 , 2019 , ng advantage issued us warrants to purchase 86,879 and 2,000,000 common units , respectively . these intercompany transactions have been eliminated in consolidation . in february 2020 , we converted the principal and accrued interest under the convertible promissory note into common units of ng advantage resulting in an increase in our controlling interest in ng advantage to 93.2 % . see notes 5 and 23 for additional information regarding the convertible promissory note . debt level and debt compliance as of december 31 , 2019 , we had total indebtedness , excluding finance lease obligations , of $ 89.1 million in principal amount , of which approximately $ 56.1 million is expected to become due in 2020. certain of the agreements governing 36 our outstanding debt , which are discussed in note 13 , have certain non-financial covenants with which we must comply .
| our effective price per gallon charged decreased by $ 0.06 per gallon to $ 0.70 per gallon in 2019 compared to $ 0.76 in 2018 , excluding the effect of the change in fair value of derivative instruments discussed above . our effective price per gallon is defined as revenue generated from selling rng , cng , lng and any related rins and lcfs credits and providing o & m services to our vehicle fleet customers at stations we do not own and for which we receive a per-gallon or fixed fee , all divided by the total gges delivered less gges delivered by non-consolidated entities , such as entities that are accounted for under the equity method . station construction sales decreased by $ 2.4 million between periods , due to fewer construction projects . aftc revenue increased by $ 20.4 million between periods due to our recognition in 2019 of aftc revenue for the vehicle fuel we sold in 2018 and 2019. in 2018 , we recognized aftc revenue for the vehicle fuel we sold in 2017. cost of sales . cost of sales decreased by $ 0.8 million to $ 212.1 million in 2019 , from $ 212.9 million in 2018. this decrease was primarily due to a $ 1.6 million decrease in station construction costs due to fewer construction projects , and a $ 7.6 million decrease in costs to purchase used heavy-duty trucks that we sold to our customers . these decreases were partially offset by an $ 8.8 million increase in gas commodity costs due to the increase in gallons delivered during 2019 partially offset by a lower average cost per gallon in 2019 compared to 2018. our effective cost per gallon decreased by $ 0.02 per gallon to $ 0.47 per gallon in 2019 compared to $ 0.49 per gallon in 2018. our effective cost per gallon is defined as the total costs associated with delivering natural gas , including gas commodity costs , transportation fees , liquefaction charges , and
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additionally , honeywell historically provided certain services , such as legal , accounting , information technology , human resources and other infrastructure support , on behalf of us . the cost of these services were allocated to us on the basis of the proportion of net revenue . actual costs that would have been incurred if we had been a stand-alone company for the entire period being presented would depend on multiple factors , including organizational structure and strategic decisions made in various areas , including information technology and infrastructure . both we and honeywell consider the basis on which the expenses were allocated during the period before the spin-off to be a reasonable reflection of the utilization of services provided to or the benefits received by us during the periods presented . since the completion of the spin-off , we have incurred and expect to continue to incur expenditures consisting of employee-related costs , costs to start up certain stand-alone functions and information technology systems and other one-time transaction related costs . recurring stand-alone costs include establishing the internal audit , treasury , investor relations , tax and corporate secretary functions as well as the annual expenses associated with running an independent publicly traded company including listing fees , compensation of non-employee directors , related board of director fees and other fees and expenses related to insurance , legal and external audit . our environmental expenses prior to spin-off and our honeywell reimbursement expenses are reported within other expense , net in our consolidated and combined statements of operations , which reflect an estimated liability for resolution of pending and future environmental-related liabilities . prior to the spin-off , this estimated liability was calculated as if we were responsible for 100 % of the environmental-liability payments associated with certain sites . see environmental matters and honeywell reimbursement agreement in note 21 . commitments and contingencies of notes to consolida ted and combined financial statements for additional information . in connection with our 's separation from honeywell , we became a party to the honeywell reimbursement agreement , which was entered into on october 14 , 2018 , pursuant to which we agreed to indemnify honeywell in amounts equal to 90 % of payments which include amounts billed with respect to certain environmental claims , remediation and , to the extent arising after the spin-off , hazardous exposure or toxic tort claims , in each case including consequential damages ( the “ liabilities ” ) , in respect of specified properties contaminated through historical business operations , including the legal and other costs of defending and resolving such liabilities , less 90 % of honeywell 's net insurance receipts relating to such liabilities , and less 90 % of the net proceeds received by honeywell in connection with ( i ) affirmative claims relating to such liabilities , ( ii ) contributions by other parties relating to such liabilities and ( iii ) certain property sales . pursuant to the honeywell reimbursement agreement , we are responsible for paying to honeywell such amounts , up to a cap of $ 140 million in respect of liabilities arising in any given calendar year ( exclusive of any late payment fees up to 5 % per annum ) . see “ certain relationships and related party transactions-agreements with honeywell-honeywell reimbursement agreement ” . components of operating results our fiscal year ends on december 31. the key elements of our operating results include : 54 resideo technologies , inc. net revenue we globally manage our business operations through two reportable segments , products and solutions and global distribution : products and solutions . we generate the majority of our product net revenue primarily from residential end-markets . our products and solutions segment includes traditional products , as well as connected products , which we define as any device with the capability to be monitored or controlled from a remote location by an end-user or service provider . our products are sold through a network of distributors ( e.g . hvac , plumbing , security , electrical ) , oems , and service providers such as hvac contractors , security dealers and plumbers including our adi business . we also sell some products via retail and online channels . global distribution . we generate revenue through the distribution of security and low voltage fire protection products that are delivered through a comprehensive network of professional contractors , distributors and original equipment manufacturers ( “ oems ” ) , as well as major retailers and online merchants . in addition to our own security products , adi distributes products from industry-leading manufacturers including assa abloy , axis communications , honeywell and nortek security & control , and adi also carries a line of private label products . we sell these products to contractors that service non-residential and residential end-users . 14 % of adi 's net revenue is supplied by our products and solutions segment . management estimates that in 2018 approximately two-thirds of adi 's net revenue were attributed to non-residential end markets and one-third to residential end markets . cost of goods sold products and solutions : cost of goods sold includes costs associated with raw materials , assembly , shipping and handling of those products; costs of personnel-related expenses , including pension benefits , and equipment associated with manufacturing support , logistics and quality assurance; costs of certain intangible assets ; and costs of research and development . research and development expense consists primarily of development of new products and product applications . global distribution : cost of goods sold consists primarily of inventory-related costs and includes labor and personnel-related expenses . selling , general , and administrative expense selling , general and administrative expense includes trademark royalty expenses , sales incentives and commissions , professional fees , legal fees , promotional and advertising expenses , and personnel-related expenses , including stock based compensation and pension benefits . in addition , prior to the spin-off our selling general and administrative expense included an allocated portion of general corporate expenses . story_separator_special_tag other expense , net other expense , net consists primarily of honeywell reimbursement expenses for certain environmental claims related to approximately 230 sites or groups of sites that are undergoing environmental remediation under u.s. federal or state law and agency oversight for contamination associated with honeywell legacy business operations . prior to the spin-off other expenses also included the environmental expenses related to these same sites . for further information see “ item 7. management 's discussion and analysis of financial condition and results of operations - honeywell reimbursement agreement ” and “ item 7. management 's discussion and analysis of financial condition and results of operations – environmental matters ” . interest expense interest expense consists of interest on our short and long-term obligations , including our senior notes and term credit facility . interest expense on our obligations includes contractual interest , amortization of the debt discount and amortization of debt issuance costs . 55 resideo technologies , inc. ta x expense provision for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses , research and development tax credits and other permanent differences . story_separator_special_tag ( primarily environmental cost now subject to the honeywell reimbursement agreement ) , interest expense , pension expense , environmental expense related to our owned sites and repositioning charges . products and solutions replace_table_token_9_th replace_table_token_10_th 2018 compared with 2017 products and solutions revenue increased by 6 % primarily due to an increase in external sales volume and higher prices in the comfort and rts product lines , and the impact of favorable currency translation . products and solutions segment profit increased by 8 % , moderated by the impact of higher corporate cost assessments of $ 18 million . excluding this impact products and solutions segment profit increased 13 % primarily due to volume growth , the impact of higher prices , and favorable currency translation , partially offset with inflation net of productivity and adverse product mix impact . 2017 compared with 2016 products and solutions revenue decreased by 3 % primarily due to a decrease in external sales volume in the comfort product line , partially offset by the impacts of higher prices . 59 resideo technologies , inc. products and solutions segment profit decreased by 17 % due to a decrease in sales volume , investment in research and development , higher corporate allocations and unfavorable product mix driven by lower sales in the comfort produc t line , partially offset by productivity net of inflation and higher price . global distribution replace_table_token_11_th replace_table_token_12_th 2018 compared with 2017 global distribution sales increased by 7 % primarily due to volume growth across all of our key geographic markets . global distribution segment profit increased by 13 % primarily due to higher sales volumes , and productivity net of inflation . 2017 compared with 2016 global distribution sales increased by 5 % primarily due to volume growth across all of our key geographic markets . global distribution segment profit increased by 26 % primarily due to higher sales volumes , and productivity net of inflation , partially offset by higher corporate allocations . capital resources and liquidity our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations . additional liquidity may also be provided through access to the financial capital markets and a committed global credit facility . the following is a summary of our liquidity position : as of december 31 , 2018 , total cash and cash equivalents were $ 265 million , of which 62 % were held by foreign subsidiaries . at december 31 , 2018 , there were no borrowings and $ 19 million of letters of credit issued under our $ 350 million credit facility . historically , we have delivered positive cash flows from operations . operating cash flows from continuing operations were $ 462 million , $ 37 million and $ 151 million for the three years ended december 31 , 2018 , respectively . 60 resideo technologies , inc. liquidity prior to the spin-off prior to the spin-off from honeywell , we were dependent upon honeywell for all of our working capital and financing requirements . honeywell uses a centralized approach to cash management and financing of its operations . the majority of the business 's cash was transferred to honeywell daily and honeywell funded our operating and investing activities as needed . this arrangement was not reflective of the manner in which we would have been able to finance our operations had it been a stand-alone business separate from honeywell during all periods presented . prior to the spin-off , cash and cash equivalents held by honeywell at the corporate level are not specifically identifiable to us and therefore were not allocated for any of the periods presented . honeywell third party debt and the related interest expense were not allocated for any of the periods presented as honeywell 's borrowings were not directly attributable to us . liquidity s ubsequent to the spin-off our future capital requirements will depend on many factors , including the rate of sales growth , market acceptance of our products , the timing and extent of research and development projects , potential acquisitions of companies or technologies and the expansion of our sales and marketing activities . we believe our existing cash , cash equivalents , investments and credit under our credit facilities are sufficient to meet our capital requirements through at least the next 12 months , although we could be required , or could elect , to seek additional funding prior to that time . we may enter into acquisitions or strategic arrangements in the future which also could require us to seek additional equity or debt financing .
| the decrease in gross profit percentage was primarily driven by the impact of unfavorable mix between products and distribution ( approximately 130bps impact ) and investments in research and development ( approximately 50bps impact ) , partially offset by higher sales prices ( approximately 20bps impact ) . selling , general and administrative expense replace_table_token_6_th 2018 compared with 2017 selling , general and administrative expense for 2018 was $ 873 million , essentially flat from $ 871 million in 2017 , with the impact of foreign currency , higher corporate allocations , labor cost inflation and investment being offset by savings attributed to restructuring actions and lower selling costs . 2017 compared with 2016 selling , general and administrative expense for 2017 was $ 871 million , essentially flat from $ 870 million in 2016 , with the impact of higher corporate allocations , labor cost inflation and investment being offset by savings attributed to restructuring actions and lower selling costs . 57 resideo technologies , inc. other expense , net replace_table_token_7_th 2018 compared with 2017 other expense , net for 2018 , was $ 369 million , an increase of $ 90 million from $ 279 million in 2017. this increase mainly relates to the cost of certain environmental remedial actions agreed to with the regulators . following the spin-off , these environmental expenses are now subject to the honeywell reimbursement agreement where cash payments are capped at $ 140 million per year . 2017 compared with 2016 other expense , net for 2017 , was $ 279 million , an increase of $ 94 million from $ 185 million in 2016. this increase mainly relates to the cost of certain environmental remedial actions agreed to by the regulators . tax expense ( benefit ) replace_table_token_8_th 2018 compared with 2017 the effective tax rate decreased in 2018 compared to 2017. the decrease was primarily due to tax benefits attributable to the internal restructuring of our business in advance of its anticipated spin-off , adjustments to the provisional tax amount related to u.s. tax reform , adjustments to income tax reserves , partially offset by tax expense related to global intangible low taxed income ( “ gilti ” ) .our non-u.s. effective tax rate
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multiple-deliverable sales transactions typically consist of the sale and delivery of one or more instruments and consumables together with one or more of our installation , training and or customer support services . significant judgment is sometimes required to determine the appropriate accounting for such arrangements , including whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for revenue recognition purposes and , if so , how the related sales price should be allocated among the elements , when to recognize revenue for each element , and the period over which revenue should be recognized . for sales contracts that include multiple deliverables , we allocate the contract consideration at the inception of the contract to each unit of accounting based upon their relative selling prices . we may use our best estimate of selling price for individual deliverables when vendor specific objective evidence or third-party evidence is unavailable . a delivered item is considered to be a separate unit of accounting when it has value to the customer on a stand-alone basis . our products are typically delivered within a short time frame , generally within one to three months , of the contract date . service contracts are entered into for terms of one to three years , following the expiration of the warranty period . our products are generally sold without the right of return . accruals are provided for estimated warranty expenses at the time the associated revenue is recognized . we use judgment to estimate these accruals and , if we were to experience an increase in warranty claims or if costs of servicing our products under warranty were greater than our estimates , our cost of product revenue could be adversely affected in future periods . we have entered into license agreements with third parties that generally provide us with up-front and periodic milestone payments . revenue from license agreements is generally recognized when received , upfront payments are generally recognized over the term of the underlying agreement and milestone payments are generally recognized based upon the achievement of the milestones as defined in the agreement . we have received grants from various governmental entities for research and related activities . grants provide us with payments for certain types of research and development activities performed over a contractually defined period . grant revenue is recognized in the period during which the related costs are incurred , provided that the conditions under which the grants were provided have been met and we have only perfunctory obligations outstanding . amounts received in advance of revenue recognition are classified as deferred revenue in the consolidated balance sheets . costs associated with grants are included in research and development expenses in the consolidated statements of operations . changes in judgments and estimates regarding application of these revenue recognition guidelines as well as changes in facts and circumstances could result in a change in the timing or amount of revenue recognized in future periods . stock-based compensation we measure the cost of employee services received in exchange for an award of equity instruments , including stock options and restricted stock units , based on the grant date fair value of the award . the fair value of options on the grant date is estimated using the black-scholes option-pricing model , which requires the use of certain subjective assumptions , including expected term , volatility , risk-free interest rate and the fair value of our common stock . these assumptions generally require significant judgment . stock-based compensation cost for restricted stock units granted to employees is measured based on the closing fair market value of our common stock on the date of grant . our board of directors sets the terms , conditions , and restrictions related to the grant of stock options and restricted stock units , including the number of shares underlying the grants and the vesting criteria . with respect to performance-based stock options , depending on the extent to which the vesting criteria are met , our board of directors determines the number of shares that vest under the grants . the resulting costs of our equity awards , net of estimated forfeitures , are recognized over the period during which an employee is required to provide service in exchange for the award , usually a time-based vesting period . we amortize the fair value of stock-based compensation on a straight-line basis over the requisite service periods . for performance-based stock options , we recognize stock-based compensation over the requisite service periods using the accelerated attribution method . 42 our common stock has a limited trading history because our common stock was not publicly traded until our initial public offering , or ipo , in february 2011. accordingly , the expected volatility of our common stock is derived from the historical volatilities of several unrelated public companies within the life science industry . when selecting our industry peer companies , we consider our stage of development , size , and financial leverage . these historical volatilities are weighted and combined to produce a single volatility factor . the risk-free interest rate is based on the u.s. treasury yield in effect at the time of grant for zero coupon u.s. treasury notes with maturities approximately equal to each grant 's expected life . we estimate the expected lives of employee options using the “ simplified ” method as the midpoint of the expected time-to-vest and the contractual term . the calculated fair value of our stock options could change significantly if we determine that another method is more reasonable , or if another method for calculating these input assumptions is prescribed by authoritative guidance . higher volatility and longer expected lives result in an increase in stock-based compensation expense determined at the date of grant . stock-based compensation expense affects our cost of product revenue , research and development expense , and selling , general and administrative expense . story_separator_special_tag we estimate our forfeiture rate based on an analysis of our actual forfeitures and we will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience , analysis of employee turnover behavior , and other factors . quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense , as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed . if a revised forfeiture rate is higher than the previously estimated forfeiture rate , an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements . if a revised forfeiture rate is lower than the previously estimated forfeiture rate , an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements . the effect of forfeiture adjustments was insignificant during 2015 , 2014 , and 2013 . we will continue to use judgment in evaluating the expected term , volatility , and forfeiture rate related to our stock-based compensation . also required to compute the fair value calculation of options is the fair value of the underlying common stock . we grant stock options at exercise prices not less than the fair value of our common stock at the date of grant . prior to our ipo , our board of directors obtained contemporaneous valuations from an unrelated third-party valuation firm to determine the estimated fair value of common stock . there is inherent uncertainty in these estimates and if we or the valuation firm had made different assumptions , the amount of our stock-based compensation expense , net loss , and net loss per share amounts could have been significantly different . following the completion of our ipo in february 2011 , the fair value of options granted is based on the closing price of our common stock on the date of grant as quoted on the nasdaq global select market . historically , certain of our stock options were granted to officers with vesting acceleration features based upon the achievement of certain performance milestones . the timing of the attainment of these milestones affected the timing of expense recognition since we recognize compensation expense only for the portion of stock options that are expected to vest . we recorded stock-based compensation of $ 16.8 million , $ 20.9 million , and $ 6.4 million during 2015 , 2014 , and 2013 , respectively . as of december 31 , 2015 , we have $ 29.8 million of total unrecognized compensation cost related to stock-based compensation arrangements that is expected to be recognized over an average period of 2.6 years . income taxes we use the asset and liability method to account for income taxes . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . 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 . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities , and any valuation allowance recorded against our deferred tax assets . our provision for income taxes generally consists of tax expense/benefit related to current period earnings/losses . as part of the process of preparing our consolidated financial statements , we continuously monitor the circumstances impacting the expected realization of our deferred tax assets for each jurisdiction . we consider all available evidence , including historical operating results in each jurisdiction , expectations and risks associated with estimates of future taxable income , and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . to the extent a deferred tax asset can not be recognized , a valuation allowance is established to reduce our deferred tax assets to the amount that is more likely than not to be realized . these deferred tax assets primarily consist of net operating loss carryforwards , research and development tax credits , and stock-based compensation . we intend to maintain such valuation allowance until sufficient evidence exists to support its reduction . our deferred tax liabilities primarily consist of book and tax basis differences in fixed assets and acquired identifiable intangible assets . we make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates . should the actual amounts differ from our estimates , the amount of our valuation allowance could be materially impacted . changes in 43 these estimates may result in significant increases or decreases to our tax provision in a period in which such estimates are changed , which in turn would affect net income or loss . we recognize the financial statement effects of a tax position when it is more likely than not , based on the technical merits , that the position will be sustained upon examination . any interest and penalties related to uncertain tax positions will be reflected in the income tax provision . we have not provided for u.s. federal and state income taxes on any of our non-u.s. subsidiaries ' undistributed earnings as of december 31 , 2015 because such earnings are intended to be indefinitely reinvested . upon distribution of such earnings in the form of dividends or otherwise , we believe there will be no material u.s. federal and state income tax liability as there are sufficient amount of tax losses or other attributes . undistributed earnings of our foreign subsidiaries amounted to approximately $ 0.9 million , as of december 31 , 2015. if these earning were to be repatriated , approximately $ 27,000 of withholding taxes may be due .
| unfavorable foreign exchange rates , primarily between the u.s. dollar and euro , adversely affected total revenue by approximately $ 5.0 million , or 15 % in 2015. continued weakness in foreign currencies , particularly the euro , relative to the u.s. dollar would be expected to have an adverse effect on our revenue . product revenue product revenue decrease d by $ 4.9 million , or 5 % , to $ 102.1 million for 2015 , compared to $ 107.1 million for 2014 . instrument revenue decreased by $ 1.8 million , or 3 % , to $ 58.4 million for 2015 , primarily due to decreases in unit sales of core genomic analytical systems , which include biomark , c1 and access array , and , to a lesser extent , lower average selling prices , partially offset by growth in unit sales of helios/cytof2 systems with relatively higher selling prices compared to core genomic systems , and contributions from new products including juno and polaris . unfavorable foreign exchange rates adversely affected instrument revenue by $ 3.6 million , or 6 % in 2015 compared to 2014. consumables revenue decreased by $ 3.2 million , or 7 % , to $ 43.7 million for 2015 , primarily due to decreases in ifc unit volumes from production genomics applications , as well as the negative effects of foreign exchange rates , which reduced consumables revenue by $ 2.3 million or 5 % in 2015. annualized ifc pull-through for our genomics analytical systems was within our revised range of $ 25,000 to $ 35,000 per system per year , compared to a range of $ 40,000 to $ 50,000 per system per year in 2014. in 2015 , annualized ifc pull-through for our genomics preparatory systems was within our expected range of $ 15,000 to $ 25,000 per system per year , and consumables pull-through for our proteomics analytical systems was within our historical range of $ 50,000 to $ 70,000 per system . ifc pull-through is determined by dividing the applicable ifc revenue for
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several factors can significantly affect revenue reported for our 3d printing machines for a given period including , among other things , ( i ) the overall low unit volume of 3d printing machine sales , ( ii ) the long lead times of our customers ' purchasing decisions and ( iii ) the acceleration or delay of orders and shipments of a small number of machines . 34 3d printed products , materials and other services . 3d printed products revenue is derived from our network of pscs located in the united states ( 3 ) , germany ( 1 ) and japan ( 1 ) . the pscs utilize our 3d printing machine technology to print products . in addition , our pscs are also full-service operations that provide support and services such as pre-production collaboration prior to printing products for a customer . revenue of materials depends upon the volume of consumables that we sell . sales of our consumables are linked to the number of our 3d printing machines that are installed and active worldwide . sales of consumables are also driven by our customers ' machine usage , which is generally a function of the size of the particular machine and the habits and budget of the particular end-user . larger machines generally use larger amounts of consumables due to their greater capacity and the higher levels of design and manufacturing activity that are typical of an end-user who utilizes a larger machine . cost of sales and gross profit . our cost of sales consists primarily of labor ( including service labor ) , parts ( including consumables and spare parts ) and overhead to produce 3d printing machines and 3d printed products , materials and other services . also included in cost of sales are license fees ( based upon a percentage of revenue of qualifying products and processes ) for the use of intellectual properties , warranty costs and other overhead associated with our production processes . the production capacity at our pscs ( as well as our 3d printing machine manufacturing facilities ) presently exceeds the current customer demand and as such a portion of our fixed overhead associated with these facilities is being recognized as a period expense rather than being capitalized as a product cost . we expect our excess capacity to decrease as sales of 3d printing machines and 3d printed products , materials and other services increase . our 3d printing machines are manufactured at our facilities in germany and the united states . the cost to manufacture machines consists of component parts , labor and production overhead . the cost of 3d printed products , materials and other services consist primarily of the material cost of our printed products , labor and overhead ( including facilities expense and other conversion costs ) . our gross profit is influenced by a number of factors . most important of these factors is the volume and mix of our 3d printing machines , products , materials and other services sold . as 3d printing machine sales are cyclical , we will seek to achieve an equal balance in revenue from 3d printing machines and 3d printed products , materials and other services in order to maximize gross profit while managing business risk . in addition , we expect to reduce our cost of sales over time by continued research and development activities directed towards achieving increased efficiencies in the production of 3d printing machines . our pscs will also seek to achieve lower material cost and improve throughput . we are continuously analyzing our supply chain to identify opportunities for better management , in partnership with our customers , in order to reduce the overall cost as a percentage of revenue in this area . operating expenses . our operating expenses consist of research and development expenses and selling , general and administrative expenses . research and development expenses . our research and development expenses consist primarily of salaries and related personnel expenses aimed at developing new machinery and materials . additional costs include the related software and materials , laboratory supplies , and costs for facilities and equipment . we charge all research and development expenses to operations as they are incurred , with the exception of expenses for specific equipment that we capitalize . selling , general and administrative expenses . our selling , general and administrative expenses consist primarily of employee-related costs ( salaries , benefits , equity-based compensation , education and training and travel ) of our executive officers , sales and marketing , finance , accounting , information technology and human resources personnel . other significant general and administrative costs include the facility costs related to our headquarters in north huntingdon , pennsylvania ( and the other four facilities where administrative personnel are located ) and external costs for legal , accounting , consulting and other professional services . 35 we expect our administrative expenses to increase in absolute terms and as a percentage of revenue as a result of the additional costs that we expect to incur as a result of becoming a public company . this will include , among other things , increased administrative personnel costs and legal and professional service expenses . long-term , we expect these expenses will decrease as a percentage of revenue . interest expense . interest expense consists of the interest cost associated with outstanding long-term debt and financing lease arrangements . we expect our interest expense to continue to decrease as our outstanding debt is lowered over time . included in our strategy is the consideration of early retirement of debt ( where practicable ) . provision for income taxes . prior to our reorganization as a corporation on january 1 , 2013 , we operated as a limited liability company whereby our members were taxed on a proportionate share of our taxable income . as such , no provision has been recorded for u.s. story_separator_special_tag several factors can significantly affect revenue reported for our 3d printing machines for a given period including , among other things , ( i ) the overall low unit volume of 3d printing machine sales , ( ii ) the long lead times of our customers ' purchasing decisions and ( iii ) the acceleration or delay of orders and shipments of a small number of machines . 34 3d printed products , materials and other services . 3d printed products revenue is derived from our network of pscs located in the united states ( 3 ) , germany ( 1 ) and japan ( 1 ) . the pscs utilize our 3d printing machine technology to print products . in addition , our pscs are also full-service operations that provide support and services such as pre-production collaboration prior to printing products for a customer . revenue of materials depends upon the volume of consumables that we sell . sales of our consumables are linked to the number of our 3d printing machines that are installed and active worldwide . sales of consumables are also driven by our customers ' machine usage , which is generally a function of the size of the particular machine and the habits and budget of the particular end-user . larger machines generally use larger amounts of consumables due to their greater capacity and the higher levels of design and manufacturing activity that are typical of an end-user who utilizes a larger machine . cost of sales and gross profit . our cost of sales consists primarily of labor ( including service labor ) , parts ( including consumables and spare parts ) and overhead to produce 3d printing machines and 3d printed products , materials and other services . also included in cost of sales are license fees ( based upon a percentage of revenue of qualifying products and processes ) for the use of intellectual properties , warranty costs and other overhead associated with our production processes . the production capacity at our pscs ( as well as our 3d printing machine manufacturing facilities ) presently exceeds the current customer demand and as such a portion of our fixed overhead associated with these facilities is being recognized as a period expense rather than being capitalized as a product cost . we expect our excess capacity to decrease as sales of 3d printing machines and 3d printed products , materials and other services increase . our 3d printing machines are manufactured at our facilities in germany and the united states . the cost to manufacture machines consists of component parts , labor and production overhead . the cost of 3d printed products , materials and other services consist primarily of the material cost of our printed products , labor and overhead ( including facilities expense and other conversion costs ) . our gross profit is influenced by a number of factors . most important of these factors is the volume and mix of our 3d printing machines , products , materials and other services sold . as 3d printing machine sales are cyclical , we will seek to achieve an equal balance in revenue from 3d printing machines and 3d printed products , materials and other services in order to maximize gross profit while managing business risk . in addition , we expect to reduce our cost of sales over time by continued research and development activities directed towards achieving increased efficiencies in the production of 3d printing machines . our pscs will also seek to achieve lower material cost and improve throughput . we are continuously analyzing our supply chain to identify opportunities for better management , in partnership with our customers , in order to reduce the overall cost as a percentage of revenue in this area . operating expenses . our operating expenses consist of research and development expenses and selling , general and administrative expenses . research and development expenses . our research and development expenses consist primarily of salaries and related personnel expenses aimed at developing new machinery and materials . additional costs include the related software and materials , laboratory supplies , and costs for facilities and equipment . we charge all research and development expenses to operations as they are incurred , with the exception of expenses for specific equipment that we capitalize . selling , general and administrative expenses . our selling , general and administrative expenses consist primarily of employee-related costs ( salaries , benefits , equity-based compensation , education and training and travel ) of our executive officers , sales and marketing , finance , accounting , information technology and human resources personnel . other significant general and administrative costs include the facility costs related to our headquarters in north huntingdon , pennsylvania ( and the other four facilities where administrative personnel are located ) and external costs for legal , accounting , consulting and other professional services . 35 we expect our administrative expenses to increase in absolute terms and as a percentage of revenue as a result of the additional costs that we expect to incur as a result of becoming a public company . this will include , among other things , increased administrative personnel costs and legal and professional service expenses . long-term , we expect these expenses will decrease as a percentage of revenue . interest expense . interest expense consists of the interest cost associated with outstanding long-term debt and financing lease arrangements . we expect our interest expense to continue to decrease as our outstanding debt is lowered over time . included in our strategy is the consideration of early retirement of debt ( where practicable ) . provision for income taxes . prior to our reorganization as a corporation on january 1 , 2013 , we operated as a limited liability company whereby our members were taxed on a proportionate share of our taxable income . as such , no provision has been recorded for u.s.
| revenue revenue for 2012 was $ 28,657 compared with revenue of $ 15,290 in 2011 , an increase of $ 13,367 , or 87.4 % . this increase was principally due to a higher volume of sales of 3d printing machines ( 13 in 2012 as compared to 5 in 2011 ) as well as 3d printed parts , materials and other services . revenue for 2011 was $ 15,290 compared with revenue of $ 13,440 in 2010 , an increase of $ 1,850 , or 13.8 % . this increase was principally due to a higher volume of sales of 3d printed parts , materials and other services . 36 the following table summarizes revenue by product line for each of the years ending december 31 : replace_table_token_2_th the following table summarizes 3d printing machines sold by type for each of the years ending december 31 ( refer to the our machines and machine platforms section of part i item 1 of this form 10-k for a description of 3d printing machines by type ) : replace_table_token_3_th the following table summarizes the significant components of the change in revenue by product line for 2012 compared to 2011 : replace_table_token_4_th the following table summarizes the significant components of the change in revenue by product line for 2011 compared to 2010 : replace_table_token_5_th cost of sales and gross profit cost of sales for 2012 was $ 16,514 compared with cost of sales of $ 11,647 in 2011 , an increase of $ 4,867 , or 41.8 % . cost of sales as a percentage of revenue was 57.6 % for 2012 compared with 76.2 % in 2011 , a decrease of 18.6 % . 37 cost of sales for 2011 was $ 11,647 compared with cost of sales of $ 10,374 in 2010 , an increase of $ 1,273 , or 12.3 % . cost of sales as a percentage of revenue was 76.2 % for 2011 compared with 77.2 % in 2010 , a decrease of 1.0 % . gross
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fair value of contingent consideration replace_table_token_10_th 2018 compared to 2017 the fair value of contingent consideration increased $ 3.1 million changes relate to the fair value of the potential future milestone payments of up to $ 60.0 million in cash associated with the spinal kinetics acquisition . for additional information , see note 3 of the notes to the consolidated financial statements . charges related to u.s. government resolutions replace_table_token_11_th 2017 compared to 2016 we recorded $ 14.4 million in 2016 for our settlements with the division of enforcement of the sec related to the sec 's investigation of ( 1 ) our prior accounting review and restatements of financial statements and ( 2 ) allegations of improper payments in brazil . for additional information , see note 13 of the notes to the consolidated financial statements . non-operating income ( expense ) replace_table_token_12_th non-operating income and expense largely consists of interest income and expense , transaction gains and losses from changes in foreign currency exchange rates , changes in fair value related to our equity holdings in bone biologics , inc. ( “ bone biologics ” ) , and other-than-temporary impairments on the eneura debt security . interest income in 2016 was primarily from our eneura debt security ; however , we discontinued recognizing interest income on the debt security in 2017. foreign exchange gains and losses are primarily a result of several of our foreign subsidiaries holding trade and intercompany payables or receivables in currencies ( most notably the u.s. dollar ) other than their functional currency . 2018 compared to 2017 other income ( expense ) , net , decreased $ 2.4 million decrease of $ 5.3 million associated with changes in foreign currency rates , as we recorded a non-cash remeasurement loss of $ 3.3 million in 2018 compared to a gain of $ 1.9 million in 2017 decrease of $ 3.1 million from impairments and changes in fair value relating to our equity holdings and warrants in bone biologics common stock partially offset by an increase of $ 5.6 million associated with an other-than-temporary impairment on the eneura debt security in 2017 that did not recur in 2018 2017 compared to 2016 other income ( expense ) , net , decreased $ 1.2 million decrease of $ 2.9 million associated with other-than-temporary impairments on the eneura debt security , as we recorded impairments of $ 5.6 million and $ 2.7 million before taxes in 2017 and 2016 , respectively 40 partially offset by an increase of $ 2.0 million associated with changes in foreign currency rates , as we recorded a non-cash remeasurement gain of $ 1.9 million in 2017 compared to a loss of less than $ 0.1 million in 2016 income taxes replace_table_token_13_th 2018 effective tax rate the decrease in the effective tax rate during the year was primarily a result of the decrease in income before income taxes , the reduction of the us statutory tax rate from 35 % to 21 % , and the 2017 charge from recording the impact of the tax cuts and jobs act ( the “ tax act ” ) that did not recur in 2018. the primary factors affecting our effective tax rate for 2018 are as follows : current period losses in jurisdictions where we do not currently receive a tax benefit state taxes and foreign income taxed at differing rates benefits of deductible equity compensation in excess of financial statement impact on december 22 , 2017 , the tax act was signed into law , making significant changes to the internal revenue code . changes include , but are not limited to , a corporate rate decrease from 35 % to 21 % effective for tax years beginning after december 31 , 2017 , the transition of u.s. international taxation from a worldwide tax system to a territorial system , and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of december 31 , 2017. we calculated our best estimate of the impact of the tax act in our 2017 year end income tax provision in accordance with our understanding of the tax act and guidance available as of the date of that filing . as a result , we recorded $ 8.3 million of additional income tax expense in the fourth quarter of 2017 , the period in which the legislation was enacted . this provisional amount related to remeasurement of certain deferred tax assets and liabilities , based on the rates at which they are expected to reverse in the future was $ 8.6 million . the provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was zero . we also recorded a benefit of $ 0.3 million related to an income tax liability recorded in 2016 related to repatriation of earnings from our subsidiary in puerto rico . we have finalized the accounting for the tax act , which resulted in an additional benefit of $ 0.6 million in the first quarter of 2018 and minimal adjustments in the fourth quarter . 2017 effective tax rate the decrease in the effective tax rate during the year was primarily a result of the increase in income before income taxes , partially offset by the charge related to recording the impact of the tax act . the primary factors affecting our effective tax rate for 2017 are as follows : the charge related to recognizing the impact of the tax act increases in unrecognized tax benefits current period losses in jurisdictons where we do not currently receive a tax benefit liquidity and capital resources cash , cash equivalents , and restricted cash at december 31 , 2018 was $ 72.2 million compared to $ 81.2 million at december 31 , 2017. replace_table_token_14_th 41 the following table presents free cash flow , a non-gaap financial measure , which is calculated by subtracting capital expenditures from net cash from operating activities . story_separator_special_tag replace_table_token_15_th operating activities cash flows from operating activities increased $ 10.9 million increase in net income of $ 7.6 million net decrease of $ 21.2 million for non-cash gains and losses , primarily related to deferred income taxes , share-based compensation expense , an other-than-temporary impairment incurred relating to the eneura debt security in 2017 , and loss on the valuation of our investments in bone biologics in 2018 net increase of $ 24.6 million relating to changes in working capital , primarily attributable to changes in inventories , as a result of improved inventory management initiatives put into place in 2017 and 2018 two of our primary working capital accounts are trade accounts receivable and inventory . day 's sales in receivables were 63 days at december 31 , 2018 compared to 53 days at december 31 , 2017 , with the increase largely attributable to our adoption of accounting standards update ( “ asu ” ) 2014-09 in 2018. inventory turns were 1.3 times as of december 31 , 2018 compared to 1.1 times at december 31 , 2017 , primarily resulting from improved inventory management initatives put into place in 2017 and 2018. adoption of asu 2016-18 , statement of cash flows ( topic 230 ) : restricted cash in november 2016 , the financial accounting standards board ( “ fasb ” ) issued asu 2016-18 , which reduces diversity in classification and presentation of restricted cash , including transfers between cash and restricted cash , on the statement of cash flows . we adopted this standard as of january 1 , 2018 using a retrospective transition approach . adoption of this asu resulted in an increase in net cash from operating activities of $ 2.5 million for the year ended december 31 , 2018 and a decrease in net cash from operating activities of $ 14.4 million for the year ended december 31 , 2017. investing activities cash flows from investing activities decreased $ 44.5 million decrease of $ 44.3 million associated with cash paid in relation to the spinal kinetics acquisition , net of cash acquired , which closed on april 30 , 2018 decrease of $ 0.9 million associated with the acquisition of certain intangible assets in transactions with former distributors in 2018 decrease of $ 0.5 million due to our additional investment in bone biologics during 2018 decrease of $ 0.5 million due to proceeds received in 2017 upon the maturity of certain time-based deposits partially offset by a reduction in capital expenditures of $ 1.7 million financing activities cash flows from financing activities decreased $ 0.5 million decrease in net proceeds of $ 0.3 million from the issuance of common shares decrease of $ 0.2 million related to the payment of debt issuance costs and other financing activities 42 credit facilities on august 31 , 2015 , we entered into a credit agreement with jpmorgan chase bank , n.a . ( “ jpmorgan ” ) , the administrative agent , and certain lenders party thereto , which provided a five year $ 125 million secured revolving credit facility . on december 8 , 2017 , we amended the credit agreement with jpmorgan . the primary provision of the amendment , among other things , was to add our subsidiary , orthofix international b.v. , as a borrower , guarantor , and a loan party . in addition , two of our subsidiaries , orthofix limited and orthofix ii b.v. were also added as guarantors and loan parties . on july 31 , 2018 , we amended and restated the credit agreement with jpmorgan and the lenders party thereto pursuant to a first amended and restated credit agreement ( “ amended credit agreement ” ) . the amended credit agreement is substantially the same as the previous credit agreement , except for certain amendments to , among other things , ( i ) effectuate the domestication of the company from a curaçao company to a delaware corporation , ( ii ) limit the pledge by the company and each domestic subsidiary of the company of equity interests in their respective first tier foreign subsidiaries to 65 % of the voting interests in such foreign subsidiaries , ( iii ) limit the guarantee and joint and several obligations of each subsidiary guarantor that is a foreign subsidiary so that such foreign subsidiary guarantors are only providing guarantees , or are jointly and severally obligated , for obligations of other foreign subsidiaries , and ( iv ) limit the secured obligations that are secured by collateral provided by subsidiary guarantors that are foreign subsidiaries to secured obligations of foreign subsidiaries . borrowings under the amended credit agreement may be used for , among other things , working capital and other general corporate purposes ( including share repurchases , permitted acquisitions and permitted payments of dividends and other distributions ) . as of december 31 , 2018 , we have not made any borrowings under the credit facility . for additional information regarding the credit facility , see note 10 of the notes to the consolidated financial statements in item 8 of this annual report . we had no borrowings and an unused available line of credit of 5.8 million ( $ 6.7 million and $ 7.0 million ) at december 31 , 2018 and 2017 , respectively , on our italian line of credit . this unsecured line of credit provides us the option to borrow amounts in italy at rates which are determined at the time of borrowing . other for information regarding contingencies , see note 13 of the notes to the consolidated financial statements in item 8 of this annual report . spinal kinetics acquisition and contingent consideration as consideration for the spinal kinetics acquisition , we agreed to pay an aggregate of $ 45.0 million in cash , subject to certain adjustments , upon closing plus milestone payments in the future of up to $ 60.0 million in cash .
| 2018 compared to 2017 net sales increased $ 9.4 million or 5.0 % increase primarily driven by the execution of our commercial strategies and the continued leverage of our recently launched next generation products supported by our stim on track mobile application 2017 compared to 2016 net sales increased $ 9.3 million or 5.3 % increased as we continue to leverage the engagement of our expansive sales force , the positive north american spine society ( “ nass ” ) coverage recommendation and the launch of our next generation products and stim on track spinal implants spinal implants designs , develops and markets a broad portfolio of implant products used in surgical procedures of the spine . spinal implants distributes its products globally through a network of distributors and sales representatives to sell spine products to hospitals and healthcare providers . 2018 compared to 2017 net sales increased $ 9.7 million or 11.8 % increase of $ 8.7 million driven by international sales of m6 artificial discs subsequent to our acquisition of spinal kinetics , which closed during the second quarter of 2018 increase of 3.4 % in u.s. sales due to the annualized sales of new distributor partners added during 2017 and from the uptake of recent product introductions decrease in legacy international sales , primarily as a result of disruption to our distribution in our australian and german subsidiaries 2017 compared to 2016 net sales increased $ 9.3 million or 12.8 % increase of 20.6 % in u.s. sales due to the addition of new distributor partners in the last several quarters ; the uptake of recent product introductions , including our ptc family product lines and cetra ; and improved legacy distributor engagement despite strong performance in certain locations , such as australia , year-over-year international sales decreased largely due to a decrease in order volumes from international stocking distributors biologics biologics provides a portfolio of regenerative products and tissue forms that allow physicians to successfully treat a variety of spinal and orthopedic conditions . biologics markets its tissues to hospitals and healthcare providers , primarily in the u.s. , through a network of employed and independent sales representatives . 2018 compared to 2017 net sales decreased $ 3.0 million or 4.8 % 36 decrease of 6.1 % primarily driven by the contractual reduction during the first quarter of 2018 in the amount we receive for marketing service fees
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the weakening of the gbp since the initial brexit vote has and may continue to adversely affect our results of operations , as well as have a negative impact on the pricing and affordability of the vehicles in the u.k. volatility in exchange rates is expected to continue in the short term , at least until there is a clear path forward in response to brexit . in 2019 , the brazilian economy , which represents the ninth largest economy in the world , continued to recover from a recession . during 2019 , new vehicle registrations in brazil increased 7.6 % , to 2.7 million units as compared to the same period in 2018. we expect macro-economic conditions to continue to improve in brazil . longer term , we expect sustained improvements in industry sales volumes and are utilizing a strategy of aligning with growing brands , in order to most effectively capitalize on that industry growth . recent accounting pronouncements refer to note 1 “ business and summary of significant accounting polices ” within our notes to consolidated financial statements for a discussion of those most recent pronouncements that impact us . critical accounting policies and accounting estimates the preparation of our financial statements in conformity with u.s. gaap requires management to make certain estimates and assumptions , including those associated with the difficult , subjective and complex areas described above . these estimates and assumptions affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period . below are the accounting policies and estimates that have been determined to be critical to our business operations and the understanding of our results of operations . goodwill and intangible franchise rights goodwill represents the excess , at the date of acquisition , of the purchase price of the business acquired over the fair value of the net tangible and intangible assets acquired . we are organized into three geographic regions , the u.s. region , the u.k. region and the brazil region . we have determined that each region represents a reporting unit for the purpose of assessing goodwill for impairment . our only significant identifiable intangible assets , other than goodwill , are rights under franchise agreements with manufacturers , which are recorded at an individual dealership level . we evaluate goodwill and intangible franchise rights for impairment annually in the fourth quarter , or more frequently if events or circumstances indicate possible impairment has occurred . in evaluating goodwill and intangibles for impairment , an optional qualitative assessment may be initially performed to determine whether it is more likely than not ( i.e. , a likelihood of greater than 50 % ) that an impairment exists . if it is concluded that it is more likely than not that an impairment exists , a quantitative test is required to measure the amount of impairment which , for goodwill , consists of comparing the fair value of the reporting unit to its carrying amount and , for intangibles , consists of comparing the fair value of the intangible asset to its carrying amount . when a quantitative impairment test is performed , we estimate fair value using a combination of the discounted cash flow , or income approach , and the market approach . significant assumptions included in the model include changes in revenue growth rates , future gross margins , future sg & a expenses , and the wacc and terminal growth rates . for the market approach , we utilize recent market multiples of guideline companies for both revenue and pre-tax net income weighted as appropriate by reporting unit . each of these assumptions requires us to use its knowledge of ( 1 ) the industry , ( 2 ) recent transactions and ( 3 ) reasonable performance expectations for its operations . our qualitative test includes a review of changes , since the last quantitative test was performed , in those assumptions having the most significant impact on the current year fair value , which are consistent with the significant assumptions identified in the quantitative test above . during the years ended december 31 , 2019 , 2018 and 2017 , we recorded $ 19.0 million , $ 38.7 million and $ 19.3 million , respectively , of impairments of intangible franchise rights . see note 11 “ intangible franchise rights and goodwill ” within our notes to consolidated financial statements for details on our intangibles , including the results of our impairment testing . 28 chargebacks we may be charged back in the future for unearned financing , insurance contract or vehicle service contract fees in the event of early termination of the contracts by customers . a reserve for future amounts estimated to be charged back , representing variable consideration , is recorded as a reduction of finance , insurance and other revenue , net in the consolidated statement of operations . the reserve is estimated based on our historical charge back results and the termination provisions of the applicable contracts , and was $ 49.7 million and $ 46.4 million at december 31 , 2019 and 2018 , respectively . see note 1 “ business and summary of significant accounting policies ” and note 2 “ revenues ” within our notes to consolidated financial statements , for further discussion of these accounting policies and estimates . story_separator_special_tag driven an increase in our technician count of approximately 320 professionals in the last twelve months , a 13 % increase . f & i same store revenue increased 7.9 % as a result of an increase in our retail unit sales , improvements in income per contract on vehicle service and finance contracts , as well as higher penetration rates on finance and other insurance product offerings . story_separator_special_tag gross profit total gross profit in the u.s. during the year ended december 31 , 2019 increased $ 103.5 million , or 7.4 % , as compared to the same period in 2018. total same store gross profit in the u.s. during the year ended december 31 , 2019 increased $ 104.6 million , or 7.7 % , as compared to the same period in 2018. the increase in total same store gross profit was driven by increases in parts and service , f & i and used vehicle retail gross profit , partially offset by a decrease in new vehicle gross profit . new vehicle retail same store gross profit decreased 1.0 % due to lower new vehicle unit sales as industry new vehicle sales have slowed . used vehicle retail same store gross profit increased 14.3 % as a result of an 8.4 % increase in used vehicle retail unit sales and a 5.4 % increase in used vehicle retail same store average gross profit pru . the increased same store used vehicle retail pru reflects our recently implemented big-data driven pricing strategies . parts and service same store gross profit and f & i same store gross profit increased 9.5 % and 7.9 % , respectively , driven by the increase in revenue described above . total same store gross margin increased 30 basis points as our higher margin businesses grew at a faster pace than our lower gross margin new vehicle business . sg & a expenses our sg & a expenses consist primarily of personnel costs , including salaries , commissions and incentive-based compensation , as well as rent and facility costs , advertising and other expenses , which include legal , professional fees and general corporate expenses . total sg & a expenses in the u.s. during the year ended december 31 , 2019 increased $ 93.5 million , or 9.5 % , as compared to the same period in 2018. total same store sg & a expenses in the u.s. during the year ended december 31 , 2019 , increased $ 80.8 million , or 8.3 % , as compared to the same period in 2018. same store sg & a expenses in 2019 includes $ 17.8 million of net costs associated with hail storms and flooding from tropical storm imelda in texas ; $ 0.7 million in net gains on real estate and dealership transactions ; and $ 1.1 million in non-core legal expenses . same store sg & a expenses in 2018 includes $ 6.4 million for costs associated with catastrophic events ; $ 4.7 million in net gains on real estate transactions ; and $ 1.3 million in non-core legal expenses . total same store sg & a expenses as a % of gross profit increased 40 basis points , primarily explained by a $ 11.4 million increase in insurance costs driven by $ 11.9 million in deductible expenses associated with the building and vehicle deductibles related to the flooding from tropical storm imelda in texas and a $ 4.0 million decrease in net gains in real estate and dealership transactions . 36 reported operating data - u.s. ( in millions , except unit and per unit amounts ) replace_table_token_12_th 37 same store operating data - u.s. ( in millions , except unit and per unit amounts ) replace_table_token_13_th 38 year ended december 31 , 2018 compared to 2017 the following discussion of our u.s. operating results is on a same store basis . the difference between reported amounts and same store amounts is related to acquisition and disposition activity , as well as new add-point openings . revenue total revenue in the u.s. during the year ended december 31 , 2018 increased $ 42.7 million , or 0.5 % , as compared to the same period in 2017. total same store revenue in the u.s. during the year ended december 31 , 2018 declined $ 60.4 million , or 0.7 % , as compared to the same period in 2017. the decline in u.s. same store revenue was driven by declines in new vehicle retail and used vehicle wholesale revenues which were partially offset by increases in all other revenue streams . new vehicle retail same store revenue declined 3.1 % , driven by a 4.8 % decline in same store new vehicle retail unit sales . the decline in new vehicle unit sales was primarily driven by difficult prior year comparisons in our houston and beaumont markets , reflecting strong replacement demand during the tail end of 2017 following hurricane harvey . further contributing to the decrease in same store u.s. new vehicle unit sales was an overall decline in new vehicle retail demand in the industry compared to 2017. used vehicle retail same store revenue increased 5.3 % driven by 8.8 % increase in retail units , as a result of the launch of val-u-line® during the first quarter of 2018. the val-u-line® initiative enabled us to move older model , higher mileage units from wholesale to retail sales which resulted in a 29.8 % decrease in same store used vehicle wholesale revenue . our u.s. same store parts and service revenues increased 2.2 % reflecting a 4.5 % increase in customer-pay parts and service revenues and a 5.0 % increase in wholesale parts revenues , partially offset by a 3.7 % decline in warranty parts and service revenues , when compared to the same period in 2017. the growth in our customer-pay parts and service revenue in the u.s. was supported by continued implementation of numerous aftersales initiatives , including the roll out of a four-day work week service schedule that has increased capacity in a significant number of our service departments by allowing us to improve our recruiting and retention efforts with our service technicians and service advisor professionals .
| certain disclosures are reported as zero balances , or may not compute , due to rounding . 29 the following tables summarize our operating results on a reported basis and on a same store basis for the year ended december 31 , 2019 as compared to 2018 and for the year ended december 31 , 2018 , as compared to 2017 . reported operating data - consolidated ( in millions , except unit and per unit amounts ) replace_table_token_6_th ( 1 ) floorplan assistance is included within new vehicle retail gross profit above and new vehicle retail cost of sales in our consolidated statements of operations . 30 reported operating data - consolidated ( in millions , except unit and per unit amounts ) replace_table_token_7_th ( 1 ) floorplan assistance is included within new vehicle retail gross profit above and new vehicle retail cost of sales in our consolidated statements of operations . 31 same store operating data - consolidated ( in millions , except unit and per unit amounts ) replace_table_token_8_th 32 same store operating data - consolidated ( in millions , except unit and per unit amounts ) replace_table_token_9_th 33 reported operating data - u.s. ( in millions , except unit and per unit amounts ) replace_table_token_10_th 34 same store operating data - u.s. ( in millions , except unit and per unit amounts ) replace_table_token_11_th 35 year ended december 31 , 2019 compared to 2018 the following discussion of our u.s. operating results is on a same store basis . the difference between reported amounts and same store amounts is related to acquisition and disposition activity , as well as new add-point openings . revenue total revenue in the u.s. during the year ended december 31 , 2019 increased $ 461.0 million , or 5.3 % , as compared to the same period in 2018. total same store revenue in the u.s. during the year ended december 31 , 2019 increased $ 469.1 million , or 5.5 % , as compared to the same period in 2018. the increase in u.s .
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mr. hume and data i/o entered into a separation agreement on march 1 , 2012. see note 15 to the accompanying consolidated financial statements for further information on this subsequent event . from january through july 2011 , we retained tm capital as a financial advisor to assist with developing and pursuing a range of strategic options for data i/o . these strategic options included acquisitions , marketing and sale of data i/o , uses of cash , and execution of the data i/o 's current development strategies . following a detailed review of the available options , we determined that continued execution of the current development strategies , as well as implementation of share repurchase programs , were the best alternatives to pursue . we are focusing our research and development efforts in our strategic growth markets , namely new programming technology , automated programming systems for the manufacturing environment and software tools for design engineers . we continue to focus on extending the capabilities and support for our flashcore architecture , and the roadrunner , flx , ps and flashpak product lines . our applications innovation strategy provides complete solutions to target customer 's business problems . these solutions generally have a larger software element , may involve third-party components , and in many cases will be developed or customized to address the specific requirements of individual customers . we believe by adding these features to our strategic product platforms , we will continue to set ourselves apart from other product suppliers and elevate our relationships with our customers to a partner level . our acquisition of software technology in april of 2011 , which we now call azido , was considered a foundational technology for data i/o , as we use the software in the development of our programming technology to combine with other solutions and for potential commercialization as a tool itself . our customer focus has been on strategic high volume manufacturers in key market segments like wireless , automotive , industrial controls and programming centers and supporting nand flash , like e-mmc , and microcontrollers on our newer products to gain new accounts . we continued to expand our china operations to take advantage of the growth of manufacturing in china and to operate close to our customers . we continued to address the effectiveness of our sales and marketing organization and sales channels by adding and changing channels and by providing all of our channel partners with extensive product and sales training . we recognized the need to diversify our customer base and 18 are continuing to take steps to broaden and improve our channels of distribution and representation to reach a greater number of customers . we believe these channel changes will help us grow our business more rapidly , both by adding new customers and increasing penetration of existing accounts . b usiness r estructuring p rogress as a result of the business down turn we were experiencing in the fourth quarter of 2008 and the uncertain business outlook at that time , restructuring actions were taken to reduce expenses . this resulted in restructuring charges , primarily related to severance , of $ 542,000 for the year 2008. we took additional actions in 2009 totaling $ 203,000 to flatten and streamline the organization as well as reduce costs by decreasing the size of our board and abandoning a portion of our building space . at december 31 , 2010 , restructure costs of $ 58,000 remained accrued , which in february 2011 were incorporated in a lease amendment . no restructure amounts remain accrued at december 31 , 2011. c ritical a ccounting p olicy j udgments and e stimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires that we make estimates and judgments , which affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , data i/o evaluates our estimates , including those related to sales returns , bad debts , inventories , investments , intangible assets , income taxes , warranty obligations , restructuring charges , contingencies such as litigation and contract terms that have multiple elements and other complexities typical in the capital equipment industry . we base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . data i/o believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements : revenue recognition : sales of data i/o 's semiconductor programming equipment are recognized at the time of shipment . we have determined that our automated products have reached a point of maturity and stability such that product acceptance can be assured by testing at the factory prior to shipment and that the installation meets the criteria to be considered a separate element . these systems are standard products with published product specifications and are configurable with standard options . the evidence that these systems could be accepted was based upon having standardized factory production of the units , results from batteries of tests of product performance to our published specifications , quality inspections and installation standardization , as well as past product operation validation with customers and the history provided by our installed base of products upon which the current versions were based . when arrangements include multiple elements , we recognize revenue when the criteria for revenue recognition have been met for each element individually . effective january 1 , 2011 , under the provision of asu 2009-13 revenue recognition ( topic 605 ) , the allocation of revenue among multiple elements is done on a pro-rata versus residual basis for the recognized revenue . story_separator_special_tag this change did not materially affect our financial statements . the amount of revenue recognized is affected by our judgments as to the collectability of the transaction or whether an arrangement includes multiple elements and if so , whether specific objective evidence of selling price exists for those elements . the measure of standalone selling price of the product versus the service installation value component is determined by the amount data i/o pays to independent representative service groups or the amount of additional discount given to independent distributors , to provide the service installation . changes to the elements in an arrangement and the ability to establish specific objective evidence for those elements could affect the timing of the revenue recognition . these conditions could be subjective and actual results could vary from the estimated outcome . installation that is considered perfunctory includes any installation that can be performed by other parties , such as distributors , other vendors , or in most cases the customer themselves . this takes into account the complexity , skill , and training needed as well as customer expectations regarding installation . the revenue related to products requiring installation that is perfunctory is recognized at the time of shipment provided that persuasive evidence of an arrangement exists , shipment has occurred , the price is fixed or determinable , and collectability is reasonably assured . we record revenue from the sale of service and update contracts as deferred revenue and we recognize it on a straight-line basis over the contractual period , which is typically one year . service revenue from time and materials contracts and training services is recognized as services are performed . we recognize software revenue upon shipment provided that no significant obligations remain on our part , substantive acceptance conditions , if any , have been met and when the fee is fixed and determinable and when collection is deemed probable . certain fixed-price engineering service contracts that require significant production , modification , or customization of software , are 19 accounted for using the percentage-of-completion method . we use the percentage-of-completion method of accounting because it is the most accurate method to recognize revenue based on the nature and scope of our fixed-price professional engineering service contracts ; it is a better measure of periodic income results than other methods and it better matches revenue recognized with the costs incurred . percentage of completion is measured based primarily on input measures such as hours incurred to date compared to total estimated hours to complete , with consideration given to output measures , such as contract milestones , when applicable . significant judgment is required when estimating total hours and progress to completion on these arrangements , which determines the amount of revenue we recognize as well as whether a loss is recognized if one is expected to be incurred upon project completion . revisions to hour and cost estimates are incorporated in the period the amounts are recognized if the results of the period have not been reported ; otherwise , the revision of estimates are recognized in the period in which the facts that give rise to the revision become known . we establish a reserve for sales returns based on historical trends in product returns and estimates for new items . data i/o has a stated return policy that customers can return standard products for any reason within 30 days after delivery provided that the returned product is received in its original condition , including all packaging materials , for a refund of the price paid less a restocking charge of 30 % of the total amount invoiced for the product returned , unless such restocking charge is waived by data i/o . for us to recognize revenue , the price is fixed or determinable at the date of the sale , the buyer has paid or is obligated to pay and the obligation is not contingent on resale of the product , the buyer 's obligation would not be changed in the event of theft , physical destruction or damage to the product , the buyer acquiring the product for resale has economic substance apart from data i/o and we have no contractual obligations for future performance to directly bring about the resale of the product by the buyer . allowance for doubtful accounts : we base the allowance for doubtful accounts receivable on our assessment of the collectability of specific customer accounts and the aging of accounts receivable . if there is deterioration of a major customer 's credit worthiness or actual defaults are higher than historical experience , our estimates of the recoverability of amounts due to us could be adversely affected . inventory : inventories are stated at the lower of cost or market . adjustments are made to standard cost , which approximates actual cost on a first-in , first-out basis . we estimate reductions to inventory for obsolete , slow-moving , excess and non-salable inventory by reviewing current transactions and forecasted product demand . we evaluate our inventories on an item by item basis and record inventory adjustments accordingly . if there is a significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements , data i/o may be required to increase our inventory adjustments and our gross margin could be adversely affected . warranty accruals : data i/o accrues for warranty costs based on the expected material and labor costs to fulfill our warranty obligations . if we experience an increase in warranty claims , which are higher than our historical experience , our gross margin could be adversely affected .
| 2011 was $ 1.5 million compared to $ 1.6 million at december 31 , 2010. g ross m argin replace_table_token_4_th gross margin as a percentage of sales was 57.1 % for the year ended december 31 , 2011 , compared with 58.1 % in 2010. the change in gross margin percentage was primarily due to higher service expense of $ 285,000 , product mix-related higher materials cost of $ 184,000 , and increased factory variances of $ 148,000 , offset in part by lower engineering costs associated with software development contracts compared to 2010. r esearch and d evelopment replace_table_token_5_th 21 research and development ( “ r & d ” ) spending for the year ended december 31 , 2011 , increased by $ 1,311,000 compared to the same period in 2010. we increased our spending on r & d primarily to accelerate new product initiatives including development efforts and amortization related to our software technology acquisition called azido . this increase includes $ 519,000 higher personnel costs , $ 318,000 less engineering costs absorbed by operations on custom software development contracts , and $ 295,000 of azido amortization expense . during the fourth quarter of 2011 , we scaled back our r & d spending as certain new product initiatives were adjusted or completed and launched . our r & d spending also fluctuates based on the number and the development stage of projects . new products introduced in 2011 included roadrunner3 , factory integration software , and enhancements to flashcore iii . the new flxhd , an automated system for duplicating e-mmc nand devices was introduced in february 2012. we believe it is essential to invest in r & d to significantly enhance our existing products and to create new products as markets develop and technologies change . in addition to product development , a significant part of r & d spending is on creating software and support for new devices introduced by the semiconductor companies . we are focusing our r & d efforts on solutions for
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27 the following tables summarize our investments in real estate ( excluding corporate office and assets held for sale ) and mortgage and other notes receivable as of december 31 , 2012 ( dollars in thousands ) : replace_table_token_6_th 28 for the year ended december 31 , 2012 , operators of facilities which provided more than 3 % of our total revenues were ( in alphabetical order ) : bickford senior living ; emeritus senior living ; fundamental long term care holdings , llc ; health services management , inc. ; landmark senior living ; legend healthcare , llc ; national healthcare corp. ; seniorhealth of rutherford , llc ; seniortrust of florida , inc ; senior living management corporation , llc ; sp silverdale , llc ; and white pine senior living . as of december 31 , 2012 , our average effective annual rental income was $ 7,522 per bed for snfs , $ 7,577 per unit for alfs , $ 4,401 per unit for ilfs , $ 29,310 per bed for hospitals , and $ 12 per square foot for mobs . we invest a portion of our funds in the preferred and common shares of other publicly-held healthcare reits to ensure a substantial portion of our assets are invested for real estate purposes . at december 31 , 2012 , such investments were $ 51,016,000 . areas of focus we are evaluating and will potentially make investments in 2013 while continuing to monitor and improve our existing properties . even as we make new investments , we expect to maintain a relatively low level of debt compared to the value of our assets and relative to our peers in the industry . approximately 65 % of our revenue from continuing operations is from operators of our skilled nursing facilities that receive a significant portion of their revenue from governmental payors , primarily medicare and medicaid . such revenues are subject annually to statutory and regulatory changes , and in recent years , have been reduced due to federal and state budgetary pressures . as a result , in 2009 we began to diversify our portfolio by focusing a significant portion of our investments into private-pay assisted living , memory care and other properties which do not rely primarily on medicare and medicaid reimbursement . according to a recent estimate by the u.s. department of health and human services , the number of americans 65 and older is expected to grow 36 % between 2010 and 2020 , compared to a 9 % growth rate for the general population . an increase in this age demographic is expected to increase the demand for senior housing properties in the coming decades . our new investments in real estate and mortgage notes in 2013 are expected to be funded by our liquid investments and by debt financing . we intend to make new investments that meet our underwriting criteria and where we believe the spreads over our cost of capital will generate sufficient returns to our shareholders . critical accounting policies we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . these accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates and cause our reported net income to vary significantly from period to period . if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our consolidated results of operations , liquidity and or financial condition . we consider an accounting estimate or assumption critical if : 1. the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and 2. the impact of the estimates and assumptions on financial condition or operating performance is material . our significant accounting policies and the associated estimates , judgments and the issues which impact these estimates are as follows : 1 ) valuations and impairments to our investments - the majority of our tenants and borrowers are in the long-term health care industry ( snfs and alfs ) where snfs derive their revenues primarily from medicare , medicaid and other government programs . amounts paid under these government programs are subject to legislative and government budget constraints . from time to time , there may be material changes in government reimbursement . in the past , snfs have experienced material reductions in government reimbursement . the long-term health care industry has also experienced a dramatic increase in professional liability claims and in the cost of insurance to cover such claims . these factors combined to cause a number of bankruptcy filings , bankruptcy court rulings and 29 court judgments affecting our lessees and borrowers . in prior years , we have determined that impairment of certain of our investments had occurred as a result of these events . we evaluate the recoverability of the carrying values of our properties on a property-by-property basis . on a quarterly basis , we review our properties for recoverability when events or circumstances , including significant physical changes in the property , significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property , indicate that the carrying amount of the property may not be recoverable . the need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property . if recognition of an impairment charge is necessary , it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property . story_separator_special_tag for notes receivable , impairment recognition is based upon an evaluation of the estimated collectibility of contractual loan payments and general economic conditions on a specific loan basis . on a quarterly basis , we review our notes receivable for ability to realize on such notes when events or circumstances , including the non-receipt of contractual principal and interest payments , significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions , indicate that the carrying amount of the note receivable may not be recoverable . if necessary , impairment is measured as the amount by which the carrying amount exceeds the fair value as measured by the discounted cash flows expected to be received under the note receivable or , if foreclosure is probable , the fair value of the collateral securing the note receivable . we evaluate our marketable equity securities for other-than-temporary impairments . an impairment of a marketable equity security would be considered “ other-than-temporary ” unless we have the ability and intent to hold the investment for a period of time sufficient for a forecasted market price recovery up to ( or beyond ) the cost of the investment and evidence indicates the cost of the investment is recoverable within a reasonable period of time . for our arrangement with bickford discussed below , our initial allocation of the purchase price reflects estimated cash flows resulting from the separate activities and sources of cash resulting from the venture , using discounted cash flow methods in accordance with our policies . as with our real estate investments , we evaluate the recoverability of the carrying values of our properties on an individual basis . on a quarterly basis , we review our properties for recoverability when events or circumstances , including significant physical changes in the property or deterioration of the operations , significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the entities , indicate that the carrying amount of the entities may not be recoverable . the need to recognize an impairment charge is based on estimated undiscounted future cash flows from a source compared to the carrying value of that property or , for the operating company , its operations . if recognition of an impairment charge is necessary , it is measured as the amount by which the carrying amount of the investment exceeds the fair value of the estimated undiscounted future cash flows from that source . while we believe that the carrying amounts of our properties and arrangement with bickford are recoverable and our notes receivable , marketable securities and other investments are realizable , it is possible that future events could require us to make significant adjustments or revisions to these estimates . 2 ) revenue recognition - interest and rental income - we collect interest and rent from our customers . generally , our policy is to recognize revenues on an accrual basis as earned . however , there are certain of our customers , for whom we have determined , based on insufficient historical collections and the lack of expected future collections , that revenue for interest or rent is not probable of collection until received . for these investments , our policy is to recognize interest or rental income when assured , which we consider to be the period the amounts are collected . we identify investments as nonperforming if a required payment is not received within 30 days of the date it is due . this policy could cause our revenues to vary significantly from period to period . revenue from minimum lease payments under our leases is recognized on a straight-line basis to the extent that future lease payments are considered collectible . lease payments that depend on a factor directly related to future use of the property , such as an increase in annual revenues over a base year revenues , are considered to be contingent rentals , are included in rental income when they are determinable and earned , and are excluded from future minimum lease payments . 3 ) as part of the process of preparing our consolidated financial statements , significant management judgment is required to evaluate our compliance with reit requirements . our determinations are based on interpretation of tax laws , and our conclusions may have an impact on the income tax expense recognized . we believe that we have operated our business so as to qualify as a reit under sections 856 through 860 of the internal revenue code of 1986 , as amended ( the “ code ” ) , and we intend to continue to operate in such a manner , but no assurance can be given that we will be able to qualify at all times . effective october 1 , 2012 , we began to record income tax expense or benefit with respect to our subsidiary which will be taxed as a taxable reit subsidiary ( `` trs '' ) under provisions similar to those applicable to regular corporations . aside from such income taxes that may be applicable to the taxable income in our trs , we will not be subject to u.s. federal income tax , provided that we continue to qualify as a reit and make distributions to stockholders equal to or in excess of our taxable income . this treatment substantially eliminates 30 the “ double taxation ” ( at the corporate and stockholder levels ) that typically applies to corporate dividends . our failure to continue to qualify under the applicable reit qualification rules and regulations would cause us to owe state and federal income taxes and would have a material adverse impact on our financial position , results of operations and cash flows .
| facilities purchased and leased to legend healthcare in 2011 and 2012 increased depreciation expense by $ 1,646,000. interest expense related to our borrowings on a bank credit facility to fund new real estate and loan investments . upfront fees and other loan-related costs are amortized over the term of the credit facility . the $ 1,197,000 decrease in the fair value of the interest rate swap agreement increased interest expense in 2011 since the agreement , which was terminated in 2011 , did not qualify for hedge accounting treatment . in 2012 , adjustments totaling $ 1,241,000 reflecting the change in fair value of our cash flow hedge were recorded in other comprehensive income and not as a component of operations as the new interest rate swap qualified for hedge accounting . an increase in interest payments and loan cost amortization of $ 841,000 resulted from expanded borrowings , offset by a lower libor underlying our floating-rate debt in 2012. we expect to fund future healthcare real estate investments with borrowings from our bank credit facility and possibly longer-term u.s. government agency debt , thereby increasing our interest expense . our net loan and realty recoveries of $ 2,195,000 in 2012 reflect a recovery of $ 4,495,000 on mortgage notes receivable , net of the seniortrust mortgage note impairment of $ 2,300,000 as discussed in the notes to the consolidated financial statements . nhi 's continuing collection history with seniortrust , and the deterioration of the financial condition and creditworthiness of the borrower indicated that the carrying value of the mortgage note receivable was not recoverable . share-based compensation expense decreased in 2012 based upon lower stock volatility which is a key input to the black-scholes pricing model for determining the market value of our stock options granted to directors and employees . the value of the options is expensed over the vesting period of the individual grants . investment and other gains in 2012 includes income of $ 4,605,000 related to an equity participation
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costs of revenue include compensation and benefits for billable employees and personnel involved in production , data management and delivery , and the costs of acquiring and processing data for our information offerings ; costs of staff directly involved with delivering technology-related services offerings and engagements , related accommodations and the costs of data purchased specifically for technology services engagements ; and other expenses directly related to service contracts such as courier fees , laboratory supplies , professional services and travel expenses . as noted above , reimbursed expenses are comprised principally of payments to investigators who oversee clinical trials and travel expenses for our clinical monitors and sales representatives . selling , general and administrative expenses include costs related to sales , marketing , and administrative functions ( including human resources , legal , finance and general management ) for compensation and benefits , travel , professional services , training and expenses for information technology ( it ) , facilities and depreciation and amortization . foreign currency translation in 2016 , approximately 36 % of our revenues were denominated in currencies other than the united states dollar . because a large portion of our revenues and expenses are denominated in currencies other than the united states dollar and our financial statements are reported in united states dollars , changes in foreign currency exchange rates can significantly affect our results of operations . the revenue and expenses of our foreign operations are generally denominated in local currencies and translated into united states dollars for financial reporting purposes . accordingly , exchange rate fluctuations will affect the translation of foreign results into united states dollars for purposes of reporting our consolidated results . as a result , we believe that providing the 54 impact of fluctuations in foreign currency rates on certain financial results can facilitate the analysis of period-to-period comparisons of business performance that excludes the effects of foreign currency rate fluctuations . the constant currency information assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results . story_separator_special_tag development solutions , which included the incremental impact from the businesses that quest contributed to q 2 solutions , a $ 4 million increase in integrated engagement services , and a $ 14 million increase in general corporate and unallocated expenses . the constant currency increase in general corporate and unallocated expenses in 2015 was primarily due to higher stock-based compensation expense and costs associated with the q 2 solutions transaction . 57 depreciation and amortization replace_table_token_11_th 2016 compared to 2015 the $ 161 million increase in depreciation and amortization in 2016 was primarily the result of the merger with ims health . 2015 compared to 2014 the $ 7 million increase in depreciation and amortization in 2015 included a constant currency increase of $ 11 million , or 9.0 % , partially offset by a positive impact of approximately $ 4 million from the effects of foreign currency fluctuations . the constant currency growth was primarily due to the incremental impact from the businesses that quest contributed to q 2 solutions . restructuring costs replace_table_token_12_th during 2016 , we recognized $ 71 million of restructuring charges , net of reversals for changes in estimates , under our existing restructuring plans . the remaining actions under these plans are expected to occur throughout 2017 , and are expected to consist of severance , facility closure and other exit-related costs . during 2015 , we recognized $ 30 million of restructuring charges , net of reversals for changes in estimates , associated with both the february 2015 restructuring plan and the q 2 solutions restructuring plan . during 2014 , we recognized $ 9 million of restructuring charges , net of reversals for changes in estimates , which was primarily related to our 2014 restructuring plans . merger related costs replace_table_token_13_th during 2016 we recognized $ 87 million of merger related costs . merger related costs include the direct and incremental costs associated with the merger such as ( i ) investment banking , legal , accounting and consulting fees , ( ii ) incremental compensation costs triggered under change in control provisions in executive employment agreements , ( iii ) compensation and related costs of employees 100 % dedicated to merger-related integration activities and ( iv ) severance and other termination costs associated with employees whose positions became redundant as a result of the merger . 58 impairment charges replace_table_token_14_th during 2016 , we recognized $ 28 million of impairment losses for other than temporary declines in fair value of goodwill ( $ 23 million ) and identifiable intangible assets ( $ 5 million ) in our encore reporting unit . see note 17 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k for additional information with respect to impairment charges . during the fourth quarter of 2015 , we exited a training facility in japan , resulting in a $ 2 million impairment of the land and building . interest income and interest expense replace_table_token_15_th interest income included interest received primarily from bank balances and investments . interest expense during 2016 was higher than 2015 due to an increase in the average debt outstanding , primarily as a result of the debt acquired from the merger . interest expense during 2015 reflects the increase in the average debt outstanding , primarily as a result of the $ 275 million term loan that was issued under the receivables financing facility in december 2014 and our new senior secured credit agreement and senior notes , both of which are described in liquidity and capital resources . this increase was offset by a decrease in the average rate of interest incurred on our debt as compared to 2014. loss on extinguishment of debt replace_table_token_16_th in the fourth quarter of 2016 , we recognized a $ 31 million loss on extinguishment of debt related to the refinancing of our senior secured credit facilities . story_separator_special_tag the loss on extinguishment of debt included an $ 8 million call premium , $ 9 million of unamortized debt issuance costs and $ 14 million of unamortized discount . in may 2015 , we recognized an $ 8 million loss on extinguishment of debt related to the refinancing of our senior secured credit facilities . the loss on extinguishment of debt included $ 1 million of unamortized debt issuance costs , $ 1 million of unamortized discount and $ 6 million of related fees and expenses . see liquidity and capital resources for more information on these transactions . 59 other ( income ) , expense net replace_table_token_17_th other ( income ) expense , net for 2016 primarily consisted of a gain on the sale of a cost basis investment partially offset by foreign currency net losses . other ( income ) , expense net for 2015 primarily consisted of $ 6 million of expense related to the change in fair value of contingent consideration related to an acquisition , partially offset by $ 5 million of foreign currency net gains . other ( income ) , expense net for 2014 included income of approximately $ 9 million due to changes in the estimated fair value of contingent consideration from an acquisition as well as a gain from the sale of marketable equity securities of approximately $ 5 million , partially offset by other expenses , primarily consisting of $ 5 million of foreign currency net losses . income tax expense replace_table_token_18_th the increase in the 2016 effective income tax rate was due to a change in our permanent reinvestment assertion on the majority of our cumulative foreign earnings . due to the merger , we reevaluated our indefinite reinvestment assertion based on the need for cash in the united states , including funding the repurchase program and potential acquisitions . accordingly , we changed our assertion with respect to $ 2,801 million of foreign earnings , including $ 1,865 million of ims health 's previously undistributed historical foreign earnings . we intend to use these acquired foreign earnings to fund cash needs in the united states . deferred income taxes of $ 625 million were recorded in 2016 related to non-indefinitely reinvested foreign earnings . of that amount , $ 373 million was recorded through purchase accounting related to ims health 's historical foreign earnings and the remainder of $ 252 million was recorded through deferred income tax expense . the decrease in the 2015 effective income tax rate was due to an income tax benefit related to the reversal of uncertain tax positions for tax years whose statute of limitations expired in 2015 and also a change in the relative mix of the profitability between taxing jurisdictions . these benefits were partially offset by additional income tax expense related to an increase in the amount of current year earnings of our foreign subsidiaries not considered permanently reinvested . equity in earnings ( losses ) of unconsolidated affiliates replace_table_token_19_th equity in earnings ( losses ) of unconsolidated affiliates primarily included ( losses ) earnings from our investment in novaquest pharma opportunities fund iii , l.p. ( fund iii ) . the earnings from fund iii in 2014 were partially offset by losses and write-downs incurred on another equity method investment . 60 net ( income ) loss attributable to non-controlling interests replace_table_token_20_th net income attributable to non-controlling interests in 2016 and 2015 primarily included quest 's interest in q 2 solutions . segment results of operations revenues and profit by segment are as follows ( dollars in millions ) : replace_table_token_21_th certain costs are not allocated to our segments and are reported as general corporate and unallocated expenses . these costs primarily consist of stock-based compensation , and expenses for corporate overhead functions such as senior leadership , finance , human resources , information technology , facilities and legal . we do not allocate depreciation and amortization , restructuring costs , merger related costs or impairment charges to our segments . 61 commercial solutions replace_table_token_22_th revenues 2016 compared to 2015 commercial solutions ' revenues were $ 1,096 million in 2016 , an increase of $ 773 million over 2015 , which includes the incremental impact from the merger of $ 806 million . the constant currency revenue increase was due to the incremental impact from the merger and from growth in real-world and late phase research services , partially offset by lower revenues from payer provider and advisory services . the revenue contributed by the merger in 2016 was negatively impacted by approximately $ 55 million as a result of adjusting the acquired ims health unearned income to fair value as required by purchase accounting . 2015 compared to 2014 commercial solutions ' revenues were $ 323 million in 2015 , an increase of $ 93 million , or 40.4 % , over 2014. this increase was comprised of constant currency revenue growth of $ 98 million , or 42.7 % , including $ 44 million from the encore acquisition which closed in july 2014 , partially offset by a negative impact of approximately $ 5 million due to the effects of foreign currency fluctuations . the increase in constant currency revenues was due to the impact from the encore acquisition which closed in july 2014 , as well as growth in real-world and late phase research services , partially offset by lower revenue from advisory services . costs of revenue , exclusive of depreciation and amortization 2016 compared to 2015 commercial solutions ' costs of revenue increased approximately $ 405 million in 2016. this increase was comprised of a $ 407 million constant currency increase , which includes $ 438 million from the merger , offset by lower costs in payer provider and advisory services due to lower revenue volumes , and $ 2 million due to the negative effects of foreign currency fluctuations . 2015 compared to 2014 commercial solutions ' costs of revenue increased approximately $ 65 million in 2015. this increase was comprised of a $ 71 million constant currency increase , or 41.1
| the constant currency revenue growth was comprised of a $ 98 million increase in commercial solutions , which includes the impact from the encore acquisition which closed in july 2014 , a $ 239 million increase in research & development solutions , which includes the incremental impact from the businesses that quest contributed to q 2 solutions , and a $ 35 million increase in integrated engagement services . costs of revenue , exclusive of depreciation and amortization replace_table_token_9_th 2016 compared to 2015 when compared to 2015 , costs of revenue in 2016 increased $ 531 million . this increase included a constant currency increase in expenses of approximately $ 566 million , or 20.9 % , partially offset by a positive impact of approximately $ 35 million from the effects of foreign currency fluctuations . the constant currency growth was comprised of a $ 406 million increase in commercial solutions , which includes $ 438 million from the merger with ims health , partially offset by a decline in the legacy service offerings , a $ 220 million increase in research & development solutions , which includes the incremental impact from the businesses that quest contributed to q 2 solutions , and a $ 60 million decrease in integrated engagement services . 56 2015 compared to 2014 when compared to 2014 , costs of revenue in 2015 increased $ 41 million . this increase included a constant currency increase in expenses of approximately $ 238 million , or 8.9 % , partially offset by a positive impact of approximately $ 197 million from the effects of foreign currency fluctuations . the constant currency growth was comprised of a $ 71 million increase in commercial solutions , which included the impact from the encore acquisition which closed in july 2014 , a $ 146 million increase in research & development solutions , which included the incremental impact from the businesses that quest contributed to q 2 solutions , and a $ 21 million
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we are required to comply with extensive and complex laws and regulations at the federal , state , and local government levels . these rules and regulations have affected , or could in the future affect , our business activities by having an impact on the reimbursement we receive for services provided or the costs of compliance , mandating new documentation standards , requiring additional licensure or certification , regulating our relationships with physicians and other referral sources , regulating the use of our properties , and limiting our ability to enter new markets or add new capacity to existing hospitals and agencies . ensuring continuous compliance with extensive laws and regulations is an operating requirement for all healthcare providers . we have invested , and will continue to invest , substantial time , effort , and expense in implementing and maintaining training programs as well as internal controls and procedures designed to ensure regulatory compliance , and we are committed to continued adherence to these guidelines . more specifically , because medicare comprises a significant portion of our net operating revenues , it is particularly important for us to remain compliant with the laws and regulations governing the medicare program and related matters including anti-kickback and anti-fraud requirements . if we were unable to remain compliant with these regulations , our financial position , results of operations , and cash flows could be materially , adversely impacted . concerns held by federal policymakers about the federal deficit and national debt levels , as well as other healthcare policy priorities , could result in enactment of legislation affecting portions of the medicare program , including post-acute care services we provide . it is not clear whether congress will pass legislation to modify or repeal the provisions of the 2010 healthcare reform laws most relevant to us , nor is it clear what , if any , other medicare-related changes may ultimately be enacted and signed into law or otherwise implemented or caused by the trump administration through regulatory procedures , but it is possible that any reductions in medicare spending will have a material impact on reimbursements for healthcare providers generally and post-acute providers specifically . we can not predict what , if any , changes in medicare spending or modifications to the healthcare laws and regulations will result from future budget or other legislative or regulatory initiatives . on february 9 , 2018 , president trump signed into law the bipartisan budget act of 2018 ( the “ 2018 budget act ” ) . the 2018 budget act requires cms to update the home health prospective payment system ( the “ hh-pps ” ) with a market basket update of 1.5 % and eliminates the productivity adjustment for 2020. the 2018 budget act also mandates several significant changes to the hh-pps , including establishing in 2020 a 30-day unit of service for home health payment purposes to replace the current 60-day episode of payment methodology . we can not predict the impact of these significant changes to the hh-pps on our home health agencies and their medicare reimbursements . see item 1a , risk factors , for additional discussion on changes included in the 2018 budget act . the medicare payment advisory commission ( “ medpac ” ) is an independent agency that advises congress on issues affecting medicare and makes payment policy recommendations to congress and cms for a variety of medicare payment systems including , among others , the inpatient rehabilitation facility prospective payment system ( the “ irf-pps ” ) and the hh-pps . congress and cms are not obligated to adopt medpac recommendations , and , based on outcomes in previous years , there can be no assurance those recommendations will be adopted . however , medpac 's recommendations have , and may in the future , become the basis for subsequent legislative or regulatory action . in recent years , medpac has made several recommendations that would significantly impact post-acute reimbursement systems if ultimately adopted . see item 1a , risk factors , for additional discussion on medpac 's payment policy recommendations . each year , cms adopts rules that update pricing and otherwise amend the respective payment systems . on july 31 , 2017 , cms released its notice of final rulemaking for fiscal year 2018 under the irf-pps ( the “ 2018 irf rule ” ) . based on our analysis which utilizes , among other things , the acuity of our patients over the 12-month period prior to the 2018 irf rule 's release and incorporates other adjustments included in it , we believe the 2018 final irf rule will result in a net increase to our medicare payment rates of approximately 0.8 % effective october 1 , 2017 , prior to the impact of sequestration . on november 1 , 2017 , cms released its notice of final rulemaking for calendar year 2018 for home health agencies under the hh-pps ( the “ 2018 hh rule ” ) . based on our analysis , we believe the 2018 hh rule , after taking into account the 2018 budget act , will result in a net decrease to our medicare home health payment rates of approximately 0.5 % effective for episodes ending in calendar year 2018 , prior to the impact of sequestration . for additional details of the 2018 irf rule , 2018 hh rule , and sequestration as well as other proposed and adopted legislative and regulatory actions that may be material to our business , see item 1 , business , “ sources of revenues ” and item 1a , risk factors . 47 reimbursement claims made by healthcare providers , including inpatient rehabilitation hospitals as well as home health and hospice agencies , are subject to audit from time to time by governmental payors and their agents , such as the medicare administrative contractors ( “ macs ” ) , fiscal intermediaries and carriers , as well story_separator_special_tag we are required to comply with extensive and complex laws and regulations at the federal , state , and local government levels . these rules and regulations have affected , or could in the future affect , our business activities by having an impact on the reimbursement we receive for services provided or the costs of compliance , mandating new documentation standards , requiring additional licensure or certification , regulating our relationships with physicians and other referral sources , regulating the use of our properties , and limiting our ability to enter new markets or add new capacity to existing hospitals and agencies . ensuring continuous compliance with extensive laws and regulations is an operating requirement for all healthcare providers . we have invested , and will continue to invest , substantial time , effort , and expense in implementing and maintaining training programs as well as internal controls and procedures designed to ensure regulatory compliance , and we are committed to continued adherence to these guidelines . more specifically , because medicare comprises a significant portion of our net operating revenues , it is particularly important for us to remain compliant with the laws and regulations governing the medicare program and related matters including anti-kickback and anti-fraud requirements . if we were unable to remain compliant with these regulations , our financial position , results of operations , and cash flows could be materially , adversely impacted . concerns held by federal policymakers about the federal deficit and national debt levels , as well as other healthcare policy priorities , could result in enactment of legislation affecting portions of the medicare program , including post-acute care services we provide . it is not clear whether congress will pass legislation to modify or repeal the provisions of the 2010 healthcare reform laws most relevant to us , nor is it clear what , if any , other medicare-related changes may ultimately be enacted and signed into law or otherwise implemented or caused by the trump administration through regulatory procedures , but it is possible that any reductions in medicare spending will have a material impact on reimbursements for healthcare providers generally and post-acute providers specifically . we can not predict what , if any , changes in medicare spending or modifications to the healthcare laws and regulations will result from future budget or other legislative or regulatory initiatives . on february 9 , 2018 , president trump signed into law the bipartisan budget act of 2018 ( the “ 2018 budget act ” ) . the 2018 budget act requires cms to update the home health prospective payment system ( the “ hh-pps ” ) with a market basket update of 1.5 % and eliminates the productivity adjustment for 2020. the 2018 budget act also mandates several significant changes to the hh-pps , including establishing in 2020 a 30-day unit of service for home health payment purposes to replace the current 60-day episode of payment methodology . we can not predict the impact of these significant changes to the hh-pps on our home health agencies and their medicare reimbursements . see item 1a , risk factors , for additional discussion on changes included in the 2018 budget act . the medicare payment advisory commission ( “ medpac ” ) is an independent agency that advises congress on issues affecting medicare and makes payment policy recommendations to congress and cms for a variety of medicare payment systems including , among others , the inpatient rehabilitation facility prospective payment system ( the “ irf-pps ” ) and the hh-pps . congress and cms are not obligated to adopt medpac recommendations , and , based on outcomes in previous years , there can be no assurance those recommendations will be adopted . however , medpac 's recommendations have , and may in the future , become the basis for subsequent legislative or regulatory action . in recent years , medpac has made several recommendations that would significantly impact post-acute reimbursement systems if ultimately adopted . see item 1a , risk factors , for additional discussion on medpac 's payment policy recommendations . each year , cms adopts rules that update pricing and otherwise amend the respective payment systems . on july 31 , 2017 , cms released its notice of final rulemaking for fiscal year 2018 under the irf-pps ( the “ 2018 irf rule ” ) . based on our analysis which utilizes , among other things , the acuity of our patients over the 12-month period prior to the 2018 irf rule 's release and incorporates other adjustments included in it , we believe the 2018 final irf rule will result in a net increase to our medicare payment rates of approximately 0.8 % effective october 1 , 2017 , prior to the impact of sequestration . on november 1 , 2017 , cms released its notice of final rulemaking for calendar year 2018 for home health agencies under the hh-pps ( the “ 2018 hh rule ” ) . based on our analysis , we believe the 2018 hh rule , after taking into account the 2018 budget act , will result in a net decrease to our medicare home health payment rates of approximately 0.5 % effective for episodes ending in calendar year 2018 , prior to the impact of sequestration . for additional details of the 2018 irf rule , 2018 hh rule , and sequestration as well as other proposed and adopted legislative and regulatory actions that may be material to our business , see item 1 , business , “ sources of revenues ” and item 1a , risk factors . 47 reimbursement claims made by healthcare providers , including inpatient rehabilitation hospitals as well as home health and hospice agencies , are subject to audit from time to time by governmental payors and their agents , such as the medicare administrative contractors ( “ macs ” ) , fiscal intermediaries and carriers , as well
| discharge growth included a 1.8 % increase in same-store discharges . discharge growth from new stores resulted from our joint ventures in hot springs , arkansas ( february 2016 ) , bryan , texas ( august 2016 ) , broken arrow , oklahoma ( august 2016 ) , gulfport , mississippi ( april 2017 ) , westerville , ohio ( april 2017 ) , and jackson , tennessee ( july 2017 ) , as well as the opening of wholly owned hospitals in modesto , california ( october 2016 ) and pearland , texas ( october 2017 ) . growth in net patient revenue per discharge resulted primarily from patient mix ( higher percentage of stroke and neurological patients ) offset by the negative impact of an approximate $ 5 million reduction in prior period cost report adjustments and a 2016 benefit of a retroactive indirect medical education ( “ ime ” ) adjustment of approximately $ 4 million at the former reliant hospital in woburn , massachusetts . the decrease in outpatient and other revenues in 2017 compared to 2016 was primarily due to the closure of six outpatient programs in the latter half of 2016. see note 2 , business combinations , to the accompanying consolidated financial statements of this report for information regarding our joint ventures and acquisitions discussed above . adjusted ebitda the increase in adjusted ebitda for the inpatient rehabilitation segment in 2017 compared to 2016 primarily resulted from revenue growth , as discussed above . a decline in provision for doubtful accounts and flat group medical expenses also contributed to the growth . expense ratios were negatively impacted by the aforementioned ime adjustment and hurricane-related expenses . the lack of growth in group medical expense favorably impacted salaries and benefits as a percent of net operating revenues and served to offset the impact of merit and incentive compensation increases and the ramping up of new stores on this ratio . other operating expenses increased as a percent of net operating revenues primarily due to increased
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we achieved numerous milestones in 2018 involving significant product launches , sales force growth and acquisitions : product innovation – in 2018 , we launched several new products including : ◦ faro scanplan - the faro scanplan is a handheld mapper that captures 2d floor plans . the faro scanplan performs real-time capturing and diagramming of as-built floor plans of buildings for threat assessment , pre-incident planning and fire protection engineering . the faro scanplan comes with faro zone 2d software to turn any floor plan map into a completed diagram by adding doors , stairs , hazardous materials , notes and dimensions , among others . ◦ faro tracer si - the faro tracer si accurately projects a laser line onto a surface or object , providing a virtual template that operators and assemblers can use to quickly and accurately position components with confidence . the laser template is created using a 3d cad model that enables the system to visually project a laser outline of parts , reference points , or areas of interest . the result is a virtual and collaborative 3d template to streamline a wide range of assembly and production applications . ◦ faro design scanarm ® 2.5c and faro prizm tm - the faro design scanarm ® 2.5c is a color-capable , portable lightweight 3d scanarm . using the new faro prizm tm full-color laser line probe with 3d design and modeling software , the faro design scanarm ® 2.5c delivers high-resolution , color point-cloud data , enabling more insight into object design and creation . ◦ faro 8-axis faroarm ® - this comprehensive solution combines either the portable quantum faroarm ® , quantum scanarm or design scanarm ® portfolio products with a functionally integrated , yet physically separate , 8th axis . ◦ 6dof faro vantage laser tracker – together with the hand-held 6probe , a fully-integrated hand-held probe , the 6dof faro vantage laser tracker expands the capabilities of large volume measurement by allowing users to access hidden , hard-to-reach locations by probing and scanning . ◦ faro digi-cube ® – faro digi-cube ® is a high-precision , high scan rate , digital auto-controlled scan head that is easily integrated into a variety of laser scanning products . this product is used for exacting applications such as high accuracy laser marking , scribing and engraving , laser 3d printing , photovoltaic production and welding . global sales force – in 2018 , consistent with our strategic initiative to drive sales growth , our worldwide period-ending selling headcount increased by 102 , or 16.2 % , to 733 at december 31 , 2018 from 631 at december 31 , 2017. acquisitions and equity investment – in july 2018 , we acquired all of the issued and outstanding corporate capital of opto-tech srl and its subsidiary open technologies srl ( collectively , “ open technologies ” ) , a 3d structured light scanning solution company located in brescia , italy . the acquisition supports our 3d design vertical and our long-term strategy to establish a presence in 3d measurement technology used in other industries and applications , especially dental and medical . in july 2018 , we acquired all of the outstanding shares of lanmark controls , inc. ( “ lanmark ” ) , a high-speed laser marking control boards and laser marking software provider located in acton , massachusetts . the acquisition supports the development of components used in new 3d laser inspection product development in order to further expand the product portfolio of our photonics vertical . in april 2018 , we invested in present4d gmbh ( “ present4d ” ) , a software solutions provider for professional virtual reality presentations and training environments , in the form of an equity capital contribution . this contribution represents a minority investment in present4d and supports our public safety forensics vertical . in march 2018 , we acquired all of the outstanding shares of laser control systems limited ( “ laser control systems ” ) , a laser component technology business located in bedfordshire , united kingdom , which specializes in the design and manufacture of advanced digital scan heads and laser software . similar to our acquisition of lanmark , this acquisition supports our photonics vertical and our long-term strategy to expand our presence and product portfolio in photonics applications . 29 in march 2018 , we acquired all of the outstanding shares of photocore ag , a vision-based 3d measurement application and software developer located in zürich , switzerland . the acquisition supports our construction bim vertical and our long-term strategy to improve our existing software offerings with innovative technology in photogrammetry . we have sold our products and related services to the u.s. government ( the “ government ” ) under general services administration ( “ gsa ” ) federal supply schedule contracts ( the “ gsa contracts ” ) since 2002 and are currently selling our products and related services to the government under two such gsa contracts . each gsa contract is subject to extensive legal and regulatory requirements and includes , among other provisions , a price reduction clause ( the “ price reduction clause ” ) , which generally requires us to reduce the prices billed to the government under the gsa contracts to correspond to the lowest prices billed to certain benchmark customers . late in the fourth quarter of 2018 , during an internal review we preliminarily determined that certain of our pricing practices may have resulted in the government being overcharged under the price reduction clauses of the gsa contracts ( “ the gsa matter ” ) . on february 14 , 2019 , we reported the gsa matter to the gsa and its office of inspector general . over the six-year period ended december 31 , 2018 , our sales to the government under the gsa contracts were approximately $ 53.5 million in the aggregate . story_separator_special_tag our sales to the government under the gsa contracts represented approximately 3.5 % of our total sales for the year ended december 31 , 2018. as a result of the gsa matter , for the fourth quarter of 2018 , we reduced our total sales by a $ 4.8 million estimated cumulative sales adjustment , representative of the last six years of estimated overcharges to the government under the gsa contracts . in addition , for the fourth quarter of 2018 , we recorded $ 0.5 million of imputed interest related to the estimated cumulative sales adjustment , which increased other expense and resulted in an estimated total liability of $ 5.3 million for the gsa matter . this estimate is based on our preliminary review as of the date of this annual report on form 10-k and is subject to change based on the results of the review of our pricing and other practices under the gsa contracts being conducted by our outside legal counsel and discussions with the government . amounts reported in millions within this annual report on form 10-k are computed based on the amounts in thousands . as a result , the sum of the components reported in millions may not equal the total amount reported in millions due to rounding . certain columns and rows within the tables that follow may not add due to the use of rounded numbers . percentages presented are calculated based on the respective amounts in thousands . the amounts related to our reporting segment information for the year ended december 31 , 2017 have been restated throughout this annual report on form 10-k to reflect the changes in our reporting segments discussed below under “ segment reporting. ” the amounts related to our reporting segment information for the year ended december 31 , 2016 were restated but were not impacted by the changes in our reporting segments discussed below under “ segment reporting. ” 30 results of operations 2018 compared to 2017 replace_table_token_3_th consolidated results sales . total sales increased by $ 42.7 million , or 11.8 % , to $ 403.6 million for the year ended december 31 , 2018 from $ 360.9 million for the year ended december 31 , 2017 . as a result of the gsa matter , for the fourth quarter of 2018 , we reduced our total sales by a $ 4.8 million estimated cumulative sales adjustment , representative of the last six years of estimated overcharges to the government under the gsa contracts ( the “ gsa cumulative sales adjustment ” ) . total product sales increased by $ 33.2 million , or 11.9 % , to $ 311.1 million for the year ended december 31 , 2018 from $ 277.9 million for the year ended december 31 , 2017 . our product sales increase reflected higher unit sales within our construction bim and emerging verticals segments , as well as higher average selling prices within our 3d manufacturing segment , partially offset by the gsa cumulative sales adjustment . service revenue increased by $ 9.5 million , or 11.5 % , to $ 92.5 million for the year ended december 31 , 2018 from $ 83.0 million for the year ended december 31 , 2017 , primarily due to an increase in warranty and customer service revenue driven by the growth of our installed , serviceable base and focused sales initiatives in all of our segments , partially offset by the gsa cumulative sales adjustment . foreign exchange rates had a positive impact on sales of $ 2.5 million , increasing our overall sales growth by approximately 0.7 percentage points , primarily due to the strengthening of the euro , japanese yen and chinese yuan relative to the u.s. dollar . gross profit . gross profit increased by $ 23.7 million , or 11.6 % , to $ 228.3 million for the year ended december 31 , 2018 from $ 204.6 million for the year ended december 31 , 2017 . gross margin decreased to 56.6 % for the year ended december 31 , 2018 from 56.7 % in the prior year period . gross margin from product revenue decreased by 0.5 percentage points to 59.9 % for the year ended december 31 , 2018 from 60.4 % in the prior year period . this decrease in gross margin from product revenue was primarily due to the gsa cumulative sales adjustment recorded in the fourth quarter of 2018 and a $ 4.7 million inventory reserve charge recorded during the third quarter of 2018 resulting from an analysis of our inventory reserves in connection with 31 our new product introductions and acquisitions , increasing our reserve for excess and obsolete inventory , partially offset by higher average selling prices in our 3d manufacturing segment and improved manufacturing efficiencies . gross margin from service revenue increased by 1.0 percentage points to 45.4 % for the year ended december 31 , 2018 from 44.4 % for the prior year period , primarily due to higher warranty and customer service revenue , partially offset by an increase in cost of sales for service revenue and the effects of the gsa cumulative sales adjustment . selling and marketing expenses . selling and marketing expenses increased by $ 13.4 million , or 12.9 % , to $ 116.9 million , for the year ended december 31 , 2018 from $ 103.5 million for the year ended december 31 , 2017 . this increase was driven primarily by our investment in increased selling headcount as part of our global initiatives to drive sales growth and the related compensation cost , as well as an increase in commission expense driven by our increased sales . selling and marketing expenses as a percentage of sales were 29.0 % for the year ended december 31 , 2018 compared with 28.7 % for the year ended december 31 , 2017 . our worldwide period-ending selling headcount increased by 102 , or 16.2 % , to 733 at december 31 , 2018 from 631 at december 31 , 2017. general and administrative expenses .
| gross margin from product revenue increased by 2.6 percentage points to 60.4 % for the year ended december 31 , 2017 from 57.8 % in the prior year period . this increase was primarily due to higher average selling prices in our products attributable to our new product introductions and improved manufacturing efficiencies . gross margin from service revenue increased by 1.4 percentage points to 44.4 % for the year ended december 31 , 2017 from 43.0 % for the prior year period , primarily due to higher warranty and customer service revenue . 35 selling and marketing expenses . selling and marketing expenses increased by $ 23.6 million , or 29.6 % , to $ 103.5 million , for the year ended december 31 , 2017 from $ 79.9 million for the year ended december 31 , 2016. this increase was driven primarily by higher compensation expense , reflecting our investment in selling headcount as part of our global strategic initiatives to drive sales growth . selling and marketing expenses as a percentage of sales were 28.7 % for the year ended december 31 , 2017 compared with 24.5 % for the year ended december 31 , 2016. our worldwide period-ending selling headcount increased by 95 , or 17.7 % , to 631 at december 31 , 2017 from 536 at december 31 , 2016. general and administrative expenses . general and administrative expenses increased by $ 3.0 million , or 7.3 % , to $ 43.8 million for the year ended december 31 , 2017 from $ 40.8 million for the year ended december 31 , 2016. this increase in general and administrative expenses was primarily driven by higher compensation and global system expenses . the higher global system expenses resulted from our strategic initiative to harmonize global verticals through the implementation of entity-wide systems , such as our human resource information system . general and administrative expenses were 12.1 % of sales for the year ended december 31 , 2017 compared to 12.5 % of sales in the prior year . depreciation and amortization expenses . depreciation and amortization expenses increased by $ 2.7 million , or 19.6 % , to $ 16.6 million for the
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18 income tax accounting standards require companies to assess whether a valuation allowance should be established against deferred tax assets based on the consideration of all evidence using a “ more likely than not ” standard . we reviewed our deferred tax asset , considering both positive and negative evidence and analyzing changes in near term market conditions as well as other factors that may impact future operating results . significant negative evidence is our net operating losses for 2008 through 2011 , combined with a difficult economic environment consisting of persistently high unemployment and a very slow economic recovery in southeast michigan . positive evidence includes our history of strong earnings prior to 2008 , our strong capital position , our steady net interest margin , our non interest expense control initiatives , our six consecutive quarterly profits , and our forecasted profits for the foreseeable future . as of december 31 , 2011 , we maintained a valuation allowance equal to the full amount of our $ 24.2 million deferred tax asset . based on our current analysis of the evidence , we believe that it is appropriate to maintain a valuation allowance equal to the $ 19.9 million of our $ 24.9 million deferred tax asset as of december 31 , 2012. accordingly , we recorded a tax benefit of $ 5.0 million in 2012 to reduce the valuation allowance . the bank holds three pooled trust preferred collateralized debt obligation ( cdo ) securities in its investment securities portfolio . due to the lack of an active market for securities of this type , the bank utilizes an independent third party valuation firm to calculate fair values . this valuation analysis includes a determination of the portion of the fair value impairment that is the result of credit losses . the portion of the impairment that is the result of credit losses is recognized in earnings as other than temporary impairment and the impairment related to all other factors is recognized in other comprehensive income . the other-than-temporary-impairment analysis of each of the cdo securities owned by the company is conducted by projecting the expected cash flows from the security , discounting the cash flows to determine the present value of the cash flows , and comparing the present value to the amortized cost to determine if there is impairment . the cash flow projection for each security is developed using estimated prepayment speeds , estimated rates at which payments will be deferred , estimated rates at which issuers will default , and the severity of the losses on the securities which default . prepayment estimates are negatively impacted by the lack of an active market for issuers to refinance their trust preferred securities ; however , prepayment of trust preferred securities is expected to increase prepayment due to recent restrictions on the treatment of trust preferred debt as regulatory capital . the size and creditworthiness of each institution in the cdo pool are the most significant pieces of evidence in estimating prepayment speeds . deferral and default rates are the key drivers of the cash flow projections for each of the securities . deferral of interest payments is allowed for up to five years , and estimates of deferral rates are determined by examining the current deferral status of the issuers , the current financial condition of the issuers , and the historical deferral levels of the issuers in each cdo pool . key evidence examined includes whether or not an issuer has received tarp funding , the most recent credit ratings from outside services , stock price information , capitalization , asset quality , profitability , and liquidity . the most significant evidence in estimating deferrals is the comparison of key financial ratios to industry benchmarks . near term ( next 12 months ) deferral rates are estimated for each security by analyzing the credit characteristics of each individual issuer in the pool . when an issuer is expected to defer interest payments , the analysis assumes that the deferral will continue for the entire five year period allowed and then , depending on the individual credit characteristics of that issuer , begin performing or move to default . longer term annual default rates for each cdo are estimated using the credit analysis of each individual issuer compared industry benchmarks to modify the historical default rates of financial companies . finally , loss severity is estimated using analytical research provided by standard and poor 's and moody 's , which supports the assumption that a small percentage of defaulted trust preferred securities recover without loss . the projected cash flows are discounted using the contractual rate of each security . recent accounting pronouncements – no recent accounting pronouncements are expected to have a significant impact on the corporation 's financial statements . accounting standards update 2011-02 ( asu 2011-02 ) , “ a creditor 's determination of whether a restructuring is a troubled debt restructuring ” was issued by the financial accounting standards board ( fasb ) in april 2011. asu 2011-02 provides additional guidance to help creditors determine whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring . the amendments in this update were effective for the company for the year ended december 31 , 2011. the impact of the adoption of this standard on the company 's financial disclosures is reflected in note 5 to the company 's consolidated financial statements . accounting standards update 2011-04 ( asu 2011-04 ) , “ amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss ” was issued by fasb in may 2011. asu 2011-04 clarifies existing fair value measurement and disclosure requirements and changes existing principles and disclosure guidance . clarification was made to disclosure of quantitative information about the unobservable inputs for level 3 fair value measurements . story_separator_special_tag changes to existing principles and disclosures included measurement of financial instruments managed within a portfolio , the application of premiums and discounts in fair value measurement , and additional disclosures related to fair value measurements . the updated guidance and requirements are effective for financial statements issued for the first annual period beginning after december 15 , 2011. the adoption of this standard did not have a material impact on the company 's financial statements . 19 accounting standards update 2011-05 ( asu 2011-05 ) , “ comprehensive income ” was issued by fasb in june 2011. asu 2011-05 requires an entity to present the total of comprehensive income , the components of comprehensive income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but continuous statements . this standard eliminated the option to present the components of other comprehensive income as a part of the statement of changes in stockholders ' equity . this asu is effective for fiscal years , and interim periods within those years , beginning after december 31 , 2011. the implementation of this standard only changed the presentation of comprehensive income ; it did not have an impact on the company 's financial position or its results of operations . asu 2011-12 was issued by fasb in december 2011. asu 2011-12 deferred the requirement to present reclassification adjustments for each component of oci in both net income and oci and the face of the financial statements until fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2012. the other requirements of asu 2011-05 were not affected by asu 2011-12. as a result of adopting asu 2011-05 , the company is presenting the total of comprehensive income and the components of comprehensive income and other comprehensive income in a single continuous statement . accounting standards update 2013-02 ( asu 2013-02 ) , “ comprehensive income : reporting of amounts reclassified out of accumulated other comprehensive income ” was issued in february 2013. asu 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income ( aoci ) by component . in addition , an entity is required to present , either on the face of the financial statements or in the notes , significant amounts reclassified out of aoci by the respective line items of net income , but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period . for amounts that are not required to be reclassified in their entirety to net income , an entity is required to cross-reference to other disclosures that provide additional details about those amounts . asu 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements . asu 2013-02 is effective for interim and annual periods beginning on or after december 15 , 2012. the adoption of asu 2013-02 is not expected to have a material impact on the company 's consolidated financial condition or results of operations . story_separator_special_tag 21 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 . 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 to lower depreciation and maintenance costs . professional fees increased 14.9 % from $ 2.1 million in 2010 to $ 2.5 million in 2011 as legal fees increased due to collection activity and accounting fees increased due to irs audit assistance costs . expenses and losses on other real estate owned decreased $ 661,000 , or 10.4 % as the decline in real estate values slowed , decreasing the need to write down our properties . maintenance , insurance , and property tax costs on oreo properties also decreased . debt prepayment penalty expense decreased $ 2.5 million , or 100 % due to the one time cost associated with prepaying federal home loan bank advances in 2010. death benefit obligation expense increased $ 1.6 million due to the accrual of a death benefit payable to the beneficiary of one of our board members in 2011. the company 's net loss for 2011 , before provision for income taxes , was $ 3.3 million , a decrease of $ 5.4 million compared to the pretax loss of $ 8.7 million in 2010. in 2010 we recorded a tax expense of $ 3.2 million to increase the valuation allowance to 100 % of our deferred tax assets .
| the provision for loan losses decreased 46.7 % from $ 13.8 million in 2011 to $ 7.4 million in 2012 as the amount of net charge offs decreased from $ 14.2 million in 2011 to $ 10.9 million in 2012. the slowly improving economic conditions and continued high credit standards and collection efforts contributed to the decrease in charge offs . the net charge offs exceeded the provision by $ 3.6 million , causing a decrease of that amount in our allowance for loan losses . the allowance as a percent of loans decreased from 3.07 % as of december 31 , 2011 to 2.75 % as of december 31 , 2012 as the allowance decreased by 17.1 % while the loan portfolio decreased by 7.7 % . 20 other income decreased 9.8 % from $ 18.2 million in 2011 to $ 16.4 million in 2012. security gains increased $ 0.2 million as the bank realized more gains on sales of securities in 2012 as interest rates moved lower . mortgage loan origination income increased 87.1 % from 2011 to 2012 as the real estate market conditions improved slightly and refinance activity increased sharply . income from bank owned life insurance decreased $ 2.1 million , or 59.6 % , due to the proceeds of a death claim for one of our directors in 2011. other expenses decreased $ 4.1 million , or 9.6 % in 2012 compared to 2011. salaries and benefits expense increased $ 838,000 , or 4.3 % as salaries increased due to increases in salary rates and the number of employees , and retirement benefits , health care , and payroll taxes all increased . occupancy expense decreased 13.7 % mainly due to a reduction in maintenance costs due to an accrual of $ 340,000 in 2011 for additional environmental cleanup costs at our temperance branch location . depreciation and property tax expenses also decreased . professional fees decreased 8.6 % from $ 2.5 million in 2011 to $ 2.3 million in 2012 as a decrease in legal fees
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historically , we have generally increased the price of tyvaso annually by 4.9 percent , and the last price increase became effective on january 1 , 2015. the price of remodulin has not been increased since 2010. we have not increased the price of orenitram or unituxin since their launch in the second quarter of 2014 and the third quarter of 2015 , respectively . we require our distributors to maintain reasonable levels of inventory reserves of our treprostinil-based products as the interruption of remodulin , tyvaso or orenitram therapy can be life threatening . our distributors typically place monthly orders based on estimates of future demand and contractual 60 minimum inventory requirements . as a result , net product sales of remodulin , tyvaso and orenitram can vary depending on the timing and magnitude of these orders and may not precisely reflect patient demand . we recognize revenues net of : ( 1 ) estimated rebates ; ( 2 ) prompt pay discounts ; ( 3 ) allowances for sales returns ; and ( 4 ) distributor fees . we estimate our liability for rebates based on an analysis of historical levels of rebates to both medicaid and commercial third-party payers after considering the impact of sales trends , changes in government and commercial rebate programs and any anticipated changes in our products ' pricing . in addition , we determine our obligation for prescription drug discounts required for medicare part d patients within the coverage gap based on estimates of the number of medicare part d patients and the period such patients will remain within the coverage gap . we provide prompt pay discounts to customers that pay amounts due within a specific time period and base related estimates on observed historical customer payment behavior . we derive estimates relating to our allowance for returns of adcirca from actual return data accumulated since the drug 's launch in 2009. we also compare patient prescription data for adcirca to product sales on a quarterly basis to ensure a reasonable relationship between prescription and sales trends . to date , we have not identified any unusual patterns in the volume of prescriptions relative to sales that would warrant reconsideration of our methodology for estimating adcirca returns . remodulin , tyvaso and orenitram are distributed in the united states under separate contracts with substantially similar terms , which include exchange rights in the event that product is damaged during shipment or expires . the allowance for exchanges for remodulin and tyvaso is based on the historical rate of product exchanges , which has been negligible and immaterial . furthermore , we anticipate minimal exchange activity in the future for remodulin , tyvaso and orenitram since we typically sell these products with a remaining shelf life in excess of one year and our distributors generally carry a thirty- to sixty-day supply of our products at any given time . as a result , we do not record reserves for exchanges for remodulin , tyvaso and orenitram at the time of sale . lastly , we pay our distributors for contractual services rendered and accrue for related fees based on contractual rates applied to the estimated units of service provided by distributors for a given financial reporting period . generic competition we have settled litigation with sandoz and teva relating to abbreviated new drug applications ( andas ) seeking fda approval to market generic versions of remodulin before the expiration of certain of our u.s. patents . under the terms of our settlement agreements , sandoz and teva will be permitted to market their generic versions of remodulin in the united states beginning in june 2018 and december 2018 , respectively , although they may be permitted to enter the market earlier under certain circumstances . we are engaged in litigation with watson laboratories , inc. ( watson ) , contesting its anda to market a generic version of tyvaso before the expiration of certain of our u.s. patents in november 2018 and december 2028. finally , steadymed ltd. ( steadymed ) has recently filed a petition for inter partes review seeking to invalidate one of our patents that expires in december 2028 and covers treprostinil , which is the active ingredient in remodulin , tyvaso and orenitram . steadymed has announced that it is developing a product called trevyent , which is a single-use , pre-filled pump being developed to deliver a two-day supply of treprostinil subcutaneously using its patchpump® technology . in january 2016 , steadymed announced that trevyent has been granted orphan drug designation by the fda for the treatment of pah . in february 2016 , we received notice that actavis laboratories fl , inc. ( actavis ) filed an anda seeking fda approval to market a generic version of the 2.5 mg strength of orenitram . for further details , please see note 19 litigation , to our consolidated financial statements , item 3legal proceedings and part ii , item 9bother information . as a result of our settlements with sandoz and teva , we expect to see generic competition for remodulin from these companies beginning in june 2018 and december 2018 , respectively . this increased competition could reduce our net product sales and profits . in addition , while we intend to 61 vigorously enforce our intellectual property rights relating to our products , there can be no assurance that we will prevail in defending our patent rights , or that additional challenges from other anda filers or other challengers will not surface with respect to our products . our patents could be invalidated , found unenforceable or found not to cover one or more generic forms of remodulin , tyvaso or orenitram . if any anda filer were to receive approval to sell a generic version of remodulin , tyvaso or orenitram and or prevail in any patent litigation , the affected product ( s ) would become subject to increased competition which could reduce our sales . story_separator_special_tag certain patents for revatio® , a pde-5 inhibitor marketed by pfizer , inc. for treatment of pah , expired in 2012 , leading several manufacturers to launch generic formulations of sildenafil citrate , the active ingredient in revatio . generic sildenafil 's lower price relative to adcirca could lead to pressure from payers to use generic products within the same class of therapy initially , which could erode adcirca 's market share and limit its potential sales . although we believe adcirca 's once-daily dosing regimen provides a significant advantage over generic sildenafil 's multiple dosing regimen , government payers and private insurance companies may favor the use of less expensive generic sildenafil over adcirca . thus far , we have not observed any measurable impact of generic sildenafil on sales of adcirca ; however , circumstances could change over time and our revenues could be adversely impacted . the u.s. patent for adcirca for the treatment of pulmonary hypertension will expire in november 2017 , following which we expect to see generic competition for adcirca . patent expiration and generic competition for any of our commercial pah products could have a significant , adverse impact on our revenues and profits , and is inherently difficult to predict . for additional discussion , please refer to the risk factor entitled , our intellectual property rights may not effectively deter competitors from developing competing products that , if successful , could have a material adverse effect on our revenues and profits , contained in part i , item 1arisk factors included in this annual report on form 10-k. operating expenses since our inception , we have devoted substantial resources to our various clinical trials and other research and development efforts , which are conducted both internally and through third parties . from time to time , we also license or acquire additional technologies and compounds to be incorporated into our development pipeline . our operating expenses include the following costs : research and development our research and development expenses primarily include costs associated with the research and development of products and post-marketing research commitments . these costs generally include share-based compensation and salary-related expenses for research and development functions , professional fees for preclinical and clinical studies , costs associated with clinical manufacturing , facilities-related expenses and regulatory costs . expenses also include costs for third-party arrangements , including upfront fees and milestone payments required under license arrangements for therapies under development . selling , general and administrative our selling , general and administrative expenses primarily include costs associated with the commercialization of approved products and general and administrative costs to support our operations . selling expenses generally include share-based compensation , salary-related expenses , product marketing and sales operations costs , and other costs incurred to support our sales efforts . general and administrative expenses include our core corporate support functions such as human resources , finance and legal , external costs such as insurance premiums , legal fees , grants to non-affiliated , not-profit organizations , and other professional service fees . 62 cost of product sales cost of product sales comprise : ( 1 ) costs to produce and acquire products sold to customers ; ( 2 ) royalty payments under license agreements granting us rights to sell related products ; and ( 3 ) direct and indirect distribution costs incurred in the sale of products . we acquired the rights to sell our commercial products through license and assignment agreements with the original developers of these products . these agreements obligate us to pay royalties based on specified percentages of our net product sales from related products . we paid glaxosmithkline plc ( glaxo ) a royalty of ten percent of net product sales of our treprostinil-based products ( remodulin , tyvaso and orenitram ) until october 2014 , when the patents we acquired from glaxo expired . we no longer have any royalty obligations for remodulin or tyvaso , and our only remaining royalty obligation on orenitram sales is a single-digit royalty relating to technology used in its formulation . we pay a five percent royalty to lilly on net product sales of adcirca . we have no royalty obligation for sales of unituxin . we produce our primary supply of remodulin , tyvaso , orenitram and unituxin at our own facilities . in particular , we synthesize treprostinil , the active ingredient in remodulin and tyvaso , and treprostinil diolamine , the active ingredient in orenitram , at our facility in silver spring , maryland . we also produce finished tyvaso , remodulin , and unituxin at our silver spring facility . we produce orenitram and we package , warehouse and distribute remodulin , tyvaso , orenitram and unituxin , at our facility in research triangle park , north carolina . we intend to use our own facilities to produce our primary supply of remodulin , tyvaso , unituxin and orenitram . we utilize third-party contract manufacturers to supplement our remodulin and tyvaso production capacity and mitigate the risk of shortages and we are working to obtain fda approval of a third party to serve as an additional producer of orenitram and unituxin . we engage a third-party contract manufacturer to produce the tyvaso inhalation system . we began selling orenitram during 2014. typical of the initial commercial activities of a newly-launched product , orenitram 's cost of product sales as a percentage of its net product sales is significantly higher than that of our other commercial products . we expect that as orenitram 's sales increase , its cost of product sales as a percentage of total revenue will decrease to levels similar to our other treprostinil-based commercial products . lilly manufactures adcirca . we take title to adcirca upon its manufacture and bear any losses related to the storage , distribution and sale of adcirca . share-based compensation we have granted awards under our share tracking award plans ( stap ) and stock options under our equity incentive plans .
| the increase in share-based compensation of $ 15.0 million for the year ended december 31 , 2015 , as compared to the same period in 2014 , corresponded to a 21 percent appreciation in the price of our common stock during the year ended december 31 , 2015 , compared to a 15 percent appreciation in the price of our common stock price during the year ended december 31 , 2014. other . the decrease in other research and development expenses of $ 10.7 million for the year ended december 31 , 2015 , as compared to the same period in 2014 , was primarily attributable to a $ 6.4 million decrease in expenditures for our development of unituxin , which was approved by the fda in march of 2015 , and a $ 3.9 million decrease in research and development expenditures not allocated to specific projects . selling , general and administrative expense the table below summarizes selling , general and administrative expense by major categories ( dollars in thousands ) : replace_table_token_9_th 70 general and administrative . the decrease in general and administrative expenses of $ 11.7 million for the year ended december 31 , 2015 , as compared to the same period in 2014 , was attributable to : ( 1 ) a $ 12.7 million decrease due to timing of grants to non-affiliated , non-profit organizations that provide financial assistance to patients with pah ; and ( 2 ) a $ 9.4 million decrease in legal expenses resulting from the april 2015 closure of an investigation by the office of inspector general of the department of health and human services related to our marketing practices ; partially offset by ( 3 ) a $ 10.0 million increase in salaries and other compensation-related expenses driven by the general expansion of our business . sales and marketing . the increase in sales and marketing expenses of $ 12.3 million for the year ended december 31 , 2015. as compared to the same period in 2014 , was driven by : ( 1 ) an $ 8.6 million increase in marketing activities for all
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as reflected in the accompanying consolidated financial statements , the company had a net loss of $ 4,228,954 and used cash in operations of $ 2,595,457 for the year ended december 31 , 2015. these factors raise substantial doubt about our ability to continue as a going concern . our ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our business plan . the consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . summary at december 31 , 2015 , the company had cash on hand in the amount of $ 349,186. management estimates that the current funds on hand will be sufficient to continue operations through may 2016. management is currently seeking additional funds , primarily through the issuance of debt and equity securities for cash to operate our business , including without limitation the expenses it will incur in connection with the license agreements with temple ; costs associated with product development and commercialization of the aot and joule heat technologies ; costs to manufacture and ship the products ; costs to design and implement an effective system of internal controls and disclosure controls and procedures ; costs of maintaining our status as a public company by filing periodic reports with the sec and costs required to protect our intellectual property . in addition , as discussed below , the company has substantial contractual commitments , including without limitation salaries to our executive officer pursuant to an employment agreement , and certain payments to a former officer , during the remainder of 2016 and beyond . no assurance can be given that any future financing will be available or , if available , that it will be on terms that are satisfactory to the company . even if the company is able to obtain additional financing , it may contain undue restrictions on our operations , in the case of debt financing or cause substantial dilution for our stock holders , in case of equity financing . 26 contractual obligations the company has certain contractual commitments for future periods , including office leases , minimum guaranteed compensation payments and other agreements as described in the following table and associated footnotes : replace_table_token_10_th ( 1 ) consists of rent for the company 's santa barbara facility expiring on july 31 , 2018 . ( for description of this property , see part 1 , item 2 , “ properties ” ) . ( 2 ) consists of license maintenance fees to temple university in the amount of $ 187,500 paid annually through the life of the underlying patents or until otherwise terminated by either party . ( 3 ) consists of base salary and certain contractually-provided benefits , to i ) an executive officer , pursuant to an employment agreement at a base salary of $ 290,000 per year and , as amended by the board on march 10 , 2016 , expires on march 8 , 2019 ; and ii ) and a severance agreement of a former officer in the amount of $ 75,429. licensing fees to temple university for details of the licensing agreements with temple university , see financial statements attached hereto , note 6. critical accounting policies and estimates our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , expenses , and related disclosure of contingent assets and liabilities . we evaluate , on an on-going basis , our estimates and judgments , including those related to the useful life of the assets . we base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our consolidated financial statements . the sec considers an entity 's most critical accounting policies to be those policies that are both most important to the portrayal of a company 's financial condition and results of operations and those that require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation . for a more detailed discussion of the accounting policies of the company , see note 2 of the notes to the consolidated financial statements , “ summary of significant accounting policies ” . we believe the following critical accounting policies , among others , require significant judgments and estimates used in the preparation of our consolidated financial statements . estimates the preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . certain significant estimates were made in connection with preparing our consolidated financial statements as described in note 2 to notes to consolidated financial statements . actual results could differ from those estimates . 27 stock-based compensation the company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs . the company accounts for stock option and warrant grants issued and vesting to employees story_separator_special_tag as reflected in the accompanying consolidated financial statements , the company had a net loss of $ 4,228,954 and used cash in operations of $ 2,595,457 for the year ended december 31 , 2015. these factors raise substantial doubt about our ability to continue as a going concern . our ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our business plan . the consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . summary at december 31 , 2015 , the company had cash on hand in the amount of $ 349,186. management estimates that the current funds on hand will be sufficient to continue operations through may 2016. management is currently seeking additional funds , primarily through the issuance of debt and equity securities for cash to operate our business , including without limitation the expenses it will incur in connection with the license agreements with temple ; costs associated with product development and commercialization of the aot and joule heat technologies ; costs to manufacture and ship the products ; costs to design and implement an effective system of internal controls and disclosure controls and procedures ; costs of maintaining our status as a public company by filing periodic reports with the sec and costs required to protect our intellectual property . in addition , as discussed below , the company has substantial contractual commitments , including without limitation salaries to our executive officer pursuant to an employment agreement , and certain payments to a former officer , during the remainder of 2016 and beyond . no assurance can be given that any future financing will be available or , if available , that it will be on terms that are satisfactory to the company . even if the company is able to obtain additional financing , it may contain undue restrictions on our operations , in the case of debt financing or cause substantial dilution for our stock holders , in case of equity financing . 26 contractual obligations the company has certain contractual commitments for future periods , including office leases , minimum guaranteed compensation payments and other agreements as described in the following table and associated footnotes : replace_table_token_10_th ( 1 ) consists of rent for the company 's santa barbara facility expiring on july 31 , 2018 . ( for description of this property , see part 1 , item 2 , “ properties ” ) . ( 2 ) consists of license maintenance fees to temple university in the amount of $ 187,500 paid annually through the life of the underlying patents or until otherwise terminated by either party . ( 3 ) consists of base salary and certain contractually-provided benefits , to i ) an executive officer , pursuant to an employment agreement at a base salary of $ 290,000 per year and , as amended by the board on march 10 , 2016 , expires on march 8 , 2019 ; and ii ) and a severance agreement of a former officer in the amount of $ 75,429. licensing fees to temple university for details of the licensing agreements with temple university , see financial statements attached hereto , note 6. critical accounting policies and estimates our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , expenses , and related disclosure of contingent assets and liabilities . we evaluate , on an on-going basis , our estimates and judgments , including those related to the useful life of the assets . we base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our consolidated financial statements . the sec considers an entity 's most critical accounting policies to be those policies that are both most important to the portrayal of a company 's financial condition and results of operations and those that require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation . for a more detailed discussion of the accounting policies of the company , see note 2 of the notes to the consolidated financial statements , “ summary of significant accounting policies ” . we believe the following critical accounting policies , among others , require significant judgments and estimates used in the preparation of our consolidated financial statements . estimates the preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . certain significant estimates were made in connection with preparing our consolidated financial statements as described in note 2 to notes to consolidated financial statements . actual results could differ from those estimates . 27 stock-based compensation the company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs . the company accounts for stock option and warrant grants issued and vesting to employees
| 2015 , compared to $ 39,619 for the fiscal year ended december 31 , 2014 , an increase of $ 707,723. this increase is attributable to an increase in non-cash interest and financing expense of $ 707,723. we had a net loss of $ 4,228,954 or $ 0.02 loss per share for the fiscal year ended december 31 , 2015 compared to a net loss of $ 4,006,335 or $ 0.02 loss per share for the fiscal year ended december 31 , 2014 . 25 revenue comparison , 2014 and 2013 the company recognized $ 240,000 in revenues in the fiscal year ended december 31 , 2014 pursuant to the lease of the aot equipment by transcanada . there were no similar transactions during the fiscal year ended december 31 , 2013. operating expense comparison , 2014 and 2013 operating expenses were $ 3,284,666 for the fiscal year ended december 31 , 2014 , compared to $ 11,884,775 for the fiscal year ended december 31 , 2013 , a decrease of $ 8,600,109. this decrease is attributable to decreases in non-cash expenses of $ 7,298,848 and cash expenses of $ 1,301,261. specifically , the decrease in non-cash expenses is attributable to a $ 3,108,351 decrease in settlements paid through issuance of stock , a decrease in valuation of warrants , options and common stock issued to employees , directors and consultants of $ 4,183,923 , and a decrease in depreciation of $ 6,574. the decrease in cash expenses is attributable to decreases in salaries and benefits of $ 774,820 , consulting fees of $ 196,630 , rents , utilities and maintenance of $ 109,770 , travel expenses of $ 12,123 and general operating expenses of $ 207,918. research and development expenses were $ 893,452 for the fiscal year ended december 31 , 2014 , compared to $ 2,011,486 for the fiscal year ended december 31 , 2013 , a decrease of $ 1,118,034. this decrease is attributable
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the business also includes certain dickies ® occupational workwear products that have historically been sold through the business-to-business channel . during the three months ended march 2020 , the company determined that the occupational workwear business met the held-for-sale and discontinued operations accounting criteria and expects to divest this business in the next twelve months . accordingly , the company began to report the results of the occupational workwear business and the related cash flows as discontinued operations in the consolidated statements of income and consolidated statements of cash flows , respectively . the related held-for-sale assets and liabilities have been reported as assets and liabilities of vf corporation fiscal 2020 form 10-k 23 discontinued operations in the consolidated balance sheets . these changes have been applied for all periods presented . unless otherwise noted , amounts , percentages and discussion for all periods included below reflect the results of operations and financial condition from vf 's continuing operations . refer to note 4 for additional information on discontinued operations and other divestitures . recent developments impact of covid-19 in march 2020 , the world health organization declared the outbreak of a novel coronavirus ( `` covid-19 '' ) a pandemic . as the global spread of covid-19 continues , vf remains first and foremost focused on a people-first approach that prioritizes the health and well-being of its employees , customers , trade partners and consumers around the world . to help mitigate the spread of covid-19 , vf has modified its business practices , including in response to legislation , executive orders and guidance from government entities and healthcare authorities ( collectively , `` covid-19 directives '' ) . these directives include the temporary closing of offices and retail stores , instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines . as a result of covid-19 directives , retail stores in asia-pacific , europe and the americas , whether operated by vf or our customers , were or are now closed . currently , the majority of vf-operated retail stores have reopened in asia-pacific , including all in mainland china , and while store traffic has improved recently , it remains down significantly when compared with the prior year . vf has started a phased reopening of its retail stores in europe and north america in accordance with guidance from government entities and healthcare authorities , to allow proper training and preparation of the retail environment . vf currently expects most of its retail stores to be open by mid-calendar year 2020. while many of vf 's wholesale customers in north america and europe remain closed , most have announced reopening plans starting in the coming weeks . consistent with vf 's long-term strategy , the company 's digital platform remains a high priority through which its brands stay connected with consumer communities while providing experiential content . in accordance with local government guidelines and in consultation with the guidance of global health professionals , vf has implemented measures designed to ensure the health , safety and well-being of associates employed in its distribution and fulfillment centers around the world . many of these facilities remain operational and support digital consumer engagement with its brands and to service retail partners as needed . covid-19 has also impacted some of vf 's suppliers , including third-party manufacturers , logistics providers and other vendors . at this time , many of vf 's facilities continue to manufacture and distribute products globally in a reduced capacity . vf is actively monitoring our supply chain and implementing mitigation plans . the covid-19 pandemic is ongoing and dynamic in nature , and continues to drive global uncertainty and disruption . as a result , covid-19 is having a significant negative impact on the company 's business , including the consolidated financial condition , results of operations and cash flows during the fourth quarter of fiscal 2020. while we are not able to determine the ultimate length and severity of the covid-19 pandemic , we expect store closures , both vf-operated and our customers , an anticipated reduction in traffic once stores initially reopen and a highly promotional marketplace will have a significant negative impact on our fiscal 2021 financial performance including a decrease in revenues of approximately 50 % in the first quarter . enterprise protection strategy vf has taken a number of proactive actions to advance its enterprise protection strategy in response to the covid-19 outbreak . to enhance vf 's financial flexibility and liquidity in the current unprecedented period of uncertainty , including the unknown duration and overall impact of the covid-19 outbreak , on march 23 , 2020 , vf elected to draw down $ 1.0 billion available from its $ 2.25 billion senior unsecured revolving credit facility ( the `` global credit facility '' ) that expires in december 2023. on april 9 , 2020 , vf elected to draw down an additional $ 1.0 billion available from the global credit facility . on april 23 , 2020 , vf closed its sale of senior unsecured notes including $ 1.0 billion of 2.050 % notes due april 2022 , $ 750.0 million of 2.400 % notes due april 2025 , $ 500.0 million of 2.800 % notes due april 2027 and $ 750.0 million of 2.950 % notes due april 2030. the net proceeds received by the company were approximately $ 2.98 billion . a portion of the net proceeds was used to repay the $ 2.0 billion of borrowings under the global credit facility noted above and the remaining net proceeds will be used for general corporate purposes . following the notes issuance and repayment , vf has approximately $ 2.2 billion available for borrowing against the global credit facility and approximately $ 3.0 billion of cash and equivalents on hand . other actions vf has taken to support its business in response to the covid-19 pandemic include the company 's decision to temporarily pause its share repurchase program . the company currently has $ 2.8 billion remaining under its current share repurchase authorization . story_separator_special_tag subject to approval by its board of directors , vf intends to continue to pay its regularly scheduled dividend and is currently not contemplating the suspension of its dividend program . vf 's planned divestiture of the occupational workwear business would provide an additional source of cash . other actions taken by vf also include the temporary reduction of ceo steve rendle 's base salary by 50 percent and the base salaries of vf 's executive leadership team by 25 percent . in addition , vf 's board of directors will temporarily forgo their cash retainer . these 24 vf corporation fiscal 2020 form 10-k reductions will continue to be assessed as the situation progresses . vf has implemented cost controls to reduce discretionary spending to help mitigate the loss of sales and to conserve cash while continuing to support employees . vf is also assessing its forward inventory purchase commitments to ensure proper matching of supply and demand , which will result in an overall reduction in future commitments . as vf continues to actively monitor the situation , we may take further actions that affect our operations . we believe the company has sufficient liquidity and flexibility to operate during the disruptions caused by the covid-19 pandemic and related governmental actions and regulations and health authority advisories and meet its obligations as they become due . however , due to the uncertainty of the duration and severity of the covid-19 pandemic , governmental actions in response to the pandemic , and the impact on us and our consumers , customers and suppliers , there is no certainty that the measures we take will be sufficient to mitigate the risks posed by covid-19 . see `` item 1a . risk factors . '' for additional discussion . highlights of the year ended march 2020 year ended march 2020 revenues increased 2 % to $ 10.5 billion compared to the year ended march 2019 , primarily due to the $ 462.4 million contribution from organic growth , including a 2 % unfavorable impact from foreign currency . active segment revenues increased 4 % to $ 4.9 billion compared to the year ended march 2019 , including a 2 % unfavorable impact from foreign currency . outdoor segment revenues remained flat at $ 4.6 billion over the year ended march 2019 , including a 1 % unfavorable impact from foreign currency . direct-to-consumer revenues were up 5 % compared to the year ended march 2019 , including a 1 % unfavorable impact from foreign currency . direct-to-consumer revenues accounted for 41 % of vf 's total revenues in the year ended march 2020 . vf opened 102 retail stores in the year ended march 2020 . e-commerce revenues increased 15 % in the year ended march 2020 compared to the year ended march 2019 , including a 2 % unfavorable impact from foreign currency . international revenues increased 1 % over the year ended march 2019 , including a 3 % unfavorable impact from foreign currency . international revenues represented 47 % of vf 's total revenues in the year ended march 2020 . gross margin increased 70 basis points to 55.3 % in the year ended march 2020 compared to the year ended march 2019 , primarily driven by a mix-shift to higher margin businesses and a favorable net foreign currency transaction impact . operating cash flow from continuing operations was $ 800.4 million in the year ended march 2020 . earnings per share decreased 28 % to $ 1.57 in the year ended march 2020 from $ 2.17 in the year ended march 2019 . the decrease was driven by an $ 0.81 impact from a goodwill impairment charge . the decrease was also attributed to the impact from debt extinguishment , a pension settlement charge , specified strategic business decisions in south america , continued investments in our key strategic growth initiatives and the unfavorable impacts from foreign currency . these decreases were partially offset by a $ 0.23 positive transitional impact from the enactment of switzerland 's federal act of tax reform and ahv financing ( `` swiss tax act '' ) , organic growth in the active segment , and continued strength in our direct-to-consumer and international businesses . all financial performance measures were negatively impacted by the covid-19 pandemic during the fourth quarter of the year ended march 2020. vf repurchased $ 1.0 billion of its common stock and paid $ 748.7 million in cash dividends , returning $ 1.7 billion to stockholders . story_separator_special_tag style= '' font-family : din-regular , sans-serif ; font-size:9pt ; color : # 6d6e71 ; '' > . excluding discrete items , the effective tax rate during 2020 increased by approximately 12.0 % primarily due to nondeductible goodwill impairment charges and a lower percentage of income in lower tax rate jurisdictions . the international effective tax rate was 15.6 % for 2020 . as a result of the above , income from continuing operations in 2020 was $ 629.1 million ( $ 1.57 per diluted share ) , compared to $ 870.4 million ( $ 2.17 per diluted share ) in 2019 . there is significant uncertainty about the duration and extent of the impact of covid-19 ; however , due to expected lower revenues , the adverse impact to gross margin due to higher promotional activity and higher net interest expense resulting from recent debt issuances , we anticipate there will be a significant negative impact to our fiscal 2021 income from continuing operations . refer to additional discussion in the “ information by reportable segment ” section below . 26 vf corporation fiscal 2020 form 10-k information by reportable segment vf 's reportable segments are : outdoor , active and work . we have included an other category in the tables below for purposes of reconciliation of revenues and profit , but it is not considered a reportable segment . included in this other category are results related to the sale of non-vf products and transition services primarily related to the sale of the nautica ® brand business .
| % in 2020 compared to 54.6 % in 2019 . gross margin in 2020 was positively impacted by a mix-shift to higher margin businesses and a favorable net foreign currency transaction impact . selling , general and administrative expenses as a percentage of total revenues increased 30 basis points in 2020 compared to 2019 . this increase was primarily due to continued investments in our key strategic growth initiatives , which include direct-to-consumer , demand creation , product innovation and technology . these costs were partially offset by leverage of operating expenses on higher revenues , decreased compensation costs and lower transaction and deal-related costs in 2020 . vf recorded a $ 323.2 million noncash impairment charge related to the timberland reporting unit during the fourth quarter of 2020. for additional information , refer to notes 9 and 23 to the consolidated financial statements and the `` critical accounting policies and estimates '' section below . in 2020 , operating margin decreased 280 basis points , to 8.8 % from 11.6 % in 2019 , primarily due to the items described above . net interest expense decreased $ 20.6 million to $ 72.2 million in 2020 . the decrease in net interest expense was due to lower rates on decreased borrowings of short-term debt , partially due to repayment activity funded by the cash received from kontoor brands , and higher international cash balances in higher yielding currencies . the decrease was partially offset by a deferred loss on an interest rate hedging contract of $ 8.5 million recognized in net interest expense in 2020 in connection with the full redemption of the aggregate principal amount of the outstanding 2021 notes . outstanding interest-bearing debt averaged $ 2.6 billion and $ 3.4 billion for 2020 and 2019 , respectively , with short-term borrowings representing 15.2 % and 35.3 % of average debt outstanding for the respective years . the weighted average interest rate
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general and administrative expenses primarily consist of personnel costs for our executive , finance , legal , human resources and other administrative personnel , general restructuring charges and other acquisition-related costs , professional fees and other general corporate expenses . in the periods after the take private and prior to our initial public offering , these expenses also included management fees payable to our sponsors , which were eliminated upon the completion of our initial public offering . amortization of acquired intangibles . we amortize to operating expenses the capitalized costs of intangible assets acquired in connection with the take private and our other acquisitions . other income ( expense ) other income ( expense ) primarily consists of interest expense , gains ( losses ) resulting from changes in exchange rates on foreign currency denominated intercompany loans and accounts , and losses on extinguishment of debt . we expect interest expense to decrease as we repay indebtedness . we established a foreign currency denominated intercompany loan as part of the take private to provide a conduit to utilize foreign earnings effectively . the gains ( losses ) associated with the changes in exchange rates on amounts borrowed were unrealized non-cash events . as of july 1 , 2018 , this foreign currency denominated intercompany loan was designated as long-term due to a change in our investment strategy and the new tax act . therefore , beginning on july 1 , 2018 , the foreign currency transaction gains and losses resulting from remeasurement are recognized as a component of accumulated other comprehensive income ( loss ) . as of december 31 , 2019 , we determined that the intercompany loan will not be repaid and it was reclassified as a capital contribution . foreign currency as a global company , we face exposure to adverse movements in foreign currency exchange rates . fluctuations in foreign currencies impact the amount of total assets , liabilities , revenue , operating expenses and cash flows that we report for our foreign subsidiaries upon the translation of these amounts into u.s. dollars . see “ item 7a : quantitative and qualitative disclosures about market risk ” for additional information on how foreign currency impacts our financial results . income tax expense income tax expense consists of domestic and foreign corporate income taxes related to the sale of products . the tax rate on income earned by our north american entities is higher than the tax rate on income earned by our international entities other than canada and sweden . we expect the income earned by our international entities to grow over time as a percentage of total income , which may result in a decline in our effective income tax rate . however , our effective tax rate will be affected by many other 38 factors including changes in tax laws , regulations or rates , new interpretations of existing laws or regulations , shifts in the allocation of income earned throughout the world and changes in overall levels of income before tax . comparison of the years ended december 31 , 2019 and 2018 revenue replace_table_token_4_th in the first quarter of 2019 , we adopted asc 606 “ revenue from contracts with customers , ” which replaced all existing revenue guidance under asc 605 “ revenue recognition , ” including prescriptive industry-specific guidance . we adopted asc 606 using the modified-retrospective method therefore , results for the year ended december 31 , 2019 are presented in compliance with asc 606 and historical financial results for reporting periods prior to 2019 are presented in conformity with amounts previously disclosed under asc 605. the impact of the adoption of asc 606 on our total revenue for the year ended december 31 , 2019 was insignificant . see note 2. summary of significant accounting policies in the notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k for a full description of implementation impact of asc 606 including the presentation of financial results for the year ended december 31 , 2019 under asc 605 for comparison to the prior year period . total revenue increased $ 99.4 million , or 11.9 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . revenue from north america was approximately 66 % and 65 % of total revenue for the years ended december 31 , 2019 and 2018 , respectively . other than the united states , no single country accounted for 10 % or more of our total revenue during these periods . we expect our international total revenue to increase slightly as a percentage of total revenue as we expand our international sales and marketing efforts across our product lines . recurring revenue subscription revenue . subscription revenue increased $ 55.2 million , or 20.8 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to sales of additional msp products , with additional contribution from our acquired solarwinds service desk product . these increases were partially offset by the effect of the weakening of most foreign currencies relative to the u.s. dollar . our subscription revenue increased as a percentage of our total revenue for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . our net retention rate for our subscription products was approximately 105 % for each of the trailing twelve-month periods ended december 31 , 2019 and 2018 and was driven primarily by strong customer retention in our msp products . we define our net retention rate for subscription products as the implied monthly subscription revenue at the end of a period for the base set of customers from which we generated subscription revenue in the year prior to the calculation , divided by the implied monthly subscription revenue one year prior to the date of calculation for that same customer base . maintenance revenue . maintenance revenue increased $ 43.5 million , or 10.8 story_separator_special_tag % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to a growing maintenance renewal customer base from sales of our perpetual license products , strong maintenance renewal rates and to a lesser extent , a maintenance price increase . our maintenance renewal rate for our perpetual license products was approximately 94 % and 95 % , respectively , for the trailing twelve-month periods ended december 31 , 2019 and 2018 . we define our maintenance renewal rate as the sales of maintenance services for all existing maintenance contracts expiring in a period , divided by the sum previous sales of maintenance services corresponding to those services expiring in the current period . sales of maintenance services includes sales of maintenance renewals for a previously purchased product and the amount allocated to maintenance revenue from a license purchase . license revenue license revenue increased $ 0.8 million , or 0.5 % , due to increased sales of our licensed products in our international locations , partially offset by the effect of the weakening of most foreign currencies relative to the u.s. dollar . 39 cost of revenue replace_table_token_5_th total cost of revenue increased in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to increases in personnel costs to support new customers and additional product offerings of $ 4.9 million , which includes a $ 1.5 million increase in stock-based compensation expense , public cloud infrastructure and hosting fees related to our subscription products of $ 1.6 million and depreciation and other amortization of $ 2.1 million . amortization of acquired technologies includes $ 163.6 million and $ 165.6 million of amortization related to the take private for the years ended december 31 , 2019 and 2018 , respectively . operating expenses replace_table_token_6_th sales and marketing . sales and marketing expenses increased $ 36.7 million , or 16.1 % , primarily due to increases in personnel costs of $ 21.9 million , which includes an increase of $ 9.4 million in stock-based compensation expense and increases in marketing program costs of $ 12.5 million . we increased our sales and marketing employee headcount to support the sales of additional products and growth in the business and through the acquisition of samanage . sales and marketing expense for the year ended december 31 , 2019 would have been approximately $ 5.3 million higher under asc 605 due to the impact of the capitalization and amortization of commission expense under asc 606. see note 2. summary of significant accounting policies in the notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k for further discussion of the impact of the adoption of asc 606. research and development . research and development expenses increased $ 14.1 million , or 14.6 % , primarily due to an increase in personnel costs of $ 14.5 million , which includes an increase in stock-based compensation expense of $ 7.9 million , partially offset by a reduction in acquisition and take private related costs of $ 1.7 million . we increased our worldwide research and development employee headcount through the acquisition of samanage and to expedite delivery of product enhancements and new product offerings to our customers . general and administrative . general and administrative expenses increased $ 16.9 million , or 20.9 % , primarily due to a $ 15.0 million increase in personnel costs , which includes a $ 10.6 million increase in stock-based compensation expense , a $ 5.6 million increase in professional fees and other public company costs and a $ 4.8 million increase in acquisition and restructuring costs . these increases were partially offset by a decrease of $ 8.3 million related to management fees payable to our sponsors that were eliminated upon the completion of our initial public offering in october 2018 and a $ 1.6 million decrease in offering costs . amortization of acquired intangibles . amortization of acquired intangibles increased $ 3.0 million , or 4.5 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to amortization related to the samanage acquisition . see note 3. acquisitions in the notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k for further discussion of our acquisitions including the intangible assets acquired . amortization of intangible assets 40 includes $ 47.4 million and $ 48.2 million of amortization related to the take private for the years ended december 31 , 2019 and 2018 , respectively , with the remaining balance related primarily to the logicnow acquisition in may 2016. interest expense , net replace_table_token_7_th interest expense , net decreased by $ 33.9 million , or 23.9 % , in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . the decrease in interest expense is primarily due to the repayment of $ 315.0 million in outstanding borrowings under our second lien term loan in october 2018 and the reduction in the interest rate spread under our credit facilities resulting from our ipo and the refinancing transaction we completed in march 2018. see note 9. debt in the notes to consolidated financial statements included in item 8 of part ii of this annual report on form 10-k for additional information regarding our debt . other income ( expense ) , net replace_table_token_8_th other income ( expense ) , net increased by $ 95.3 million in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to a loss of $ 80.1 million on extinguishment of debt related to the refinancing of our credit facilities in march 2018 and the impact of changes in foreign currency exchange rates related to various intercompany loans and accounts for the period .
| the solarwinds model allows us to both sell to a broad group of potential customers and close large transactions with significant customers . we increased our customer base by over 25,000 new customers in 2019 organically and through acquisitions . while some customers may spend as little as $ 100 with us over a twelve-month period , we had 897 customers who had spent more than $ 100,000 with us for the year ended december 31 , 2019 . we expect that the continued growth in the use of public and private clouds , increased outsourcing of it management services to msps and cross-selling of subscription products into our existing customer base could result in an increase in our subscription revenue . we believe this increase , coupled with continued growth in maintenance revenue , could cause our recurring revenue to increase as a percentage of total revenue over time . our license revenue has declined as a percentage of total revenue primarily due to the higher growth of our recurring revenue and represented approximately 18 % of our total revenue in 2019 . we believe we have the potential to grow license revenue over time as we continue to invest in international sales growth , new product development and enhancements and increased productivity and efficiency of our sales and marketing operations . profitability we have grown while maintaining high levels of operating efficiency . our net income for the year ended december 31 , 2019 was $ 18.6 million compared to a net loss of $ 102.1 million for the year ended december 31 , 2018 . our adjusted ebitda was $ 453.6 million and $ 407.5 million for the years ended december 31 , 2019 and 2018 , respectively . 36 cash flow we are building our business to generate strong cash flow over the long term . for the years ended december 31 , 2019 and 2018 , cash flows from operations were $
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performance refers to changes in profitability based on revisions to estimates at completion on individual contracts . these revisions result from increases or decreases to the estimated value of the contract , the estimated costs to complete or both . therefore , changes in costs incurred in the period compared 26 with prior periods do not necessarily impact profitability . it is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value that the profitability of that contract may be impacted . contract mix refers to changes in the volume of higher- vs. lower-margin work . additionally , higher or lower margins can be inherent in the contract type ( e.g. , fixed-price/cost-reimbursable ) or type of work ( e.g. , development/production ) . consolidated overview review of 2014 vs. 2013 replace_table_token_10_th our revenues were virtually flat in 2014 compared with 2013 . decreased u.s. army spending continued to affect somewhat our information systems and technology and combat systems groups . this was essentially offset by higher aerospace and marine systems revenues due to increased aircraft deliveries and higher ship construction activity , respectively . operating costs and expenses decreased more than revenues in 2014 , resulting in increased operating earnings and margins . the decrease in operating costs and expenses in 2014 was due to improved performance in aircraft manufacturing and outfitting activities in the aerospace group and significant cost reductions in the information systems and technology group . the resulting consolidated operating margins of 12.6 percent were up 70 basis points over 2013 , reflecting strong operating performance across all of our groups . review of 2013 vs. 2012 replace_table_token_11_th while our revenues were essentially flat in 2013 compared with 2012 , operating earnings and margins increased significantly in 2013 . we experienced lower volume in our combat systems business as a result of decreased u.s. army spending . this was largely offset by higher revenues in our aerospace group from increased deliveries of g650 and g280 aircraft . revenues increased slightly in our marine systems and information systems and technology groups in 2013 . operating costs were significantly lower in 2013 due to several discrete charges taken in 2012 , including a $ 2 billion goodwill impairment recorded in the information systems and technology group . these charges are discussed in conjunction with our business groups ' operating results . even absent the charges taken in 2012 , operating costs were down in 2013 , the effect of cost-reduction efforts and cost savings associated with restructuring activities . 27 review of business groups replace_table_token_12_th following is a discussion of the operating results and outlook for each of our business groups . for the aerospace group , results are analyzed by specific lines of products and services , consistent with how the group is managed . for the defense groups , the discussion is based on the types of products and services each group offers with a supplemental discussion of specific contracts and programs when significant to the group 's results . additional information regarding our business groups can be found in note q to the consolidated financial statements in item 8. aerospace review of 2014 vs. 2013 replace_table_token_13_th the increase in the aerospace group 's revenues in 2014 consisted of the following : aircraft manufacturing , outfitting and completions $ 605 aircraft services 69 pre-owned aircraft ( 143 ) total increase $ 531 aircraft manufacturing , outfitting and completions revenues increased in 2014 primarily due to additional deliveries of large-cabin aircraft . aircraft services activity was higher in 2014 due to growth in the number of aircraft in service and the resulting increased demand for maintenance work . we experienced reduced aircraft trade-in activity in 2014 leading to lower pre-owned aircraft sales . we had three pre-owned aircraft sales in 2014 compared to 11 in 2013 . the increase in the group 's operating earnings in 2014 consisted of the following : 28 aircraft manufacturing , outfitting and completions $ 279 aircraft services 15 pre-owned aircraft 5 g & a/other expenses ( 104 ) total increase $ 195 aircraft manufacturing , outfitting and completions earnings grew in 2014 due to the increase in aircraft deliveries , as well as improved operating performance on our large- and mid-cabin aircraft production . partially offsetting this increase was higher net r & d expenses associated with ongoing product-development efforts . as a result , the aerospace group 's operating margins increased 120 basis points in 2014 . review of 2013 vs. 2012 replace_table_token_14_th the aerospace group 's revenues and earnings increased in 2013 primarily due to additional deliveries of g650 and g280 aircraft . operating earnings also increased in 2013 due to a $ 191 impairment of jet aviation 's maintenance business intangible asset in 2012 as the business experienced an increasingly competitive marketplace . 2015 outlook we expect an increase of approximately 8 percent in the group 's revenues in 2015 compared with 2014 as a result of gulfstream aircraft deliveries . operating margins are expected to be around 18 percent , down somewhat from 2014 primarily due to higher net r & d expenses , aircraft manufacturing mix and more pre-owned aircraft sales . combat systems review of 2014 vs. 2013 replace_table_token_15_th the change in the combat systems group 's revenues in 2014 consisted of the following : u.s. military vehicles $ ( 663 ) weapons systems and munitions ( 61 ) international military vehicles 624 total decrease $ ( 100 ) 29 u.s. military vehicle revenues were down in 2014 consistent with our expectations as a result of a decrease in u.s. army spending as the iraqi and afghan conflicts wound down . this impacted our primary u.s. vehicle programs , including stryker , abrams , buffalo and mine resistant , ambush protected ( mrap ) vehicles . revenues also decreased on the completed ground combat vehicle ( gcv ) design and development program . weapons systems and munitions volume decreased in 2014 primarily due to lower tank ammunition production for non-u.s. customers . story_separator_special_tag revenues for international military vehicles were up significantly in 2014 as work commenced on a $ 10 billion international order received in the first quarter . work on this order was somewhat offset by lower revenues on several other international contracts that are nearing completion . the combat systems group 's operating margins decreased 60 basis points in 2014 primarily due to a mix shift from more mature programs nearing completion to the start up of new programs . somewhat offsetting this shift in contract mix , operating margins were up in our european and weapons systems businesses as a result of reduced overhead costs following restructuring activities completed in 2013 and early 2014. review of 2013 vs. 2012 replace_table_token_16_th in 2013 , revenues were down across the combat systems group . decreased u.s. army spending , in part due to sequestration and a government shutdown , impacted u.s. military vehicle programs , including stryker , abrams and mrap , and weapons systems and munitions programs . the combat systems group 's operating earnings and margins increased significantly in 2013 despite the reduced revenues due to the negative impact of three discrete charges in 2012 in our european land systems business : $ 292 for contract dispute accruals , primarily related to the termination of a contract to provide pandur vehicles for portugal ( $ 169 of this amount was recorded as a reduction of revenues ) ; $ 98 of restructuring-related charges , primarily severance , for activities associated with eliminating excess capacity ; and $ 67 of out-of-period adjustments recorded in the first quarter of 2012 ( $ 48 of this amount was recorded as a reduction of revenues ) . these charges reduced the group 's 2012 operating margins approximately 570 basis points . operating earnings and margins increased in 2013 due to strong operating performance across our u.s. businesses and the favorable impact of cost savings associated with restructuring activities in our european military vehicles business . 2015 outlook we expect the combat systems group 's revenues and margins in 2015 to be consistent with 2014 as growth on our international military vehicle contracts offsets some scheduled reductions in spending on a few u.s. military production programs . 30 information systems and technology review of 2014 vs. 2013 replace_table_token_17_th the information systems and technology group 's revenues in 2014 were lower than 2013 , though higher than our initial expectations . the decrease from the prior year consisted of the following : mobile communication systems $ ( 886 ) information technology ( it ) solutions and mission support services ( 185 ) intelligence , surveillance and reconnaissance ( isr ) solutions ( 38 ) total decrease $ ( 1,109 ) revenues decreased nearly 25 percent in the mobile communication systems business in 2014 primarily as a result of lower u.s. army spending on certain programs , including the handheld , manpack and small form fit ( hms ) radio , warfighter information network-tactical ( win-t ) and common hardware systems-4 ( chs-4 ) programs . revenues decreased in 2014 in our it services business due to lower volume on several programs , including our commercial wireless work . this decrease was partially offset by increased contact-center services work under our contract with the centers for medicare & medicaid services . revenues were essentially flat in our isr business . despite the revenue decline , the group 's operating margins increased 90 basis points in 2014 , the result of solid operating performance and ongoing cost-reduction efforts across all our lines of business . as part of these efforts , we consolidated two businesses in the group effective in january of 2015 in an effort to be more efficient and responsive to our customers . review of 2013 vs. 2012 replace_table_token_18_th the information systems and technology group 's revenues increased in 2013 compared with 2012 as higher volume in the mobile communication systems and it services businesses was partially offset by decreased revenues in the isr business . revenues increased in 2013 in the mobile communication systems business due to higher volume on programs that received production awards in late 2012 or 2013 , including win-t , hms and chs-4 . in the it services business , revenues were up as we worked to meet commercial wireless customers ' accelerated schedules and commenced work on the contact-center services contract discussed above . revenues decreased in 2013 across the isr business driven by lower u.s. defense spending and a slower-than-expected transition to related follow-on work . the information systems and technology group 's operating earnings and margins increased in 2013 driven by the negative impact of four discrete charges in 2012 : 31 $ 2 billion goodwill impairment resulting from slowed defense spending and the threat of sequestration , coupled with margin compression due to a shift in the group 's contract mix impacting projected cash flows ; $ 110 of intangible asset impairments on several assets in our optical products business as a result of competitive losses and delays indicative of lower overall demand caused by the economic downturn ; $ 58 write-down of substantially all of the remaining ruggedized hardware inventory based on anticipated remaining demand for products that ceased production in 2012 ; and $ 26 for cost growth associated with the demonstration phase of the u.k. specialist vehicle ( sv ) program . excluding these charges , operating margins decreased slightly in 2013 primarily due to growth in the lower-margin it services business and performance challenges in the group 's u.k. business . management of the u.k. business was consolidated into our north american mobile communication systems business in 2013 . 2015 outlook we expect 2015 revenues in the information systems and technology group to decrease approximately 5.5 percent from 2014 as some of 2014 's anticipated revenue reduction flows into 2015. operating margins are expected to improve again to slightly more than 9 percent .
| while ship engineering and repair cost volume increased , this was offset by the intangible asset impairment in 2012 in jet aviation 's maintenance business . no other changes were individually significant . replace_table_token_23_th goodwill impairment in 2012 , we recorded a $ 2 billion goodwill impairment in the information systems and technology group discussed in conjunction with the business group 's operating results . g & a expenses as a percentage of revenues , g & a expenses were 6.4 percent in 2014 , 6.6 percent in 2013 and 7.2 percent in 2012 . we expect g & a expenses in 2015 to be generally consistent with 2014 . interest , net net interest expense was $ 86 in 2014 and 2013 and $ 156 in 2012 . the decrease in interest expense in 2013 results from our debt refinancing completed in december 2012. see note j to the consolidated financial statements in item 8 for additional information regarding our debt obligations . we expect full-year 2015 net interest expense to be $ 82 . 36 other , net in 2012 , other expenses included a $ 123 loss on the redemption of debt associated with the refinancing discussed above . provision for income tax , net our effective tax rate was 29.7 percent in 2014 , 31.2 percent in 2013 and 180.5 percent in 2012 . the decrease in the effective tax rate in 2014 was primarily due to increased income from international operations and utilization of foreign tax credits . the atypically high tax rate in 2012 was driven by the largely non-deductible goodwill impairment recorded in the information systems and technology group and , to a lesser extent , the establishment of valuation allowances related to deferred tax assets in our non-u.s. operations . for further discussion and a reconciliation of our effective tax rate from the statutory federal rate , see note e to the consolidated financial statements in item 8. we anticipate the full-year effective tax rate to be approximately 30.5 percent in 2015 . discontinued operations , net of tax in 2014 ,
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however , we expect local currency sales growth to be 25 reduced as 2010 benefited from weaker prior period comparisons . to reduce costs , we also continue to shift more of our manufacturing to china where our three facilities manufacture for the local markets as well as for export . extending our technology lead . we continue to focus on product innovation . in the last three years , we spent approximately 5.1 % of net sales on research and development . we seek to drive shorter product life cycles , as well as improve our product offerings and their capabilities with additional integrated technologies and software . in addition , we aim to create value for our customers by having an intimate knowledge of their processes via our significant installed product base . maintaining cost leadership . we continue to strive to improve our margins by optimizing our cost structure . for example , we significantly reduced our global cost structure during 2009 in response to the recent global economic slowdown . we have also focused on reallocating resources and better aligning our cost structure to support higher growth areas and opportunities for margin improvement . as previously mentioned , shifting production to china has also been an important component of our cost savings initiatives . we have also implemented global procurement and supply chain management programs over the last several years aimed at lowering supply costs . our cost leadership initiatives are also focused on continuously improving our invested capital efficiency , such as reducing our working capital levels and ensuring appropriate returns on our expenditures . pursuing strategic acquisitions . we seek to pursue acquisitions that may leverage our global sales and service network , respected brand , extensive distribution channels and technological leadership . we have identified life sciences , product inspection and process analytics as three key areas for acquisitions . we also continue to pursue bolt-on acquisitions . for example , during the first quarter of 2010 , we acquired our pipette distributor in the united kingdom and during the fourth quarter of 2009 , we also acquired a leader of vision inspection technology that has been integrated with our end-of-line packaging inspection systems product offering . results of operations consolidated net sales net sales were $ 1,968.2 million for the year ended december 31 , 2010 , compared to $ 1,728.9 million in 2009 and $ 1,973.3 million in 2008. in u.s. dollars , this represents an increase in 2010 of 14 % and a decrease in 2009 of 12 % . in local currencies , net sales increased 14 % in 2010 and decreased 10 % in 2009. during the fourth quarter of 2009 , we acquired a vision technology company that has been integrated into our end-of-line packaging inspection systems product offering . during the first quarter of 2010 , we also acquired our pipette distributor in the united kingdom that has been integrated into our u.k. market organization . we estimate acquisitions contributed approximately 2 % to our net sales growth during 2010. in 2010 , our net sales by geographic destination increased in u.s. dollars by 16 % in the americas , 4 % in europe and 27 % in asia/rest of world . in local currencies , our net sales by geographic destination increased in 2010 by 15 % in the americas , 7 % in europe and 23 % in asia/rest of world . a discussion of sales by operating segment is included below . acquisitions contributed approximately 2 % in the americas and 2 % in europe to net sales growth during 2010. while we have experienced improved business activity , particularly in asia/rest of world and the americas , the global economic environment remains uncertain and it is currently difficult to predict the extent to which our results may be adversely affected . as described in note 18 to our audited consolidated financial statements , our net sales comprise product sales of precision instruments and related services . service revenues are primarily derived from repair and other services , including regulatory compliance qualification , calibration , certification , preventative maintenance and spare parts . net sales of products increased by 17 % in 2010 in u.s. dollars and decreased by 15 % in 2009. in local currencies , net sales of products increased by 16 % in 2010 and decreased by 13 % in 2009. service revenue ( including spare parts ) increased in 2010 by 5 % and decreased in 2009 by 4 % in u.s. dollars . in local currencies , service revenue increased by 5 % in 2010 and was flat in 2009 . 26 net sales of our laboratory-related products increased by 15 % in u.s. dollars and in local currencies during 2010 principally driven by strong growth across most product categories and geographies . acquisitions contributed approximately 2 % to our laboratory-related net sales growth during 2010. net sales of our industrial-related products increased by 15 % in u.s. dollars and in local currencies during 2010. we experienced strong sales growth in our product inspection and core-industrial products . net sales growth was offset in part by decreased sales in transportation and logistics products during 2010. net sales growth in industrial-related products reflects particularly strong growth in china and the americas . acquisitions contributed approximately 2 % to our industrial-related net sales growth during 2010. in our food retailing markets , net sales increased by 3 % in u.s. dollars and increased 5 % in local currencies during 2010 compared to the previous year , resulting from strong growth in china . story_separator_special_tag gross profit gross profit as a percentage of net sales was 52.7 % for 2010 , compared to 51.4 % for 2009 and 50.3 % for 2008. gross profit as a percentage of net sales for products was 56.5 % for 2010 , compared to 55.2 % for 2009 and 54.2 % for 2008. gross profit as a percentage of net sales for services ( including spare parts ) was 39.5 % for 2010 , compared to 39.8 % for 2009 and 36.8 % for 2008. the increase in gross profit as a percentage of net sales reflects benefits from increased sales volume and operating efficiencies , as well as pricing . these results were also partly offset by unfavorable business mix , as well as increased material costs , including higher costs for certain steel-related items and unfavorable currency . research and development and selling , general and administrative expenses research and development expenses as a percentage of net sales were 4.9 % for 2010 and 5.2 % for both 2009 and 2008. research and development expenses increased by 8 % and decreased by 12 % in u.s. dollars in 2010 and 2009 , respectively , and in local currencies increased by 6 % in 2010 and decreased by 11 % in 2009. our research and development spending levels reflect increased research and development investments across most product categories . selling , general and administrative expenses as a percentage of net sales increased to 29.9 % for 2010 , compared to 29.2 % for 2009 and 29.4 % for 2008. selling , general and administrative expenses in u.s. dollars increased by 17 % in 2010 and decreased by 13 % in 2009 and in local currencies increased by 16 % in 2010 and decreased by 11 % in 2009. the increase in 2010 is primarily due to higher performance-related compensation costs and increased sales and marketing activities related to the improved economic environment , as well as acquisition-related expenses . the decrease in selling , general and administrative expenses in 2009 compared to 2008 is primarily due to benefits from our cost reduction activities and reduced performance-related compensation costs . restructuring charges during the fourth quarter of 2008 , we initiated a global cost reduction program which has substantially been completed . charges under the program primarily comprise severance costs . through december 31 , 2010 , total charges recognized were $ 42.7 million of which $ 4.9 million , $ 31.4 million and $ 6.4 million was recognized during 2010 , 2009 and 2008 , respectively . see note 15 to our audited consolidated financial statements for a summary of restructuring activity during 2010. other charges ( income ) , net other charges ( income ) , net consisted of net charges of $ 4.2 million in 2010 , compared to net charges of $ 1.4 million and $ 2.6 million in 2009 and 2008 , respectively . other charges ( income ) , net consists primarily of interest income , ( gains ) losses from foreign currency transactions and other items . other charges ( income ) , 27 net in 2010 also includes a $ 4.4 million ( $ 3.8 million after-tax ) charge associated with the sale of our retail software business for in-store item and inventory management solutions . this amount was partially offset by a benefit from unrealized contingent consideration from a previous acquisition totaling $ 1.2 million ( $ 1.2 million after-tax ) . interest expense and taxes interest expense was $ 20.1 million for 2010 , compared to $ 25.1 million for 2009 and $ 25.4 million for 2008. the 2010 amount reflects the benefit of lower average borrowings and lower costs associated with our interest rate swap agreements compared with the prior year . the 2009 amount includes charges associated with the tender offer of our 4.85 % senior notes and other financing costs as well as costs associated with our interest rate swap agreements which were offset by lower average debt balances in comparison to 2008. during 2010 , we recorded discrete tax items resulting in a net tax benefit of $ 5.2 million primarily related to the favorable resolution of certain prior year tax matters . in 2009 , we recorded a discrete net tax benefit of $ 8.3 million primarily related to the favorable resolution of certain prior year tax matters . during 2008 , we recorded a discrete tax benefit of $ 2.5 million related to favorable withholding tax law changes in china and discrete tax items resulting in a net tax benefit of $ 3.5 million primarily related to the closure of certain tax matters . our annual effective tax rate was 25 % , 23 % and 24 % for 2010 , 2009 and 2008 , respectively . the previously described discrete tax items had the effect of lowering our annual effective tax rate by 1 % in 2010 , 4 % in 2009 and 2 % in 2008. results of operations by operating segment the following is a discussion of the financial results of our operating segments . we currently have five reportable segments : u.s. operations , swiss operations , western european operations , chinese operations and other . a more detailed description of these segments is outlined in note 18 to our audited consolidated financial statements . u.s. operations ( amounts in thousands ) replace_table_token_4_th ( 1 ) represents u.s. dollar growth for net sales and segment profit . the increase in total net sales and net sales to external customers during 2010 reflects increases across most product categories , particularly product inspection and laboratory-related products .
| in addition to the swiss franc and major european currencies , we also conduct business in many geographies throughout the world , including asia pacific , the united kingdom , eastern europe , latin america and canada . fluctuations in these currency exchange rates against the u.s. dollar can also affect our operating results . in addition to the effects of exchange rate movements on operating profits , our debt levels can fluctuate due to changes in exchange rates , particularly between the u.s. dollar and the swiss franc . based on our outstanding debt at december 31 , 2010 , we estimate that a 10 % weakening of the u.s. dollar against the currencies in which our debt is denominated would result in an increase of approximately $ 9.5 million in the reported u.s. dollar value of the debt . taxes we are subject to taxation in many jurisdictions throughout the world . our effective tax rate and tax liability will be affected by a number of factors , such as the amount of taxable income in particular jurisdictions , the tax rates in such jurisdictions , tax treaties between jurisdictions , the extent to which we transfer funds between jurisdictions , earnings repatriations between jurisdictions and changes in law . generally , the tax liability for each taxpayer within the group is determined either ( i ) on a non-consolidated/non-combined basis or ( ii ) on a consolidated/combined basis only with other eligible entities subject to tax in the same jurisdiction , in either case without regard to the taxable losses of non-consolidated/non-combined affiliated legal entities . environmental matters we are subject to environmental laws and regulations in the jurisdictions in which we operate . we own or lease a number of properties and manufacturing facilities around the world . like many of our competitors , 34 we have incurred , and will continue to incur , capital and operating expenditures and other costs in complying with such laws and regulations . we are currently involved in ,
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more than 98 % of the company 's revenues , excluding equity in earnings of mvp , are derived from the sale and delivery of natural gas to roanoke gas customers . the scc authorizes the rates and fees the company charges its customers for these services . these rates are designed to provide the company with the opportunity to recover its gas and non-gas expenses and to earn a reasonable rate of return for shareholders based on normal weather . on october 10 , 2018 , roanoke gas filed a general rate application requesting an annual increase in customer non-gas base rates . roanoke gas implemented the interim non-gas rates contained in its rate application for natural gas service rendered to customers on or after january 1 , 2019. on january 24 , 2020 , the scc issued its final order on the general rate application , granting roanoke gas an annualized increase in non-gas base rates of $ 7.25 million and an authorized rate of return on equity of 9.44 % . as a result , the company refunded $ 3.8 million to its customers in march 2020 , representing the excess revenues collected plus interest for the difference between the final approved rates and the interim rates billed since january 1 , 2019. the order also directed the company to write-down $ 317,000 of esac assets that were not subject to recovery under the final order . in fiscal 2019 , the company completed its transition to the 21 % federal statutory income tax rate as a result of the tcja that was signed into law in december 2017. between the enactment of the new tax rates and the company 's implementation of new non-gas rates effective january 1 , 2019 , the company was recovering revenues based on a 34 % federal income tax rate rather than a 21 % federal tax rate . as a result , during this period , the company recorded a provision for refund related to estimated excess revenues collected from customers for the difference in non-gas rates derived under the lower federal tax rate and the 34 % rate included in non-gas rates . roanoke gas incorporated the effect of the 21 % federal income tax rate with the implementation of new non-gas base rates , as filed in its general non-gas rate application , and refunded the excess revenues associated with the change in the tax rate over a 12 month period ending december 2019. the company also recorded a regulatory liability related to the excess deferred income taxes on the regulated operations of roanoke gas . these excess deferred income taxes are being refunded to customers over a 28-year period . additional information regarding the tcja and non-gas base rate award is provided under the regulatory and tax reform section below . as the company 's business is seasonal in nature , volatility in winter weather and the commodity price of natural gas , can impact the effectiveness of the company 's rates in recovering its costs and providing a reasonable return for its shareholders . in order to mitigate the effect of weather variations and other factors not provided for in the company 's base rates , roanoke gas has certain approved rate mechanisms in place that help provide stability in earnings , adjust for volatility in the price of natural gas and provide a return on qualified infrastructure investment . these mechanisms include the save rider , wna , icc and pga . the company 's non-gas base rates are designed to allow for the recovery of non-gas related expenses and provide a reasonable return to shareholders . these rates are determined based on the filing of a formal non-gas rate application with the scc . generally , investments related to extending service to new customers are recovered through the additional revenues generated by the non-gas base rates currently in place . the investment in replacing and upgrading existing infrastructure is generally not recoverable until a formal rate application is filed to include the additional investment , and new non-gas base rates are approved . the save plan and rider provides the company with the ability to recover costs related to these save qualified infrastructure investments on a prospective basis . the save plan provides a mechanism through which the company may recover the related depreciation and expenses and provides a return on rate base of the additional capital investments related to improving the company 's infrastructure 17 until such time a formal rate application is filed to incorporate these investments in the company 's non-gas base rates . with the implementation of new non-gas rates effective january 1 , 2019 , the save rider was reset as the cumulative qualifying save plan investment through december 31 , 2018 was incorporated into the non-gas rate application as part of the new non-gas base rates . accordingly , save plan revenues declined to $ 1,272,000 in fiscal 2020 from $ 1,599,000 in fiscal 2019. fiscal 2019 included three months of save revenue under the save plan rates in effect prior to the revenue being incorporated into the new non-gas base rates . in 2017 , the company completed the replacement of all cast iron and bare steel pipe and is continuing its renewal program under the save plan and rider by renewing its first generation , pre-1973 plastic pipe . additional information regarding the save rider is provided under the regulatory and tax reform section . the wna reduces the volatility in earnings due to the variability in temperatures during the heating season . the wna is based on the most recent 30-year temperature average and provides the company with a level of earnings protection when weather is warmer than normal and provides its customers with price protection when the weather is colder than normal . story_separator_special_tag the wna allows the company to recover from its customers the lost margin ( excluding gas costs ) from the impact of weather that is warmer than normal and correspondingly requires the company to refund the excess margin earned for weather that is colder than normal . any billings or refunds related to the wna are completed following each wna year end , which runs from april to march . the company recorded approximately $ 1,193,000 and $ 453,000 in additional revenue from the wna for weather that was approximately 8 % and 4 % warmer than normal for the fiscal years ended september 30 , 2020 and 2019 , respectively . as normal weather is based on the most recent 30-year temperature average , the number of heating degree days used to determine normal will change annually as a new year is added to the 30-year period and the oldest year is removed . as a result of adding recent warmer than normal years to replace historical colder years , the number of heating degree days that defines normal has declined from 3,998 in fiscal 2013 to 3,914 when incorporating fiscal 2020 heating degree days . the company also has an approved rate structure in place that mitigates the impact of financing costs of its natural gas inventory . under this rate structure , roanoke gas recognizes revenue for the financing costs , or “ carrying costs , ” of its investment in natural gas inventory . the icc factor applied to average inventory is based on the company 's weighted-average cost of capital , including interest rates on short-term and long-term debt , and the company 's authorized return on equity . during times of rising gas costs and rising inventory levels , roanoke gas recognizes icc revenues to offset higher financing costs associated with higher inventory balances . conversely , during times of decreasing gas costs and declining inventory balances , roanoke gas recognizes less icc revenue as financing costs are lower . in addition , icc revenues are impacted by changes in the weighted-average cost of capital . the combination of a 12 % reduction in the average cost of gas in storage during fiscal 2020 and a 6 % reduction in the icc factor , resulted in a decline in icc revenues of approximately $ 74,000 from fiscal 2019. based on current storage balances and natural gas futures prices , the average dollar balance of gas in storage in fiscal 2021 should be similar to 2020 , which , in combination with a stable icc factor due to the current low interest rate environment , should result in similar icc revenues . the company 's approved billing rates include a component designed to allow for the recovery of the cost of natural gas used by its customers . the cost of natural gas is a pass-through cost and is independent of the non-gas rates of the company . this rate component , referred to as the pga , allows the company to pass along to its customers increases and decreases in natural gas costs incurred by its regulated operations . on at least a quarterly basis , the company files a pga rate adjustment request with the scc to adjust the gas cost component of its rates up or down depending on projected price and activity . once administrative approval is received , the company adjusts the gas cost component of its rates to reflect the approved amount . as actual costs will differ from the projections used in establishing the pga rate , the company will either over-recover or under-recover its actual gas costs during the period . the difference between actual costs incurred and costs recovered through the application of the pga is recorded as a regulatory asset or liability . at the end of the annual deferral period , the balance is amortized over an ensuing 12-month period as amounts are reflected in customer billings . roanoke gas is required to submit an annual information filing ( `` aif '' ) each year to the scc . included as part of this filing is an earnings test , which is required when the company has certain regulatory assets . if the results of the earnings test indicate that the company 's regulatory earnings exceed the mid-point of its authorized return on equity range , then certain regulatory assets are written-down and recovery accelerated to the point where the actual return for the period adjusts to the mid-point of the range . the company 's earnings test is required for its fiscal year ended september 30 , 2020 and must be filed with the scc by january 2021. as roanoke gas ' fiscal 2020 earnings exceed the mid-point , the company accelerated recovery of $ 525,000 in esac assets . 18 story_separator_special_tag project support activities . 20 general taxes - general taxes increased $ 127,995 , or 6 % , primarily due to higher property taxes associated with a nearly 9 % increase in utility property . depreciation - depreciation expense increased by $ 436,451 , or 6 % , corresponding to a similar increase in depreciable utility plant . equity in earnings of unconsolidated affiliate - the equity in earnings of the mvp investment increased by $ 1,794,526 due to afudc related to increased investment in the project . the total mvp cash investment in fiscal 2020 was approximately $ 7.8 million . other income , net - other income increased by $ 284,414 primarily due to the $ 248,000 equity portion of afudc income related to the two roanoke gas transfer stations that will interconnect with the mvp . the company recorded afudc based on activity retro-active to january 1 , 2019 in accordance with the provisions included in the scc 's final rate order on the non-gas base rates as discussed in the regulatory and tax reform section .
| the primarily weather sensitive residential and commercial natural gas deliveries declined by 7 % , corresponding to a 4 % decline in heating degree days during the period , while transportation volumes increased by 32 % . after adjusting for wna , residential volumes declined by more than 2 % and commercial volumes fell by more than 6 % . these wna adjusted lower volumes reflect the impact of covid-19 on local businesses and other entities through closings and reduced operations . the significant increase in transportation and interruptible volumes is attributable to a single multi-fuel use industrial customer that switched its primary fuel source to natural gas due to favorable natural gas commodity price levels ; however , this customer 's natural gas usage has since returned to prior consumption patterns . the average commodity price of natural gas delivered declined by 29 % per decatherm from the same period last year due to available supplies and higher storage levels from a mild winter . save plan revenues declined by $ 327,000 as the save rider reset effective january 1 , 2019 , and all qualifying save plan investments through december 31 , 2018 were included in rate base and used to derive the new non-gas base rates . for the first three months of fiscal 2019 , save plan revenues represented a return on a five-year accumulation of save investment . subsequent to january 1 , 2019 , the save plan investments reset and currently include less than two years of qualifying investments on which to earn a return . as discussed above , the company placed new non-gas base rates into effect for natural gas service rendered on or after january 1 , 2019 , subject to refund . as a result , fiscal 2020 includes a full year of revenues under the new non-gas base rates , while the prior year revenues include only nine-months of the higher non-gas rates . 19 other revenues decreased by 7 % from the same period last year due to the unregulated operations contract completion . the contract ended in august 2020 and accounted for approximately 75 % of other
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( 7 ) increases in the costs to repair , renovate and re-lease space ; ( 8 ) earthquakes , tornadoes , hurricanes , damage from rising sea levels due to climate change and other natural disasters , civil unrest , terrorist acts or acts of war , which may result in uninsured or underinsured losses ; and ( 9 ) changes in laws and governmental regulations , including those governing usage , zoning , the environment and taxes . our operating costs represent property-related costs , such as repairs and maintenance , landscaping , snow removal , utilities , property insurance , security , ground rent related to properties for which we are the lessee and various other costs . increases in our operating costs , to the extent they are not offset by increases in revenue , may impact our overall performance . for a further discussion of these and other factors that could impact our future results , see item 1a . “ risk factors. ” story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 8.1 million , respectively , were capitalized to building and improvements and leasing payroll costs of $ 8.0 million and $ 8.1 million , respectively , and leasing commission costs of $ 7.1 million and $ 6.1 million , respectively , were capitalized to deferred charges and prepaid expenses , net . other income and expenses ( in thousands ) replace_table_token_12_th dividends and interest dividends and interest remained generally consistent for the year ended december 31 , 2018 as compared to the corresponding period in 2017. interest expense the decrease in interest expense for the year ended december 31 , 2018 of $ 11.6 million , as compared to the corresponding period in 2017 , was primarily due to lower overall debt obligations . gain on sale of real estate assets during the year ended december 31 , 2018 , 49 shopping centers , one partial shopping center and one land parcel were disposed resulting in aggregate gain of $ 208.7 million . in addition , during the year ended december 31 , 2018 , we received aggregate net proceeds of $ 0.5 million from previously disposed assets resulting in aggregate gain of $ 0.5 million . during the year ended december 31 , 2017 , 18 shopping centers and two outparcel buildings were disposed resulting in aggregate gain of $ 68.7 million . gain ( loss ) on extinguishment of debt , net during the year ended december 31 , 2018 , we repaid $ 881.4 million of secured loans , $ 435.0 million of unsecured term loans and amended and restated our senior unsecured credit facility agreement and term loans , resulting in a $ 37.1 million loss on extinguishment of debt , net as a result of debt transactions . loss on extinguishment of debt , net includes $ 24.3 million of legal defeasance fees and $ 23.0 million of prepayment fees , partially offset by $ 10.2 million of accelerated unamortized debt premiums , net of discounts and debt issuance costs . during the year ended december 31 , 2017 , we repaid $ 389.1 million of secured loans and $ 815.0 million of unsecured term loans , resulting in a $ 0.5 million gain on extinguishment of debt , net . other other expense , net remained generally consistent for the year ended december 31 , 2018 as compared to the corresponding period in 2017. equity in income of unconsolidated joint ventures ( in thousands ) replace_table_token_13_th 30 equity in income of unconsolidated joint venture the decrease in equity in income of unconsolidated joint venture for the year ended december 31 , 2018 of $ 0.4 million , as compared to the corresponding period in 2017 , was due to the disposition of our unconsolidated joint venture interest during the year ended december 31 , 2017. gain on disposition of unconsolidated joint venture during the year ended december 31 , 2017 , we disposed of our unconsolidated joint venture interest for net proceeds of $ 12.4 million resulting in a gain of $ 4.6 million . comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 revenues ( in thousands ) replace_table_token_14_th rental income the decrease in rental income for the year ended december 31 , 2017 , of $ 1.0 million , as compared to the corresponding period in 2016 , was primarily due to ( i ) a $ 9.3 million decrease in amortization of above- and below-market leases and tenant inducements , net ; and ( ii ) a $ 6.4 million decrease in lease termination fees ; partially offset by ( iii ) a $ 10.5 million increase in base rent ; and ( iv ) a $ 4.0 million increase in straight-line rent . the increase in base rent was primarily due to contractual rent increases as well as positive rent spreads for new and renewal leases and option exercises of 12.6 % and 12.0 % during the years ended december 31 , 2017 and 2016 , respectively , partially offset by a decline in occupancy . expense reimbursements the increase in expense reimbursements for the year ended december 31 , 2017 of $ 8.1 million , as compared to the corresponding period in 2016 , was primarily due to higher reimbursable operating costs and real estate taxes . other revenues other revenues remained generally consistent for the year ended december 31 , 2017 as compared to the corresponding period in 2016. operating expenses ( in thousands ) replace_table_token_15_th 31 operating costs the increase in operating costs for the year ended december 31 , 2017 of $ 2.7 million , as compared to the corresponding period in 2016 , was primarily due to an increase in repair and maintenance costs . real estate taxes the increase in real estate taxes for the year ended december 31 , 2017 of $ 4.6 million , as compared to the corresponding period in 2016 , was primarily due to an increase in tax rates and assessments from several jurisdictions . story_separator_special_tag depreciation and amortization the decrease in depreciation and amortization for the year ended december 31 , 2017 of $ 12.3 million , as compared to the corresponding period in 2016 , was primarily due to the decrease in acquired in-place lease intangibles . provision for doubtful accounts the decrease in the provision for doubtful accounts for the year ended december 31 , 2017 of $ 3.9 million , as compared to the corresponding period in 2016 , was primarily due to increased recoveries of previously reserved receivables and overall strength in collection efforts . impairment of real estate assets during the year ended december 31 , 2017 , aggregate impairment of $ 40.1 million was recognized on 11 shopping centers as a result of disposition activity and five operating properties as a result of a change in the estimated hold period of these properties in connection with our capital recycling program . during the year ended december 31 , 2016 , aggregate impairment of $ 5.2 million was recognized on one shopping center and one office building as a result of disposition activity and two operating properties as a result of a change in the estimated hold period of these properties in connection with our capital recycling program . general and administrative general and administrative costs remained generally consistent for the year ended december 31 , 2017 as compared to the corresponding period in 2016 , with decreased severance expenses associated with the separation of former executives of the company in 2016 , partially offset by increased payroll expenses . during the year ended december 31 , 2017 and 2016 , construction compensation costs of $ 8.1 million and $ 6.6 million , respectively , were capitalized to building and improvements and leasing compensation costs of $ 14.2 million and $ 14.5 million , respectively , were capitalized to deferred charges and prepaid expenses , net . other income and expenses ( in thousands ) replace_table_token_16_th dividends and interest the decrease in dividend and interest for the year ended december 31 , 2017 of $ 0.2 million , as compared to the corresponding period in 2016 , was primarily due to interest income recognized in 2016 in connection with a tax refund . 32 interest expense interest expense remained generally consistent for the year ended december 31 , 2017 as compared to the corresponding period in 2016. debt obligations refinanced at lower rates and decreased debt obligations during 2017 were partially offset by a decrease in debt premium amortization , net of discounts . gain ( loss ) on the sale of real estate assets during the year ended december 31 , 2017 , 18 of the shopping centers and the two outparcel buildings that were disposed for net proceeds of $ 283.7 million resulted in aggregate gain of $ 68.7 million . during the year ended december 31 , 2016 , five of the shopping centers and the one outparcel building that were disposed for net proceeds of $ 93.8 million resulted in aggregate gain of $ 35.6 million . gain ( loss ) on extinguishment of debt , net during the year ended december 31 , 2017 , we repaid $ 389.1 million of secured loans and $ 815.0 million of unsecured term loans under the unsecured credit facility resulting in a $ 0.5 million gain on extinguishment of debt , net . during the year ended december 31 , 2016 , we repaid $ 892.4 million of secured loans , resulting in a $ 1.7 million gain on extinguishment of debt . in addition , we recognized a $ 2.5 million loss on extinguishment of debt in connection with the execution of the unsecured credit facility . other the decrease in other expense , net for the year ended december 31 , 2017 of $ 2.1 million , as compared to the corresponding period in 2016 , was primarily due to a decrease in shareholder equity offering expenses and a decrease in tenant litigation settlement expenses . equity in income of unconsolidated joint ventures ( in thousands ) replace_table_token_17_th equity in income of unconsolidated joint venture the decrease in equity in income of unconsolidated joint venture for the year ended december 31 , 2017 of $ 0.1 million , as compared to the corresponding period in 2016 , was primarily due to the disposition of our unconsolidated joint venture interest during the year ended december 31 , 2017. gain on disposition of unconsolidated joint venture interest during the year ended december 31 , 2017 , we disposed of our unconsolidated joint venture interest for net proceeds of $ 12.4 million resulting in a gain of $ 4.6 million . liquidity and capital resources we anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months and beyond for all anticipated uses , including all scheduled principal and interest payments on our outstanding indebtedness , current and anticipated tenant and other capital improvements , stockholder distributions to maintain our qualification as a reit and other obligations associated with conducting our business . our primary expected sources and uses of capital are as follows : sources cash and cash equivalent balances ; operating cash flow ; available borrowings under our existing unsecured credit facility ; dispositions ; 33 issuance of long-term debt ; and issuance of equity securities . uses recurring maintenance capital expenditures ; leasing-related capital expenditures ; debt repayments ; anchor space repositioning , redevelopment , development and other value-enhancing capital expenditures ; dividend/distribution payments acquisitions ; and repurchases of equity securities . we believe our current capital structure provides us with the financial flexibility and capacity to fund our current capital needs as well as future growth opportunities . we have access to multiple forms of capital , including secured property level debt , unsecured corporate level debt , preferred equity , and common equity , which will allow us to efficiently execute on our strategic and operational objectives . we currently have investment grade credit ratings from all three major credit rating agencies .
| results of operations the results of operations discussion is combined for bpg and the operating partnership because there are no material differences in the results of operations between the two reporting entities . comparison of the year ended december 31 , 2018 to the year ended december 31 , 2017 revenues ( in thousands ) replace_table_token_10_th rental income the decrease in rental income for the year ended december 31 , 2018 of $ 41.0 million , as compared to the corresponding period in 2017 , was primarily due to a $ 51.0 million decrease due to net disposition activity , partially offset by a $ 10.0 million increase for the remaining portfolio . the increase for the remaining portfolio is due to ( i ) a $ 17.3 million increase in base rent ; and ( ii ) a $ 1.8 million increase in ancillary and other income , partially offset by ( iii ) a $ 3.8 million decrease in amortization of above- and below-market leases and tenant inducements , net ; ( iv ) a $ 2.7 million decrease in straight-line rent ; and ( v ) a $ 2.6 million decrease in lease termination fees . the $ 17.3 million increase in base rent for the remaining portfolio was primarily due to contractual rent increases as well as positive rent spreads for new and renewal leases and option exercises of 11.8 % and 12.6 % during the years ended december 31 , 2018 and 2017 , respectively , partially offset by a decline in billed occupancy . expense reimbursements the decrease in expense reimbursements for the year ended december 31 , 2018 of $ 7.0 million , as compared to the corresponding period in 2017 , was primarily due to a $ 11.5 million decrease in expense reimbursements due to net disposition activity , partially offset by a $ 4.5 million increase in expense reimbursements for the remaining portfolio . the increase in expense reimbursements for the remaining portfolio was primarily due to higher reimbursable operating costs and real estate
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notwithstanding the company 's continued efforts , covid-19 has had and may have further negative impacts on its operations , customers and supply chain despite the preventative and precautionary measures being taken . covid-19 began to impact the company during the first quarter of 2020 and the impact of the covid-19 pandemic is fluid and continues to evolve , and therefore , we can not currently predict the extent to which our business , results of operations , financial condition or liquidity will ultimately be impacted . industry trends and corporate strategy we are a global corporation with worldwide operations . as a global business , our operations are affected by worldwide , regional and industry-specific economic factors , wherever we operate or do business . our geographic and industry diversity , and the breadth of our product and services portfolios , have helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results . we believe growth for our products and services is driven by the increasing demand for energy consumption and a shift towards cleaner sources such as natural gas , nuclear , and renewable sources . these trends should stimulate investment in new power generation facilities , pipeline expansion and related infrastructure , and in upgrading of existing facilities . with a shift to cleaner , more environmentally responsible power generation , power providers and industrial power consumers are building new facilities that use cleaner fuels . in developed markets , natural gas is increasingly becoming one of the energy sources of choice . we supply product offerings throughout the entire natural gas infrastructure value chain and believe expansion will drive growth within our energy solutions segment for our pressure products and scr systems for natural-gas-fired power plants . increased global natural gas production as a percent of total energy consumption , miles of new pipeline being added globally , and an increase in liquification capacity all stand to drive the need for our products . we also believe there is a trend in both developed and emerging markets to control and reduce emissions of harsher fuel sources for which our air pollution control equipment is required . in emerging markets including china , india , and south east asia our business is positioned to benefit from tightening of air pollution standards . in developed markets , growth of industrialization will drive greater output of emissions requiring our equipment as well . in both markets , we expect capital expenditures for our equipment to increase and the need for our aftermarket services to grow as companies seek to meet new standards . we continue to focus on increasing revenues and profitability globally while continuing to strengthen and expand our presence domestically . our operating strategy has historically involved horizontally expanding our scope of technology , products , and services through selective acquisitions and the formation of new business units that are then vertically integrated into our growing group of turnkey system providers . our continuing focus will be on global growth , market coverage , and expansion of our asia operations . operational excellence , margin expansion , after-market recurring revenue growth , and safety leadership are also critical to our growth strategy . operations overview we operate using an “ outside-in ” customer approach to our business model . we are structured to win in target markets with a core focus on understanding customer needs . our business model requires scalable efficiencies enabling us to serve our customers with a variety of products that we typically classify into three categories : make-to-order , configure-to-order , and engineer-to-order . we use an asset light model to accomplish this by focusing on application and technical expertise throughout our operations . the company 's segments are led by presidents with distinct industry expertise coupled with strong leadership skills resulting in a customer-first mindset across the business . they manage their teams who are responsible for successfully running the segment operations . the segment presidents work closely with our chief executive officer on global growth strategies , operational excellence , and employee development . within our segments we have monthly operating reviews to ensure we are both winning in the markets and winning as a business . these reviews include , but are not limited to , deal reviews , project reviews , and manufacturing reviews . each of these reviews takes a customer-first approach where we adopt the metrics that matter most to our customer and to our stockholders . in these reviews we focus on metrics such as quality , customer satisfaction , on-time-delivery , lead-times , price , position , project margins , backlog , and above all , safety . 26 the headquarters focuses on enabling the core back-office key functions for scale and efficiency , that is , accounting , payroll , human resources/benefits , legal , information technology , marketing , safety support , internal control over financial reporting , and administration . we have excellent organizational focus from headquarters throughout our divisional businesses with clarity and minimal duplicative work streams . our three reportable segments are : energy solutions segment : our energy solutions segment serves the energy market , where we are a key part of helping meet the global demand for clean energy and lower emissions through our highly engineered and tailored emissions management , silencers and separation solutions and services . our offerings improve air quality and solves fluid handling needs with market leading technologies , efficiently designed , and customized solutions for the power generation , oil & gas , and petrochemical industries . industrial solutions segment : our industrial solutions segment serves the air pollution control market where our aim is to address the growing need to protect the air we breathe and help our customers ' desires for sustainability upgrades beyond carbon footprint issues . story_separator_special_tag our offerings in clean air pollution control , collection and ventilation technologies improve air quality with a compelling solution that enable our customers in the semiconductor manufacturing , electric vehicle production , battery recycling , and wood manufacturing industries to reduce their carbon footprint , lower energy consumption , minimize waste and meet compliance targets for toxic emissions , fumes , volatile organic compounds , and industrial odors . fluid handling solutions segment : our fluid handling solutions segment offers unique pump and filtration solutions that maintain safe and clean operations in some of the most harsh and toxic environments . in this market , we provide solutions for mission-critical applications to a wide variety of industries including , but not limited to , plating and metal finishing , automotive , food and beverage , chemical , petrochemical , pharmaceutical , wastewater treatment , desalination and the aquarium & aquaculture markets . our contracts are obtained either through competitive bidding or as a result of negotiations with our customers . contract terms offered by us are generally dependent on the complexity and risk of the project as well as the resources that will be required to complete the project . our focus is on increasing our operating margins as well as our gross margin percentage , which translates into stronger operating results . our cost of sales is principally driven by a number of factors , including material and subcontract prices and labor cost and availability . changes in these factors may have a material impact on our overall gross profit margins . we break down costs of sales into five categories . they are : subcontracts—electrical work , concrete work , subcomponents and other subcontracts necessary to produce our products ; labor—our direct labor both in the shop and in the field ; material—raw material that we buy to build our products ; equipment—fans , motors , control panels and other equipment necessary for turnkey systems ; and factory overhead—costs of facilities and supervision wages necessary to produce our products . in general , subcontracts provide us the most flexibility in margin followed by labor , material , and equipment . across our various product lines , the relative relationships of these factors change and cause variations in gross margin percentage . material costs have also increased faster than labor costs , which also reduces gross margin percentage . as material cost inflation occurs , the company seeks to pass this cost onto our customers as price increases . selling and administrative expense principally includes sales and engineering payroll and related fringes , advertising and marketing expenditures as well as all corporate and administrative functions and other costs that support our operations . the majority of these expenses are fixed . with our asset light model , we expect our operations to leverage our fixed cost structure as revenue grows . 27 note regarding use of non-gaap financial measures the company 's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . these gaap financial statements include certain charges the company believes are not indicative of its ongoing operational performance . as a result , the company provides financial information in this md & a that was not prepared in accordance with gaap and should not be considered as an alternative to the information prepared in accordance with gaap . the company provides this supplemental non-gaap financial information , which the company 's management utilizes to evaluate its ongoing financial performance , and which the company believes provides greater transparency to investors as supplemental information to its gaap results . the company has provided the non-gaap financial measures including non-gaap operating income , non-gaap operating margin , and non-gaap net income as a result of the adjustment for items that the company believes are not indicative of its ongoing operations . these items include charges associated with the company 's acquisitions , divestitures and the items described below in “ consolidated results. ” the company believes that evaluation of its financial performance compared with prior and future periods can be enhanced by a presentation of results that exclude the impact of these items . the company has incurred substantial expense and income associated with acquisitions and divestitures . while the company can not predict the exact timing or amounts of such charges , it does expect to treat these charges as special items in its future presentation of non-gaap results . results of operations story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > operating income for 2020 was $ 13.3 million , a decrease of $ 4.7 million from $ 18.0 million in 2019. operating income as a percentage of sales for 2020 was 4.2 % compared with 5.3 % for 2019. the decrease in operating income is primarily attributable to $ 1.5 million in executive transition expenses which did not occur in 2019 , $ 1.2 million increase in restructuring expenses , $ 0.9 million increase in acquisition and integration expenses in connection to the eis acquisition and the mader joint venture , intangible asset impairment of $ 0.9 million , $ 0.3 million increase in amortization and earnout expenses , and a decrease in net sales as noted above , 30 partially offset by the decrease in selling and administration expenses due to the cost reduction measures taken in response to the covid-19 pand e mic . non-gaap operating income was $ 28.2 million in 2020 and 2019. non-gaap operating income as a percentage of sales for 2020 was 8.9 % compared with 8.2 % for 2019. non-gaap operating income was equal year over year due to cost reductions described above offset by the decline in sales .
| in 2018 , we divested three non-core businesses ; the keystone filter brand ( “ keystone ” ) and strobic air corporation ( “ strobic ” ) in the first quarter and zhongli in the fourth quarter ( collectively , “ the divestitures ” ) . the exclusion of the operating results subsequent to their disposition impacts the comparability of our consolidated and segment operating results . comparison of the years ended december 31 , 2020 and 2019 consolidated net sales in 2020 were $ 316.0 million compared with $ 341.9 million in 2019 , a decrease of $ 25.9 million . the decrease is primarily attributable to decreases of $ 24.5 million in our industrial solutions air pollution control technologies , $ 18.2 million in custom-designed fcc cyclone systems serving the refinery markets , and $ 4.4 million in volume decreases in the company 's filtration and pump solutions sales . these decreases in net sales are offset by increases of $ 10.1 million in the company 's custom acoustical technologies that serve the natural gas power generation markets , $ 8.1 million in volatile organic compounds ( “ voc ” ) abatement solutions from the eis acquisition and $ 3.3 million in volume increases in our emissions management and water filtration solutions technologies . gross profit decreased by $ 9.0 million , or 7.9 % , to $ 105.1 million in 2020 compared with $ 114.1 million in 2019. the decrease in gross profit is primarily due to the decrease in sales as noted above , partially offset by favorable changes to product mix from previous period and cost reduction actions including employee furlough . gross profit as a percentage of sales was 33.3 % and 33.4 % in 2020 and 2019 , respectively . orders booked were $ 279.6 million in 2020 compared with $ 383.7 million in 2019. the decrease is primarily attributable to decreases in refinery , oil & gas , and pollution controls end markets due to the covid-19 pandemic impacting our customers starting in march 2020. selling and administrative expenses were $ 76.9 million in 2020 compared with $ 85.9 million in 2019. the decrease in administration expenses is
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interest-earning assets consist primarily of commercial real estate loans , commercial and industrial loans , residential real estate loans and securities . interest-bearing liabilities consist primarily of certificates of deposit and money market accounts , demand deposit accounts and savings account deposits and borrowings from the fhlb . the consolidated results of operations also depend on the provision for loan losses , non-interest income , and non-interest expense . non-interest income includes service fees and charges , income on bank-owned life insurance , and gains ( losses ) on securities . non-interest expense includes salaries and employee benefits , occupancy expenses , data processing , advertising expense , fdic insurance assessment , professional fees and other general and administrative expenses . recent developments : coronavirus pandemic response and actions . beginning in the first quarter of 2020 , we responded to the ongoing covid-19 pandemic while prioritizing the health and safety of our community . on march 23 , 2020 , the governor of massachusetts issued an emergency order requiring all businesses and organizations that do not provide covid-19 “ essential services ” to close their physical workplaces and facilities to workers , customers and the public from march 24 , 2020 until april 7 , 2020 , which was subsequently extended to may 18 , 2020. as a consequence of the order , we closed our branches and started the transition to working remotely . our drive-up windows and atms remained open while we continued to service our customers through scheduled appointments and online channels . on june 29 , 2020 , we re-opened our branch lobbies to customers under massachusetts recommended social distancing , safety and sanitation guidelines , while still offering appointments and online channel transactions as a means of promoting social distancing where possible . the governor implemented a four-phase reopening plan for the company 's market area . state and local governments closely monitored key public health data as the situation evolved . on july 8 , 2020 , massachusetts entered the first step of phase 3 of the re-opening plan ; however , on august 7 , 2020 , massachusetts ' governor baker , indefinitely postponed the second step of phase 3 of the reopening plan . on september 29 , 2020 , governor baker announced that effective october 5 , 2020 , the commonwealth of massachusetts would transition to the second step of phase 3 only in lower-risk communities . lower-risk communities are defined as cities or towns that have not been a “ red ” community in any of the last three department of public health weekly reports . under the final phase of the reopening plan , the “ new normal , ” businesses will not be allowed to resume normal operations until an effective treatment or vaccine is discovered . on november 27 , 2020 , as public health data demonstrated an increase in case numbers within our market area , we made the decision to once again close our branch lobbies and conduct business through scheduled appointments , online channels , drive-throughs and atms . on december 22 , 2020 , governor baker announced a series of new covid-19 restrictions on businesses and gatherings . the restrictions began on december 26 , 2020 , and on january 21 , 2021 , governor baker extended restrictions through february 8 , 2021. the capacity limits for most industries ( including restaurants , theaters , personal services , casinos , officer buildings , places of worship , retail , libraries , fitness centers , etc . ) were reduced to 25 % and the number of people allowed to gather outside was limited to 25 and indoor gathering were limited to 10 people . 53 our business is dependent upon the willingness and ability of our employees and customers to conduct banking and other financial transactions . the covid-19 global public health crisis and the resulting “ stay-at-home ” orders resulted in widespread volatility , severe disruptions in the u.s. economy at large , and for small businesses in particular , deterioration in household , business , economic and market conditions . paycheck protection program . as a preferred lender with the sba , the company was in a position to react quickly to the ppp component of the march 27 , 2020 $ 2.2 trillion fiscal stimulus bill known as the cares act launched by the treasury and the sba . an eligible business was able to apply for a ppp loan up to the lesser of : ( 1 ) 2.5 times its average monthly “ payroll costs , ” or ( 2 ) $ 10.0 million . ppp loans have : ( a ) an interest rate of 1.0 % , ( b ) a two-year loan term to maturity , subsequently extended to a five-year loan term maturity for loans granted on or after june 5 , 2020 and ( c ) principal and interest payments deferred from six months to ten months from the date of disbursement . the sba will guarantee 100 % of the ppp loans made to eligible borrowers . the entire principal amount of the borrower 's ppp loan , including any accrued interest , is eligible to be reduced by the loan forgiveness amount under the ppp so long as employee and compensation levels of the business are maintained and 60 % of the loan proceeds are used for payroll expenses , with the remaining 40 % of the loan proceeds used for other qualifying expenses . as of december 31 , 2020 , the company received funding approval from the sba for 1,386 applications totaling $ 223.1 million , with $ 7.1 million of processing fees . story_separator_special_tag on october 8 , 2020 , the sba and treasury released a simplified ppp loan forgiveness application for loans with balances of $ 50,000 or less , and on december 27 , 2020 , the sba announced that the simplified ppp loan forgiveness amount had been increased to $ 150,000. since april 6 , 2020 , the company has originated 1,113 ppp loans with balances of $ 150,000 or less totaling $ 43.4 million . the company started processing ppp loan forgiveness requests in october 2020. as of december 31 , 2020 , the company processed 273 loan forgiveness applications totaling $ 55.8 million . total ppp loans decreased $ 55.8 million , or 25.0 % , from $ 223.1 million at september 30 , 2020 to $ 167.3 million at december 31 , 2020. as part of the $ 900 billion covid-19 relief bill that was signed into law on december 27 , 2020 , the sba and treasury announced a new $ 284.5 billion ppp , and started accepting applications from the company on january 19 , 2021. the closing date for the new ppp is march 31 , 2021. the company looks forward to building on new small business relationships enabled by the new ppp with a keen focus on cross-selling opportunities and increasing profitability . loan modifications/troubled debt restructurings . the banking regulatory agencies , through an interagency statement dated april 7 , 2020 , have encouraged financial institutions to work “ prudently ” with borrowers who request loan modifications or deferrals as a result of the economic impacts of covid-19 . pursuant to section 4013 of the cares act , loans less than 30 days past due as of december 31 , 2019 will be considered current for covid-19 modifications . financial institutions can then suspend the requirements under u.s. gaap for loan modifications related to covid-19 that would otherwise be categorized as a tdr , and suspend any determination of a loan modified as a result of covid-19 as being a tdr , including the requirement to determine impairment for accounting under u.s. gaap . the company has adopted this policy election to address covid-19 loan modification requests that have been received from the earlier of either january 1 , 2022 or the 60 th day after the end of the covid-19 national emergency . as a result of the covid-19 pandemic , the company granted deferred loan payments for impacted commercial , residential and consumer customers who experienced financial hardship due to covid-19 . the loan payment deferrals can be up to 90 days , depending upon the financial needs of each customer . further deferrals will be re-evaluated on a customer-by-customer basis upon the expiration of the existing deferral period . as of june 30 , 2020 , the deferred loan payment modifications totaled $ 261.0 million ( 525 loans ) , for which principal and interest payments were deferred , and represented 15 % of the total loan portfolio , excluding ppp loans . as of december 31 , 2020 , deferred loan payment modifications declined to $ 76.9 million ( 47 loans ) , or 4.4 % of total loans , excluding ppp loans , in outstanding loans that continue to be modified under the cares act . 54 the table below breaks out the remaining modifications granted under the cares act at december 31 , 2020 : replace_table_token_18_th the table below breaks out the status of the remaining modifications granted under the cares act as of december 31 , 2020 : replace_table_token_19_th ( 1 ) excludes ppp loans and deferred fees ( 2 ) residential includes home equity loans and lines of credit 55 the following table provides some insight into the composition of the bank 's loan portfolio and remaining loan modifications , excluding ppp loans , as of december 31 , 2020 : replace_table_token_20_th 56 replace_table_token_21_th replace_table_token_22_th ( 1 ) excludes ppp loans of $ 167.3 million as of december 31 , 2020 . ( 2 ) modified balances as of december 31 , 2020 ( commercial real estate loans $ 64.0 million ; commercial and industrial loans $ 9.3 million ; and residential loans $ 3.6 million ) . ( 3 ) other consists of multiple industries . although the bank 's loan portfolio contains impacted sectors and the commercial real estate and residential real estate sectors represent more than 100 % of the bank 's total risk-based capital , the concentration limits remain acceptable . the company monitors lending exposure by industry classification to determine potential risk associated with industry concentrations , if any , that could lead to additional credit loss exposure . as stated above , as a result of the covid-19 pandemic , the company identified sectors that have been materially impacted including , but not limited to : hospitality , transportation , retail , and restaurants and food service . these sectors potentially carry a higher level of credit risk , as many of these borrowers have incurred a significant negative impact to their businesses resulting from the governmental stay-at-home orders as well as travel limitations . allowance for loan losses . the covid-19 pandemic materially impacted the company 's determination of the allowance for loan losses for the twelve months ended december 31 , 2020. in determining the allowance for loan losses , the company considers quantitative loss factors and a number of qualitative factors , such as underwriting policies , current economic conditions , delinquency statistics , the adequacy of the underlying collateral and the financial strength of the borrower . beginning at the end of march 2020 , a record number of americans filed for unemployment benefits . the global pandemic could cause the company to experience higher credit losses in its lending portfolio , reduced demand for our products and services and other negative impacts on our financial position , results of operations and prospects .
| the net interest margin for the twelve months ended december 31 , 2020 was 2.93 % , compared to 2.90 % for the twelve months ended december 31 , 2019. the net interest margin , on a tax-equivalent basis , was 2.95 % for the twelve months ended december 31 , 2020 , compared to 2.93 % for the twelve months ended december 31 , 2019. excluding $ 4.8 million in interest income and origination fees from ppp loans , the prepayment penalties and the purchase accounting adjustments discussed above , the net interest margin decreased from 2.88 % for the twelve months ended december 31 , 2019 to 2.83 % for the twelve months ended december 31 , 2020. the decrease in the net interest margin was due to the continuing trend of market interest rates falling to historically low levels . 64 the average yield on interest-earning assets decreased 35 basis points from 4.14 % for the twelve months ended december 31 , 2019 to 3.79 % for the twelve months ended december 31 , 2020. the yield on average loans decreased from 4.38 % during the twelve months ended december 31 , 2019 to 4.07 % during the twelve months ended december 31 , 2020. excluding the adjustments discussed above of $ 6.4 million and $ 513,000 for the twelve months ended december 31 , 2020 and 2019 , respectively , the yield on average loans decreased from 4.34 % for the twelve months ended december 31 , 2019 to 4.04 % for the twelve months ended december 31 , 2020. during the twelve months ended december 31 , 2020 , the average cost of total funds , including non-interest bearing demand accounts and fhlb advances , decreased 39 basis points from 1.28 % for the twelve months ended december 31 , 2019 to 0.89 % . for the twelve months ended december 31 , 2020 , the average cost of core deposits , including non-interest-bearing demand deposits , decreased 4 basis points to 0.27 % , from 0.31 % for same period in 2019. the average cost of time deposits decreased 52 basis points from 2.12 % for the twelve months ended december 31 , 2019
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under the apv method , future cash flows are based on recently prepared budget forecasts and business plans and are used to estimate the future economic benefits that the reporting unit will generate . an estimate of the appropriate discount rate is utilized to convert the future economic benefits to their present value equivalent . the quantitative goodwill impairment test is a two-step process . the first step identifies potential impairments by comparing the calculated fair value of a reporting unit with its book value . if the fair value of the reporting unit exceeds the carrying amount , goodwill is not impaired and the second step is not necessary . if the carrying value exceeds the fair value , the second step includes determining the implied fair value through further market research . the implied fair value of goodwill is then compared with the carrying amount to determine if an impairment loss should be recorded . as of december 31 , 2012 , we had $ 32.0 million of goodwill on our balance sheet . the first step of our annual goodwill impairment analysis , which we perform as of october 1 of each year , did not result in an indication of impairment in 2012 , 2011 or 2010. the fair value of the reporting unit as of december 31 , 2012 , using the apv method , was 109 % greater than the carrying value at december 31 , 2012. we have determined the appropriate unit of accounting for testing franchise rights for impairment is on an individual store basis . we have the option to early adopt an amendment that allows us to qualitatively assess indefinite-lived intangible assets for impairment . in 2012 , we evaluated our indefinite-lived intangible assets using a quantitative assessment process . we estimate the fair value of our franchise rights primarily using the multi-period excess earnings ( “ mpee ” ) model . the forecasted cash flows used in the mpee model contain inherent uncertainties , including significant estimates and assumptions related to growth rates , margins , general operating expenses , and cost of capital . we use primarily internally-developed forecasts and business plans to estimate the future cash flows that each franchise will generate . we have determined that only certain cash flows of the store are directly attributable to the franchise rights . we estimate the appropriate interest rate to discount future cash flows to their present value equivalent taking into consideration factors such as a risk-free rate , a peer group average beta , an equity risk premium and a small stock risk premium . we also may use a market approach to determine the fair value of our franchise rights . these market data points include our acquisition and divestiture experience and third-party broker estimates . as of december 31 , 2012 , we had $ 62.4 million of franchise value on our balance sheet . our impairment testing of franchise value did not indicate any impairment in 2012 , 2011 or 2010. we are subject to financial statement risk to the extent that our goodwill or franchise rights become impaired due to decreases in the fair value . a future decline in performance , decreases in projected growth rates or margin assumptions or changes in discount rates could result in a potential impairment , which could have a material adverse impact on our financial position and results of operations . furthermore , in the event that a manufacturer is unable to remain solvent , we may be required to record a partial or total impairment on the remaining franchise value related to that manufacturer . 30 see notes 1 and 5 of notes to consolidated financial statements for additional information . long-lived assets we estimate the depreciable lives of our property and equipment , including leasehold improvements , and review them for impairment when events or circumstances indicate that their carrying amounts may not be recoverable . we determine a triggering event has occurred by reviewing store forecasted and historical financial performance . a store is evaluated for recoverability if it has an operating loss in the current year and two of the prior three years . additionally , we may judgmentally evaluate a store if its financial performance indicates it may not support the carrying amount of the long-lived assets . if a store meets these criteria , we estimate the projected undiscounted cash flows for each asset group based on internally developed forecasts . if the undiscounted cash flows are lower than the carrying value of the asset group , we determine the fair value of the asset group based on additional market data , including recent experience in selling similar assets . we hold certain property for future development or investment purposes . if a triggering event is deemed to have occurred , we evaluate the property for impairment by comparing its estimated fair value based on listing price less costs to sell and other market data , including similar property that is for sale or has been recently sold , to the current carrying value . if the carrying value is more than the estimated fair value , an impairment is recorded . although we believe our property and equipment and assets held and used are appropriately valued , the assumptions and estimates used may change and we may be required to record impairment charges to reduce the value of these assets . a future decline in store performance , decrease in projected growth rates or changes in other operating assumptions could result in an impairment of long-lived asset groups , which could have a material adverse impact on our financial position and results of operations . story_separator_special_tag due to the adverse change in the business climate and the commercial real estate market , we performed impairment testing on long-lived assets , mainly related to certain property held for future development or investment purposes in 2012 , 2011 and 2010. as a result , we recorded impairments related to long-lived assets of $ 0.1 million , $ 1.4 million and $ 15.3 million in 2012 , 2011 and 2010 , respectively . see notes 1 and 4 of notes to consolidated financial statements for additional information . deferred tax assets as of december 31 , 2012 , we had deferred tax assets of approximately $ 61.1 million and deferred tax liabilities of $ 28.5 million . the principal components of our deferred tax assets are related to goodwill , allowances and accruals , capital loss carryforwards , deferred revenue and cancellation reserves . the principal components of our deferred tax liabilities are related to depreciation on property and equipment and inventories . we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon future taxable income during the periods in which those temporary differences become deductible . we consider the scheduled reversal of deferred tax liabilities ( including the impact of available carryback and carryforward periods ) , projected future taxable income , and tax-planning strategies in making this assessment . 31 based upon the scheduled reversal of deferred tax liabilities , and our projections of future taxable income over the periods in which the deferred tax assets are deductible , we believe it is more likely than not that we will realize the benefits of the unreserved deductible differences . as of december 31 , 2012 , we had an $ 11.6 million valuation allowance against our deferred tax assets . this valuation allowance was associated with losses from the sale of corporate entities . as these amounts are characterized as capital losses , we evaluated the availability of projected capital gains and determined that it would be unlikely these amounts would be fully utilized . if we are unable to meet the projected taxable income levels utilized in our analysis , and depending on the availability of feasible tax planning strategies , we might record an additional valuation allowance on a portion or all of our deferred tax assets in the future . in the event that a manufacturer is unable to remain solvent , our operations may be impacted and we might record a valuation allowance on a portion or all of the deferred tax assets , which could have a material adverse impact on our financial position and results of operations . service contracts and other insurance contracts we receive commissions from the sale of vehicle service contracts and certain other insurance contracts . the contracts are sold through unrelated third parties , but we may be charged back for a portion of the commissions in the event of early termination of the contracts by customers . we sell these contracts on a straight commission basis ; in addition , we may also participate in future underwriting profit pursuant to retrospective commission arrangements , which are recognized as income upon receipt . we record commissions at the time of sale of the vehicles , net of an estimated liability for future charge-backs . we have established a reserve for estimated future charge-backs based on an analysis of historical charge-backs in conjunction with estimated lives of the applicable contracts . if future cancellations are different than expected , we could have additional expense related to the cancellations in future periods , which could have a material adverse impact on our financial position and results of operations . at december 31 , 2012 and 2011 , the reserve for future cancellations totaled $ 13.5 million and $ 10.4 million , respectively , and is included in accrued liabilities and other long-term liabilities on our consolidated balance sheets . a 10 % increase in expected cancellations would result in an additional reserve of approximately $ 1.3 million . lifetime oil change self-insurance in march 2009 , we assumed from a third party the obligation to provide future lifetime oil service for a pool of existing contracts and began to self-insure the majority of the lifetime oil contracts we sell . payments we receive upon sale of the lifetime oil contracts are deferred and recognized in revenue over the expected life of the service agreement to best match the expected timing of the costs to be incurred to perform the service . we estimate the timing and amount of future costs for claims and cancellations related to our lifetime oil contracts using historical experience rates and estimated future costs . if our estimates of future costs to perform under the contracts exceed the existing deferred revenue , we record a charge in the consolidated statements of operations . we perform our loss contingency analysis separately for the pool of assumed contracts and the pool of self-insured contracts sold starting in march 2009. we recorded a charge of $ 1.0 million in both 2011 and 2010 for expected costs in excess of revenue deferred related to the pool of assumed contracts . we did not record an additional charge in 2012. the analysis on our self-insured sold contracts did not indicate a loss reserve was needed in 2012 , 2011 and 2010 . 32 we believe the new vehicle purchase cycle has been delayed for many buyers . if the ownership cycle does not accelerate towards pre-recession levels , our estimate of the number of oil changes to be performed over a vehicle 's life may increase , which would adversely affect our financial position and results of operations . in addition , other changes in assumptions about future costs expected to be incurred to service contracts could result in the recognition of additional charges , which could have a material adverse impact on our financial position and results of operations .
| for example , a store acquired in august 2011 would be included in same store operating data beginning in september 2012 , after its first full complete comparable month of operation . thus , operating results for same store comparisons would include only the period of september through december of both comparable years . 34 new vehicle revenues replace_table_token_11_th replace_table_token_12_th new vehicle sales in 2012 improved compared to 2011 primarily due to volume growth as year-over-year same store sales volume increased 29.5 % and 25.6 % , respectively , in 2012 and 2011. the number of new vehicles sold in the u.s. in 2012 , defined as the seasonally adjusted annual rate , grew approximately 13.4 % over 2011. in addition to the overall market recovery , we have increased our share of vehicle sales in several of our markets . growth in our domestic and import brand sales have outpaced the growth experienced nationally . our domestic brand same store sales grew 27.2 % in 2012 compared to 2011. same store sales for import brands grew 38.3 % in 2012 compared to 2011. certain of our markets have seen an increase in local market sales volumes exceeding the national average . we remain focused on increasing our share of overall new vehicle sales within our markets . new vehicle sales improved throughout 2011 compared to 2010 due to a recovery in the u.s. economy and our efforts to increase our share of the new vehicles sold within each local market . credit availability continued to improve throughout 2011 , although , within the sub-prime market , lending remained constrained . 35 used vehicle retail revenues replace_table_token_13_th replace_table_token_14_th used vehicle retail sales continue to be a strategic focus as we strive for organic growth . our strategy is to offer three categories of used vehicles : manufacturer certified pre-owned used vehicles ; late model , lower-mileage vehicles ; and value autos , vehicles with over 80,000 miles . in 2012 , sales increased in all three categories of used vehicles compared to 2011 . ● same store unit sales for manufacturer certified pre-owned used vehicles increased 22.9 % . this category has higher average sale prices and experiences a lower
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additionally , our board evaluates liquidity goals and equity goals ( that are a part of the board policy for financial goals and capital credits ) in determining the timing and amount of patronage capital retirement , and if our board determines that our financial condition will not be impaired , retained patronage capital may be retired . historically , patronage capital has been retired in order of priority according to the year in which the patronage capital was furnished and credited ; however , our board has discretion on the order of retirement . as of december 31 , 2018 , patronage capital equity was $ 1.016 billion . we supply and transmit our members ' electric power requirements through a portfolio of resources , including generation and transmission facilities , long‑term purchase contracts and short‑term energy purchases . we own , lease , have undivided percentage interests in , have tolling arrangements or long-term purchase contracts with respect to , various generating facilities . our diverse generation portfolio provides us with maximum available power of 4,519 mws of which approximately 1,059 mws comes from renewables . in december 2018 , we executed a 100 mw solar-based power purchase agreement for the spanish peaks solar project that is expected to achieve commercial operation in 2023. in february 2019 , we executed a 104 mw wind-based power purchase agreement for the crossing trails wind farm that is expected to achieve commercial operation in 2020. upon commercial operation of these two renewable generating facilities , our renewable generation portfolio is expected to increase to 1,263 mws . we transmit power to our members through resources that we own , lease or have undivided percentage interests in , or by wheeling power across lines owned by other transmission providers . critical accounting policies the preparation of our financial statements in conformity with gaap requires that our management make estimates and assumptions that affect the amounts reported in our consolidated financial statements . we base these estimates and assumptions on information available as of the date of the financial statements and they are not necessarily indicative of the results to be expected for the year . we consider the following accounting policies to be critical accounting policies due to the estimation involved or due to the particular significance they have on our consolidated financial statements . accounting for rate regulation . we are a rate-regulated entity and , as a result , are subject to the accounting requirements of accounting for regulated operations . in accordance with these accounting requirements , some revenues and expenses have been deferred at the discretion of our board , which has budgetary and rate‑setting authority , if it is probable that these amounts will be refunded or recovered through future rates . regulatory assets are costs we expect to recover from members based on rates approved by our board in accordance with our rate policy . regulatory liabilities represent probable future reductions in rates associated with amounts that are expected to be refunded to members based on rates approved by our board in accordance with our rate policy . we recognize regulatory assets and liabilities as expenses or as a reduction in expenses concurrent with their recovery in rates . leases . the accounting for lease transactions in conformity with gaap requires management to make various assumptions , including the discount rate , the fair market value of the leased assets and the estimated useful life , in order to determine whether a lease should be classified as operating or capital . we are the lessor under a power sales arrangement that is required to be accounted for as an operating lease because it conveys the right to use our power generating equipment for a stated period of time . the lease revenue from this arrangement is included in other operating revenue on our consolidated statements of operations . we are the lessee under a power purchase arrangement that is required to be accounted for as an operating lease because it conveys to us the right to use power generating equipment for a stated period of time . it is included in lease expense on our consolidated statements of operations . 40 asset retirement obligations . we account for current obligations associated with the future retirement of tangible long‑lived assets in accordance with the accounting guidance relating to asset retirement and environmental obligations . this guidance requires that legal obligations associated with the retirement of long‑lived assets be recognized at fair value at the time the liability is incurred and capitalized as part of the related long‑lived asset . over time , the liability is adjusted to its present value by recognizing accretion expense and the capitalized cost of the long‑lived asset is depreciated in a manner consistent with the depreciation of the underlying physical asset . in the absence of quoted market prices , we determine fair value by using present value techniques in which estimates of future cash flows associated with retirement activities are discounted using a credit adjusted risk‑free rate and market risk premium . upon settlement of an asset retirement obligation , we will apply payment against the estimated liability and incur a gain or loss if the actual retirement costs differ from the estimated recorded liability . asset retirement obligations are included in deferred credits and other liabilities . factors affecting results master indenture our master indenture requires us to establish rates annually that are reasonably expected to achieve a dsr of at least 1.10 on an annual basis and permits us to incur additional secured obligations as long as after giving effect to the additional secured obligation , we will continue to meet the dsr requirement on both a historic and pro forma basis . story_separator_special_tag our dsr is calculated by dividing ( x ) our net margins available for debt service ( as defined in our master indenture ) , which is equal to our net margins for a period plus amounts deducted for the period to pay or make provision for interest on debt ( including capitalized interest other than allowance for funds used during construction ) , lease expense , income tax expense , amortization of debt discount or premium , and depreciation and certain other non-cash items by ( y ) our annual debt service requirement ( as defined in our master indenture ) , which is generally equal to the principal of , premium , if any , and interest ( whether capitalized or expensed ) on all of our debt and lease payments which become due in the applicable fiscal year or 12‑month period at maturity or stated maturity , subject to special calculation rules applicable to specific types of debt ( such as balloon debt ) . for purposes of the dsr calculation , we are permitted to exclude from the annual debt service requirement principal and interest on debt if the debt is paid or to be paid from defeasance obligations which have been irrevocably deposited or set aside in trust for payment of such debt . our failure to achieve the required dsr is not a default under the master indenture as long as a plan is timely adopted and being implemented and no payment default has occurred . however , subject to certain limited exceptions , we can not issue additional secured obligations under the master indenture unless the dsr for the prior fiscal year ( or period of prior 12 consecutive months ) is at least 1.10 and the estimated dsr for the current and next two years ( or , if applicable , two years following the anticipated commercial operation date of the assets being financed ) is at least 1.10. our dsr for the twelve months ended december 31 , 2018 was 1.175. see appendix a – calculation of financial ratios . our master indenture also requires us to maintain an ecr at the end of each fiscal year of at least 18 percent . our ecr equals our equity divided by the sum of our debt plus equity . equity primarily consists of our aggregate net margins that we have not distributed in cash to our members . debt includes our indebtedness for borrowed money and capitalized leases but excludes indebtedness for which defeasance obligations ( i.e. , non-callable obligations of the united states ) have been irrevocably deposited in trust . our failure to maintain the ecr at the end of any given fiscal year would result in an event of default under the master indenture and restrict our ability to issue additional secured obligations under the master indenture . as of december 31 , 2018 , our ecr was 25.3 percent . see appendix a – calculation of financial ratios . as of december 31 , 2018 , we had approximately $ 2.8 billion of secured indebtedness outstanding under our master indenture . substantially all of our tangible assets and certain of our intangible assets are pledged as collateral under our master indenture . pursuant to the master indenture , dsr and ecr are calculated based on unconsolidated tri-state financials . therefore , the details of the calculations are shown in appendix a–calculation of financial ratios . margins and patronage capital we operate on a cooperative basis and , accordingly , seek only to generate revenues sufficient to recover our cost of service and to generate margins sufficient to meet certain financial requirements and to establish reasonable 41 reserves . revenues in excess of current period costs in any year are designated as net margins in our consolidated statement of operations . net margins are treated as advances of capital by our members and are allocated to our members on the basis of revenue from electricity purchases from us . net losses , should they occur , are not allocated to our members but are offset by future margins . our board policy for financial goals and capital credits , approved and subject to change by our board , sets guidelines to achieve margins and retain patronage capital sufficient to maintain a sound financial position and to allow for the orderly retirement of capital credits allocated to our members . on a periodic basis , our board will determine whether to retire any patronage capital , and in what amounts , to our members . to date , we have retired approximately $ 385.5 million of patronage capital to our members . pursuant to our board policy for financial goals and capital credits , we set rates to achieve a dsr and ecr in excess of the requirements under our master indenture in order to mitigate the risk of potential negative variances between budgeted margins and actual margins . this policy was revised in 2018 to establish a goal of our board , which has budgetary and rate‑setting authority , to either defer revenues and incomes as a regulatory liability or recognize previously deferred revenues and incomes in an amount that will result in a dsr equal to a dsr goal for the applicable year as set forth in such policy . as allowed by our bylaws , the deferral or recognition of previously deferred revenues and income is for the purpose of stabilizing margins and limiting rate increases from year to year .
| year ended december 31 , 2018 compared to year ended december 31 , 2017 operating revenues member electric sales increased 478,759 mwhs , or 3.0 percent , to 16,384,415 mwhs in 2018 compared to 15,905,656 mwhs in 2017. member electric sales revenue increased $ 35.9 million , or 3.0 percent , to $ 1.236 billion in 2018 compared to $ 1.200 billion in 2017. the increase in mwhs sold and member electric sales revenue was primarily due to increases in industrial loads and overall customer growth in our members ' service territories . non‑member electric sales decreased 301,529 mwhs , or 14.2 percent , to 1,811,482 mwhs in 2018 compared to 2,113,011 mwhs in 2017. non-member electric sales revenue decreased $ 64.1 million , or 64.8 percent , to $ 34.8 million in 2018 compared to $ 98.9 million in 2017. in 2018 , in accordance with our board policy for financial goals and capital credits , as described above , we deferred $ 51.7 million of non-member sales . excluding the effect of the recognition of $ 5.5 million of previously deferred non-member electric sales revenue in 2017 and the deferral of $ 51.7 million of non-member electric sales recognition in 2018 , non-member electric sales revenue decreased 43 $ 7.0 million , or 7.5 percent , to $ 86.4 million in 2018 compared to $ 93.4 million in 2017. the decrease in mwhs sold and non-member electric sales revenue was primarily due to the expiration of long-term power sales arrangements in 2017 , partially offset by an increase in short-term market sales and higher average market rates during 2018. other operating revenue consists primarily of wheeling , transmission , and lease revenues , coal sales and revenue from supplying steam and water to a paper manufacturer located adjacent to the escalante station . wheeling revenue is received when we charge other energy companies for transmitting electricity over our transmission lines . transmission revenue is from our membership in spp . the lease revenue is primarily from a certain power sales arrangement that is required to be accounted for as an operating lease since the arrangement conveys the right to use power generation equipment for a period of time . coal sales revenue results from the sale of a portion of the coal from the colowyo mine to others . other operating revenue decreased $ 39.6 million , or 44.1 percent , to $ 50.2 million in 2018 compared to $ 89.8 million in 2017. the
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a reit is not permitted to retain earnings and profits accumulated during the years it was taxed as a c corporation , and must make one or more distributions to stockholders that equal or exceed those accumulated amounts . to qualify for taxation as a reit for the taxable year beginning january 1 , 2013 , we must distribute to our stockholders on or before december 31 , 2013 , our undistributed earnings and profits attributable to our pre-reit taxable periods ending prior to january 1 , 2013 , which we intend to make as a one-time special distribution to our stockholders ( the e & p distribution ) . we currently expect the e & p distribution will be composed of cash and shares of our common stock , at each stockholder 's election , subject to a cap on the total amount of cash equal to 20 % of the aggregate amount of the e & p distribution . the balance of the e & p distribution will be in the form of shares of our common stock . we can not determine the number of shares that will be distributed to our stockholders until such time of the distribution . we intend to increase our regular quarterly distribution in 2013 to help ensure that we qualify for taxation as a reit . the amount , timing and frequency of future distributions , however , will be at the sole discretion of our board of directors and will be declared based upon various factors , many of which are beyond our control , including our financial condition and operating cash flows , the amount required to maintain qualification and taxation as a reit and reduce any income and excise taxes that we otherwise would be required to pay , limitations on distributions in our existing and future debt instruments , our ability to utilize any net operating losses ( nols ) to offset , in whole or in part , our reit distribution requirements , the limitations on our ability to fund distributions using cash generated through our trss and other factors that our board of directors may deem relevant . our business we are compensated for providing correctional bed space and operating and managing prisons and correctional facilities at an inmate per diem rate based upon actual or minimum guaranteed occupancy levels . the significant expansion of the prison population in the united states has led to overcrowding in the federal and state prison systems , providing us with opportunities for growth . federal , state , and local governments are constantly under budgetary constraints putting pressure on governments to control correctional budgets , including per diem rates our customers pay to us as well as pressure on appropriations for building new prison capacity . these pressures have been compounded by the recent economic downturn . economic conditions remain very challenging , putting continued pressure on government budgets . all of our state partners have balanced budget requirements , which may force them to further reduce their expenses if their tax revenues , which typically lag the overall economy , do not meet their expectations . actions to control their expenses could include reductions in inmate populations through early release programs , alternative sentencing , or inmate transfers from facilities managed by private operators to facilities operated by the state or other local jurisdictions . further , certain 51 government partners have requested , and additional government partners could request , reductions in per diem rates or request that we forego prospective rate increases in the future as methods of addressing the budget shortfalls they may be experiencing . we believe we have been successful in working with our government partners to help them manage their correctional costs while minimizing the financial impact to us , and will continue to provide unique solutions to their correctional needs . we believe the long-term growth opportunities of our business remain very attractive as certain states consider efficiency and savings opportunities we can provide . further , we expect insufficient bed development by our partners to result in future demand for additional bed capacity . governments continue to experience many significant spending demands which have constrained correctional budgets limiting their ability to expand existing facilities or construct new facilities . we believe the outsourcing of prison management services to private operators allows governments to manage increasing inmate populations while simultaneously controlling correctional costs and improving correctional services . we believe our customers discover that partnering with private operators to provide residential services to their inmates introduces competition to their prison system , resulting in improvements to the quality and cost of corrections services throughout their correctional system . further , the use of facilities owned and managed by private operators allows governments to expand correctional capacity without incurring large capital commitments and allows them to avoid long-term pension obligations for their employees . we also believe that having beds immediately available to our partners provides us with a distinct competitive advantage when bidding on new contracts . while we have been successful in winning contract awards to provide management services for facilities we do not own , and will continue to pursue such management contracts , we believe the most significant opportunities for growth are in providing our government partners with available beds within facilities we currently own or that we develop . we also believe that owning the facilities in which we provide management services enables us to more rapidly replace business lost compared with managed-only facilities , since we can offer the same beds to new and existing customers and , with customer consent , may have more flexibility in moving our existing inmate populations to facilities with available capacity . our management contracts generally provide our customers with the right to terminate our management contracts at any time without cause . as of december 31 , 2012 , we had approximately 14,000 unoccupied beds in inventory at facilities that had availability of 100 or more beds . story_separator_special_tag we have staff throughout the organization actively engaged in marketing this available capacity to existing and prospective customers . historically , we have been successful in substantially filling our inventory of available beds and the beds that we have constructed . filling these available beds would provide substantial growth in revenues , cash flow , and earnings per share . however , we can provide no assurance that we will be able to fill our available beds . although the demand for prison beds in the short term has been affected by the severe budget challenges many of our customers currently face , these challenges put further pressure on our customers ' ability to construct new prison beds of their own , which we believe could result in further reliance on the private sector for providing the capacity we believe our customers will need in the long term . we will continue to pursue build-to-suit opportunities like the 1,124-bed jenkins correctional center we constructed for the state of georgia in 2012 , where the availability of our bed capacity is not in a location acceptable to a customer and where the returns meet our minimum threshold for new investment . further , we will also continue to pursue purchases of state-owned facilities such as our recent purchase of the 1,798-bed lake erie correctional institution from the state of ohio , which we believe represents the first 52 purchase of its kind ( e.g . with a management contract ) by a private corrections operator of a correctional facility from a state , which we believe signifies that states are looking for innovative solutions to their budgetary challenges . in the long-term , we would like to see continued and meaningful utilization of our remaining capacity and better visibility from our customers before we add any additional capacity on a speculative basis . we also remain steadfast in our efforts to contain costs . approximately 65 % of our operating expenses consist of salaries and benefits . the turnover rate for correctional officers for our company , and for the corrections industry in general , remains high . workers ' compensation and medical benefits costs for our employees continue to increase primarily as a result of continued rising healthcare costs throughout the country . reducing these staffing costs requires a long-term strategy to control such costs , and we continue to dedicate resources to enhance our benefits , provide training and career development opportunities to our staff and attract and retain quality personnel . recognizing the challenges we faced as a result of the economic downturn , our efforts to contain costs were intensified , as we implemented a company-wide initiative to improve operating efficiencies , and established a framework for accelerating the process and ensuring continuous delivery over the long-term . we continue to generate favorable results from this initiative . through the combination of our initiatives to increase our revenues by taking advantage of our available beds as well as delivering new bed capacity through new facility construction and expansion opportunities , and our strategies to contain our operating expenses , we believe we will be able to maintain our competitive advantage and continue to improve the quality services we provide to our customers at an economical price , thereby producing value to our stockholders . critical accounting policies the consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states . as such , we are required to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . a summary of our significant accounting policies is described in note 2 to our audited financial statements . the significant accounting policies and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : asset impairments . as of december 31 , 2012 , we had $ 2.6 billion in long-lived assets , including $ 132.1 million in long-lived assets , excluding equipment , at seven currently idled facilities and $ 29.0 million invested in a construction project in trousdale county , tennessee at which we have suspended construction activities until we have greater clarity around the timing of future bed absorption by our customers . the impairment analyses for each of these facilities excluded the net book value of equipment , as a substantial portion of the equipment is easily transferrable to other company-owned facilities without significant cost . from the date each facility became idle , the idled facilities incurred combined operating expenses of $ 6.4 million , $ 5.4 million , and $ 6.2 million for the years ended december 31 , 2012 , 2011 , and 2010 respectively . the carrying values of these facilities as of december 31 , 2012 , were as follows ( in millions ) : replace_table_token_6_th 53 we evaluate the recoverability of the carrying values of our long-lived assets , other than goodwill , when events suggest that an impairment may have occurred . such events primarily include , but are not limited to , the termination of a management contract or a significant decrease in inmate populations within a correctional facility we own or manage . accordingly , we tested each of the aforementioned seven currently idled facilities for impairment when we were notified by the customer that they would no longer be utilizing such facility . we tested the facility under construction for impairment when we suspended construction of the facility .
| operating activities our net cash provided by operating activities for the year ended december 31 , 2012 was $ 283.3 million compared with $ 351.1 million in 2011 and $ 255.5 million in 2010. cash provided by operating activities represents the year to date net income plus depreciation and amortization , changes in various components of working capital , and various non-cash charges , including primarily deferred income taxes , goodwill impairment , and expenses associated with debt refinancing transactions . the decrease in cash provided by operating activities during 2012 was primarily due to the decrease in operating income and negative fluctuations in working capital balances during 2012 compared to the same period in 2011 , most notably the collection during the first quarter of 2011 of past due accounts receivable outstanding at december 31 , 2010 , from the state of california . 77 investing activities our cash flow used in investing activities was $ 79.9 million for the year ended december 31 , 2012 , and was primarily attributable to capital expenditures during the year of $ 79.4 million , including $ 30.4 million for the expansion and development activities previously discussed herein , and $ 49.0 million for facility maintenance and information technology capital expenditures . our cash flow used in investing activities was $ 172.0 million for the year ended december 31 , 2011 , and was primarily attributable to capital expenditures during the year of $ 173.9 million , including $ 125.7 million for the acquisition , expansion , and development activities previously discussed herein , and $ 48.3 million for facility maintenance and information technology capital expenditures . our cash flow used in investing activities was $ 144.2 million for the year ended december 31 , 2010 , and was primarily attributable to capital expenditures during the year of $ 143.7 million , including $ 101.8 million for expansion and development activities and $ 41.8 million for facility maintenance and information technology capital expenditures . financing activities cash flow used in financing activities was $ 196.3 million for the year ended december 31 , 2012 and was primarily attributable to $ 135.0 million of net principal payments of debt and $ 6.3 million for payments of debt issuance and other refinancing costs associated with the aforementioned refinancing transactions . additionally , cash flow used in financing activities included $ 59.8 million of dividends paid during the year ended december
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the presidents work closely with the ceo on global growth strategies , operational excellence , and employee development . the headquarters ( hub ) focuses on enabling the core back-office key functions for scale and efficiency , that is , accounting , payroll , human resources/benefits , it , safety support , audit controls , and administration . we have excellent organizational focus from headquarters through-out our divisional businesses with clarity and minimal duplicative work streams . we are structured for growth and will do smart future bolt-on acquisitions with a full integration strategy . 31 our three operating segments are : the engineered equipment technology and parts group ( the eet & p group ) , which produces various types of air pollution control equipment , the contracting/services group ( the c/s group ) , which produces air pollution control and industrial ventilation systems and the component parts group ( the cp group ) , which manufactures products used by us and other air pollution control companies and contractors . it is through combining the efforts of some or all of these groups that we are able to offer complete turnkey systems to our customers and leverage the operational efficiencies between our family of companies . due to the relative size of our former engineering group , our reportable segment disclosures in our financial statements include this group 's results with our corporate and other disclosures . the engineering group was sold in november 2011. our contracts are obtained either through competitive bidding or as a result of negotiations with our customers . contract terms offered by us are generally dependent on the complexity and risk of the project as well as the resources that will be required to complete the project . for example , a contract that can be performed primarily by subcontractors and that does not require us to use our fabrication and assembly facilities can be quoted at a lower gross margin than a more typical contract that will require additional factory overhead and administrative expenses . our focus is on increasing our operating margins as well as our gross margin percentage which translates into higher net income . our sales typically peak in the fourth quarter due to a tendency of customers to want to fully utilize annual capital budgets and due to the fact that many industrial facilities shut down for the holiday season and that creates demand for maintenance and renovation work that can be done at no other time . ceco filters secures international sales through the efforts of ceco 's operation in india and also through a network or sales representatives around the globe . system sales , such as those secured by busch and kirk & blum , are secured through relationships built up over the years in various industries . some of these relationships are at american companies building plants overseas and some are through the global reputation of busch . kirk & blum has long done business in mexico . in march 2008 , we acquired fisher-klosterman/buell , a louisville , kentucky based company which has , among other locations , a facility in shanghai , china which gives us a platform for developing business in this vast market . in august of 2008 , we acquired flextor , a montreal based maker of dampers and expansion joints that has significant international sales experience in south america . in february 2013 , the company acquired aarding , a netherlands company providing natural gas turbine exhaust systems and silencer applications globally . cost of sales as a percent of 2012 revenue is approximately 52 % material , equipment , and subcontracting expenses , and 17 % labor and factory overhead . our cost of sales is principally driven by a number of factors including material prices and labor cost and availability . changes in these factors may have a material impact on our overall gross profit margins . for example , in larger contracts , we may incur sub-contract work or direct equipment purchases , which may only be marked-up to a limited extent and consequently , the gross margins of the company are affected . however , profitability is enhanced through the absorption of fixed operating costs , including selling , general & administrative and factory overhead . we break down costs of sales into five categories . they are : labor- our direct labor both in the shop and in the field ; material- raw material , mostly steel , that we buy to build our products ; equipment- fans , motors , control panels , etc . necessary for turnkey systems ; subcontracts- electrical work , concrete work , etc . necessary for turnkey systems ; factory overhead costs of facilities and supervision wages necessary to produce our products . in general , labor provides us the most flexibility in margin followed by material and equipment and subcontracts . across our various product lines , the relative relationships of these factors change thus causing variations in gross margin percentage . material costs have also increased faster than labor costs , which also reduces gross margin percentage . 32 selling and administrative expense principally includes advertising and marketing expenditures and all corporate and administrative functions and other costs that support our operations . the majority of these expenses are fixed . we expect to leverage our fixed operating structure as we continue to grow our revenue . story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px ; text-indent:4 % '' > operating income for the c/s group was $ 3.5 million in 2012 compared to $ 3.1 million in 2011. this increase is primarily due to a strategic shift in customer segments and reduced operating costs from facility consolidations , effective project management , and improved pricing strategies . story_separator_special_tag component parts group cp group net sales were $ 20.8 million in 2011 compared to $ 18.8 million in 2011. this increase is primarily due to increased demand for our component parts and clamp together duct products , which is the result of many smaller contractors buying these products instead of making them in-house . operating income for the cp group was $ 4.2 million in 2012 compared to $ 3.4 million in 2011. this increase is primarily due to increased revenues as described above and better pricing strategies . liquidity and capital resources financing our principal sources of liquidity are cash flow from operations and available borrowings under our revolving credit facility . at december 31 , 2012 and december 31 , 2011 , cash and cash equivalents totaled $ 23.0 million and $ 12.7 million , respectively . we have no outstanding borrowings under our line of credit as of december 31 , 2012 or 2011 , and $ 2.2 million as of the february 28 , 2013 acquisition of aarding ( see note 19 to the consolidated financial statements contained in part ii , item 8 of this report ) . as of december 31 , 2012 , the company has $ 1.9 million in outstanding trade letters of credit . we entered into our current credit facility with fifth third bank ( the bank facility ) on december 29 , 2005. the bank facility was amended on various dates and fees paid for these amendments were deferred and are being amortized over the remaining term of the bank facility . the bank facility , as amended , includes a revolving line of credit of up to $ 20.0 million , with a limit on letters of credit of $ 10 million . the credit available is limited to a borrowing base amount computed as 70 % of eligible accounts receivable , 50 % of unbilled revenues up to $ 1.0 million , plus 50 % of eligible inventories up to $ 7.5 million . the borrowing base amount is decreased by the company 's outstanding letters of credit . our property and equipment , accounts receivable , investments and inventory serve as collateral for our bank debt . our debt agreements contain customary covenants and events of default . 35 unused credit availability under the bank facility at december 31 , 2012 was $ 14.6 million , as summarized below . interest on the outstanding borrowings is charged at the daily libor rate plus 3.5 % or the tranche libor rate plus 3.0 % for the revolver . availability is limited as determined by a borrowing base formula contained in the credit agreement as follows : replace_table_token_7_th on november 26 , 2009 , the company issued $ 10.8 million principal amount of subordinated convertible promissory notes to a group of investors ( the investor notes ) which included related parties : icarus investment corp. , which is controlled by phillip dezwirek , our chairman and former chief executive officer , and jason dezwirek , a director and secretary , ( $ 2,200,000 ) , jmp fam holdings , inc. , which is controlled by jonathan pollack , a company director , ( $ 150,000 ) , jason dezwirek ( $ 800,000 ) , and harvey sandler revocable trust ( $ 800,000 ) , which trust owns over 10 % of our outstanding common stock . interest accrued under the investor notes at the annual rate of 6 % and was payable as of the end of each calendar quarter . interest paid on the investor notes for 2012 and 2011 was $ 505,000 and $ 625,000 , respectively . we used the proceeds of the investor notes to repay all of our previously existing subordinated debt in the amount of approximately $ 4.5 million , which debt was accruing interest at rates between 11-12 % . the balance of the proceeds was available to be used for general working capital . fees of $ 320,000 were paid for the issuance of this debt and were being amortized over the term of the investor notes . the investor notes were due on november 26 , 2014 and were not repayable prior to maturity except upon a change of control , or upon the consent of the holder . the remaining outstanding $ 8.8 million balance of the investor notes was converted to common stock at the conversion price of $ 4.00 per share during the fourth quarter of 2012 in accordance with the terms of the investor notes . the quarterly conversion during 2012 of the investor notes were $ 200,000 , $ 240,000 , $ 400,000 , and $ 8,760,000 resulting in the issuance of 50,000 , 60,000 , 100,000 , and 2,190,000 shares of our common stock , respectively . overview of cash flows and liquidity replace_table_token_8_th 36 in 2012 , $ 16.8 million of cash was provided by operating activities as compared to $ 8.7 million provided by operating activities in 2011. the $ 8.1 million increase in cash flow from operating activities was primarily due to a $ 2.5 million increase in net income from operations , the incremental cash provided of $ 4.0 million in accounts payable and accrued expenses , and incremental cash provided of $ 1.7 million in accrued income taxes . in addition , the incremental cash used of $ 8.4 million in accounts receivable was offset by the incremental cash provided of $ 7.1 million in costs in excess of billings . the cash provided by accounts payable and accrued expenses is due to efforts to better align our vendor payment terms to our customers payment terms , recording of the first year of the adwest earn-out , and accrued income taxes . accrued income taxes was benefited by the research and development tax credits discussed in note 14 accompanying the consolidated financial statements within item 8 of this annual report .
| operating income for 2012 was $ 16.7 million , an increase of $ 4.3 million from $ 12.4 million in 2011. operating income as a percent of sales for 2012 was 12.4 % compared to 8.9 % for 2011. improved margins , changes in product mix , and manufacturing improvements were the primary factors for the increases in operating income and operating margin percentages . other ( expense ) income for 2012 was $ ( 152,000 ) compared to $ 452,000 in 2011. the foreign currency transaction losses were $ ( 152,000 ) in 2012 as compared with foreign currency gains of approximately $ 115,000 in 2011. the income in 2011 primarily consists of a $ 359,000 payment of short swing trading profits that was returned to the company by a director and an affiliated shareholder . interest expense increased slightly to $ 1.2 million in 2012 from $ 1.1 million in 2011. a charge of $ 141,000 to interest expense was recorded in the fourth quarter of 2012 to expense the remaining balance of unamortized 33 deferred financing fees related to origination of the company 's subordinated convertible promissory notes ( the investor notes ) . the remaining balance of the investor notes was converted to equity in november 2012. the expense of the deferred financing fees was offset by the decrease in interest expense during 2012 due to previous investor notes converted by the holders . federal and state income tax expense was $ 4.5 million in 2012 compared to $ 3.4 million in 2011. the effective tax rate for 2012 was 29.3 % compared to 29.0 % in 2011. included in the income tax provision calculation for 2012 is a $ 1.1 million tax benefit , net of related uncertain tax position reserves , for research and development income tax credits earned during 2009 through 2011. this credit was not contemplated in the 2011 tax provision because it was not identified or quantified until
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the covid-19 pandemic has continued to spread throughout the united states and the world and has resulted in authorities implementing numerous measures to contain the virus , including travel bans and restrictions , quarantines , shelter-in-place orders , and business limitations and shutdowns . while we are unable to accurately predict the full impact that covid-19 will have on our results from operations , financial condition , liquidity and cash flows due to numerous uncertainties , including the duration and severity of the pandemic and containment measures , our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations , as well as that of our customers and consumer traffic to our marketplace for an indefinite period of time . for example , we believe that immediately after shelter-in-place orders went into effect consumers performed less searches for insurance online . to support the health and well-being of our employees , customers , partners and communities , our employees continue to work remotely as of march 1 , 2021. while such disruptions have not had a material adverse impact on our financial results through december 31 , 2020 , such disruptions may impact consumer insurance shopping behavior . we continue to monitor and are managing our operations for the ongoing impact of covid-19 . factors affecting our performance we believe that our performance and future growth depend on a number of factors that present significant opportunities for us but also pose risks and challenges , including those discussed below and in the section titled “ risk factors. ” auto insurance industry risk we derive a significant portion of our revenue from auto insurance providers and our financial results depend on the performance of the auto insurance industry . for example , in 2016 , the u.s. commercial auto 45 insurance industry experienced its worst underwriting performance in 15 years , with higher loss ratios that were driven by both adverse claim severity and frequency trends . as a result , our auto insurance carrier customers reduced marketing spend and cost per sale targets the following year , ultimately impacting our revenue growth in the auto insurance vertical in 2017. expanding consumer traffic our success depends in part on the growth of our consumer traffic , as measured by quote requests . we have historically increased consumer traffic to our marketplace by expanding existing advertising channels and adding new channels . we plan to continue to increase consumer traffic by leveraging the features and growing data assets of our platform . while we plan to increase consumer traffic over the long term , we also have the ability to decrease advertising , which would likely result in a decrease in quote requests from consumers targeted by such advertising , if we believe the revenue associated with such consumer traffic does not result in incremental profit to our business . increasing the number of insurance providers and their respective spend in our marketplace our success also depends on our ability to retain and grow our insurance provider network . we have expanded both the number of insurance providers and the spend per provider on our platform . while not a factor in our historical increases in revenue per quote request , we believe we have an opportunity to increase the number of referrals per quote request while increasing the bind rate per quote request , which would allow us to increase our revenue at low incremental cost . revenue per quote request we seek to increase our revenue per quote request by attaining higher insurance provider bids and by increasing the number of referrals per quote request . insurance provider bids are influenced by competition in our marketplace auctions , the performance of our consumer referrals for insurance providers relative to other consumer acquisition channels , as well as by market conditions , insurance provider budgets and insurance providers ' new customer acquisition targets . increases in revenue per quote request allow us to increase advertising and consumer traffic to our marketplace while maintaining or increasing profitability . cost per quote request we seek to efficiently acquire consumers by increasing the effectiveness of our consumer advertising and insurance marketplace . cost per quote request is influenced by the cost and mix of advertising and the conversion rate of marketplace visitors who request an insurance quote . while we seek to minimize cost per quote request , we may incur increased cost per quote request in order to achieve profitability at relative volumes of quote requests and revenue per quote request . key business metrics we regularly review a number of metrics , including united states generally accepted accounting principles , or gaap , operating results and the key metrics listed below , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections , and make operating and strategic decisions . some of these metrics are non-financial metrics or are financial metrics that are not defined by gaap . quote requests quote requests are consumer-submitted website forms that contain data required to provide an insurance quote , quote requests we receive through offline channels such as telephone calls and quote requests submitted directly to third-party partners . 46 variable marketing margin we define variable marketing margin , or vmm , as revenue , as reported in our consolidated statements of operations and comprehensive income ( loss ) , less advertising costs ( a component of sales and marketing expense , as reported in our statements of operations and comprehensive income ( loss ) ) . we use vmm to measure the efficiency of individual advertising and consumer acquisition sources and to make trade-off decisions to manage our return on advertising . we do not use vmm as a measure of profitability . adjusted ebitda we define adjusted ebitda as net income ( loss ) , adjusted to exclude : stock-based compensation expense , depreciation and amortization expense , acquisition-related costs , legal settlement expense , interest income and the provision for ( benefit from ) income taxes . story_separator_special_tag adjusted ebitda is a non-gaap financial measure that we present in this annual report on form 10-k to supplement the financial information we present on a gaap basis . we monitor and present adjusted ebitda because it is a key measure used by our management and board of directors to understand and evaluate our operating performance , to establish budgets and to develop operational goals for managing our business . adjusted ebitda should not be considered in isolation from , or as an alternative to , measures prepared in accordance with gaap . adjusted ebitda should be considered together with other operating and financial performance measures presented in accordance with gaap . also , adjusted ebitda may not necessarily be comparable to similarly titled measures presented by other companies . for further explanation of the uses and limitations of this measure and a reconciliation of adjusted ebitda to the most directly comparable gaap measure , net income ( loss ) , please see “ —non gaap financial measure ” . key components of our results of operations revenue we generate our revenue by selling consumer referrals to insurance provider customers , consisting of carriers and agents , as well as to indirect distributors . to simplify the quoting process for the consumer and improve performance for the provider , we are able to provide consumer-submitted quote request data along with each referral . we support three secure consumer referral formats : clicks : an online-to-online referral , with a handoff of the consumer to the provider 's website . data : an online-to-offline referral , with quote request data transmitted to the provider for follow-up . calls : an online-to-offline referral for outbound calls and an offline-to-offline referral for inbound calls , with the consumer and provider connected by phone . we recognize revenue from consumer referrals at the time of delivery . our revenue is comprised of consumer referral fees from the automotive and other insurance verticals , which includes home and renters , life , health and commercial insurance verticals , as follows : replace_table_token_1_th cost and operating expenses our cost and operating expenses consist of cost of revenue , sales and marketing , research and development , and general and administrative expenses . 47 we allocate certain overhead expenses , such as rent , utilities , office supplies and depreciation and amortization of general office assets , to cost of revenue and operating expense categories based on headcount . as a result , an overhead expense allocation is reflected in cost of revenue and each operating expense category . personnel-related costs included in cost of revenue and each operating expense category include wages , fringe benefit costs and stock-based compensation expense . cost of revenue cost of revenue is comprised primarily of the costs of operating our marketplace and delivering consumer referrals to our customers . these costs consist primarily of technology service costs including hosting , software , data services , and third-party call center costs . in addition , cost of revenue includes depreciation and amortization of our platform technology assets and personnel-related costs . sales and marketing sales and marketing expense consists primarily of advertising and marketing expenditures as well as personnel-related costs for employees engaged in sales , marketing , data analytics and consumer acquisition functions and amortization of sales and marketing-related intangible assets . advertising expenditures consist of variable costs that are related to attracting consumers to our marketplace , generating consumer quote requests and promoting our marketplace to carriers and agents . advertising costs are expensed as incurred . marketing costs consist primarily of content and creative development , public relations , memberships , and event costs . in order to continue to grow our business and brand awareness , we expect that we will continue to commit substantial resources to our sales and marketing efforts . we expect our sales and marketing expense will increase in the near term , both as a percentage of revenue and in absolute dollars , but decrease in the longer term as a percentage of revenue due to efficiencies of scale and improvements in our marketplace technology . research and development research and development expenses consist primarily of personnel-related costs for software development and product management . we have focused our research and development efforts on improving ease of use and functionality of our existing marketplace platform and developing new offerings and internal tools . we primarily expense research and development costs . direct development costs related to software enhancements that add functionality are capitalized and amortized as a component of cost of revenue . we expect that research and development expenses will increase as we continue to enhance and expand our platform technology . general and administrative general and administrative expenses consist of personnel-related costs and related expenses for executive , finance , legal , human resources , technical support and administrative personnel as well as the costs associated with professional fees for external legal , accounting and other consulting services , insurance premiums and payment processing and billing costs . we expect general and administrative expenses to increase as we continue to incur the costs of compliance associated with being a publicly traded company , including legal , audit , insurance and consulting fees . acquisition-related costs acquisition-related costs include expenses associated with third-party professional services we utilize for the evaluation and execution of successful acquisitions as well as changes in the fair value of our contingent consideration liability recorded as the result of the crosspointe acquisition . legal settlement legal settlement includes costs associated with the settlement of securities litigation in connection with our initial public offering ( see note 12 to the consolidated financial statements included elsewhere in this annual report on form 10-k ) representing the net of the settlement amount and the insurance proceeds . 48 other income other income consists of interest income and other income . interest income consists of interest earned on invested cash balances . other income consists of miscellaneous income unrelated to our core operations .
| cost of revenue replace_table_token_6_th cost of revenue increased by $ 5.5 million from $ 15.9 million for the year ended december 31 , 2019 to $ 21.4 million for the year ended december 31 , 2020. cost of revenue increased due primarily to increased hosting costs of $ 1.8 million related to increased marketplace activity and to increased third-party call center costs of $ 1.5 million , which were primarily related to increased volume of call referrals . technical services increased by $ 1.0 million due primarily to increased volume of consumer referrals and amortization of capitalized software costs increased by $ 0.7 million . sales and marketing replace_table_token_7_th sales and marketing expenses increased by $ 82.2 million from $ 202.7 million for the year ended december 31 , 2019 to $ 284.9 million for the year ended december 31 , 2020. the increase in sales and marketing expense was primarily due to an increase in advertising expenditures of $ 62.8 million and an increase in personnel-related costs of $ 15.4 million . personnel-related costs for the years ended december 31 , 2020 and 2019 included stock-based compensation expense of $ 10.2 million and $ 3.8 million , respectively . research and development replace_table_token_8_th 52 research and development expenses increased by $ 9.4 million from $ 20.2 million for the year ended december 31 , 2019 to $ 29.7 million for the year ended december 31 , 2020. the increase in research and development expense was primarily due to an increase in personnel-related costs of $ 9.9 million as a result of our continued hiring of research and development employees and a shift towards hiring more senior personnel , to further develop and enhance our marketplace websites and technology . personnel-related costs for the years ended december 31 , 2020 and 2019 included stock-based compensation expense of $ 7.8 million and $ 4.0 million , respectively . general and administrative replace_table_token_9_th general and administrative expenses increased by $ 3.6 million from $ 16.8 million for the year ended december 31 , 2019 to $ 20.4 million for the year ended december 31 , 2020. the increase in general and administrative expenses was primarily due to an increase in personnel-related costs of $ 2.9 million and an increase in insurance costs of $ 0.6 million . personnel-related costs for the years ended december 31 , 2020 and 2019 included stock-based compensation
| 13,977 |
million , respectively . for the fiscal year ended january 31 , 2014 , approximately 23 % of our total revenues were derived from customers located outside the united states . our customers and end-users represent the public sector and a wide variety of industries , including financial services , manufacturing , retail and technology , among others . as of january 31 , 2014 , we had over 7,000 customers , including 70 of the fortune 100 companies . 40 for the fiscal years ended january 31 , 2014 , 2013 and 2012 , our gaap operating loss was $ 78.3 million , $ 22.0 million and $ 8.7 million , respectively , and our non-gaap operating loss was $ 1.2 million , $ 1.4 million and $ 4.9 million , respectively . for the fiscal years ended january 31 , 2014 , 2013 and 2012 , our gaap net loss was $ 79.0 million , $ 36.7 million and $ 11.0 million , respectively , and our non-gaap net loss was $ 3.1 million , $ 2.0 million and $ 5.2 million , respectively . our fiscal results reflect seasonality in the sale of our products and services . historically , a pattern of increased license sales in the fourth fiscal quarter as a result of industry buying patterns has positively impacted sales activity in that period , which can result in lower sequential revenue in the first fiscal quarter . our gross margins and operating losses have been affected by these historical trends because the majority of our expenses are relatively fixed in the short term . the majority of our expenses are personnel-related and include salaries , stock-based compensation , benefits and incentive-based compensation plan expenses . as a result , we have not experienced significant seasonal fluctuations in the timing of expenses from period to period . non-gaap financial results to supplement our consolidated financial statements , which are prepared and presented in accordance with gaap , we provide investors with certain non-gaap financial measures , including non-gaap gross margin , non-gaap operating income ( loss ) , non-gaap net income ( loss ) , non-gaap operating margin and non-gaap net income ( loss ) per share ( collectively the “ non-gaap financial measures ” ) . these non-gaap financial measures exclude stock-based compensation expense , employer payroll tax expense related to employee stock plans , the change in fair value of certain preferred stock warrants previously issued by us , impairment of a long-lived asset , acquisition-related costs , amortization of acquired intangible assets and the partial release of the valuation allowance due to acquisitions . in addition , non-gaap financial measures include free cash flow , which represents cash from operations less purchases of property and equipment . the presentation of the non-gaap financial measures is not intended to be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . we use these non-gaap financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons . we believe that these non-gaap financial measures provide useful information about our operating results , enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by our management in its financial and operational decision making . in addition , these non-gaap financial measures facilitate comparisons to competitors ' operating results . we exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance . in particular , because of varying available valuation methodologies , subjective assumptions and the variety of award types that companies can use under fasb asc topic 718 , we believe that providing non-gaap financial measures that exclude this expense allows investors the ability to make more meaningful comparisons between our operating results and those of other companies . we exclude employer payroll tax expense related to employee stock plans in order for investors to see the full effect that excluding that stock-based compensation expense had on our operating results . these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise , which may vary from period to period independent of the operating performance of our business . we excluded expense attributable to the change in fair value of certain preferred stock warrants from our non-gaap financial measures because it is a non-recurring , non-cash expense . we also excluded the non-cash charge for previously capitalized splunk storm software development costs ( reflected as an impairment of a long-lived asset ) as a result of our decision to make splunk storm available to customers at no cost . we also exclude acquisition-related costs and amortization of acquired intangible assets from our non-gaap financial measures because they are considered by management to be outside of our core operating results . we further exclude the partial release of the valuation allowance due to acquisitions from non-gaap net income ( loss ) and non-gaap net income ( loss ) per share because it is also considered by management to be outside our core operating results . accordingly , we believe that excluding these expenses provides investors and management with greater visibility to the underlying performance of our business operations , facilitates comparison of our results with other periods and may also facilitate comparison with the results of other companies in our industry . we consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities , including investing in our business , making strategic acquisitions and strengthening our balance sheet . story_separator_special_tag there are limitations in using non-gaap financial measures because the non-gaap financial measures are not prepared in accordance with gaap , may be different from non-gaap financial measures used by our competitors and exclude expenses that may have a material impact upon our reported financial results . further , stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of 41 the compensation provided to our employees . the non-gaap financial measures are meant to supplement and be viewed in conjunction with gaap financial measures . the following table reconciles our net cash provided by operating activities to free cash flow for the fiscal years ended january 31 , 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_7_th the following table reconciles gaap gross margin to non-gaap gross margin for the fiscal years ended january 31 , 2014 , 2013 and 2012 : replace_table_token_8_th the following table reconciles gaap operating loss to non-gaap operating loss for the fiscal years ended january 31 , 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_9_th the following table reconciles gaap operating margin to non-gaap operating margin for the fiscal years ended january 31 , 2014 , 2013 and 2012 : replace_table_token_10_th 42 the following table reconciles gaap net loss to non-gaap net loss for the fiscal years ended january 31 , 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_11_th the following table reconciles gaap net loss per share to non-gaap basic and diluted net loss per share for the fiscal years ended january 31 , 2014 , 2013 and 2012 ( in thousands , except per share amounts ) : replace_table_token_12_th components of operating results revenues license revenues . license revenues reflect the revenues recognized from sales of licenses to new customers and additional licenses to existing customers . we are focused on acquiring new customers and increasing revenues from our existing customers as they realize the value of our software by indexing higher volumes of machine data and expanding the use of our software through additional use cases and broader deployment within their organizations . a majority of our license revenues consists of revenues from perpetual licenses , under which we generally recognize the license fee portion of the arrangement upfront , assuming all revenue recognition criteria are satisfied . customers can also purchase term license agreements , under which we recognize the license fee ratably , on a straight-line basis , over the term of the license . due to the differing revenue recognition policies applicable to perpetual and term licenses , shifts in the mix between perpetual and term licenses from quarter to quarter could produce substantial variation in revenues recognized even if our sales remain consistent . in addition , seasonal trends that contribute to increased sales activity in the fourth fiscal quarter often result in lower sequential revenue in the first fiscal quarter , and we expect this trend to continue . comparing our revenues on a period-to-period basis may not be meaningful , and you should not rely on our past results as an indication of our future performance . for further discussion of seasonality , cyclicality and quarterly trends , as well as the impact on our margins and results , see `` quarterly results of operations—seasonality , cyclicality and quarterly trends , '' below . maintenance and services revenues . maintenance and services revenues consist of revenues from maintenance agreements and , to a lesser extent , professional services and training . typically , when purchasing a perpetual license , a 43 customer also purchases one year of maintenance service for which we charge a percentage of the license fee . when a term license is purchased , maintenance service is typically bundled with the license for the term of the license period . customers with maintenance agreements are entitled to receive support and unspecified upgrades and enhancements when and if they become available during the maintenance period . we recognize the revenues associated with maintenance agreements ratably , on a straight-line basis , over the associated maintenance period . in arrangements involving a term license , we recognize both the license and maintenance revenues over the contract period . we have a professional services organization focused on helping some of our largest customers deploy our software in highly complex operational environments and train their personnel . we recognize the revenues associated with these professional services on a time and materials basis as we deliver the services or provide the training . we expect maintenance and services revenues to become a larger percentage of our total revenues as our installed customer base grows . professional services and training revenues as a percentage of total revenues were 6 % for fiscal 2014. we have experienced continued growth in our professional services revenues primarily due to the deployment of our software with some customers that have large , highly complex it environments . cost of revenues cost of license revenues . cost of license revenues includes all direct costs to deliver our product , including salaries , benefits , stock-based compensation and related expenses such as employer taxes , allocated overhead for facilities and it and amortization of acquired intangible assets . we recognize these expenses as they are incurred . cost of maintenance and services revenues . cost of maintenance and services revenues includes salaries , benefits , stock-based compensation and related expenses such as employer taxes for our maintenance and services organization , allocated overhead for depreciation of equipment , facilities and it , and amortization and write-offs of intangible assets . we recognize expenses related to our maintenance and services organization as they are incurred . operating expenses our operating expenses are classified into three categories : research and development , sales and marketing and general and administrative .
| our total number of splunk enterprise customers increased from approximately 3,700 at january 31 , 2012 to approximately 5,200 at january 31 , 2013. the increase in maintenance and services revenues was due to increases in sales of maintenance agreements resulting from the growth of our installed customer base as well as sales of our professional services . cost of revenues and gross margin replace_table_token_15_th fiscal 2014 compared to fiscal 2013. total cost of revenues increased $ 14.4 million due to a $ 14.8 million increase in cost of maintenance and services revenues , slightly offset by the decrease in cost of license revenue . the increase in cost of maintenance and services revenues was primarily related to an increase of $ 9.1 million in salaries and benefits expense due to increased headcount , which also includes a $ 4.1 million increase in stock-based compensation expense . we also had a $ 2.1 million impairment charge of a long-lived asset for previously capitalized splunk storm software development costs , as a result of our decision to make splunk storm available to customers at no cost during the third fiscal quarter of 2014. we also had an 47 increase of $ 1.1 million related to overhead costs and an increase of $ 1.0 million related to consulting fees . total gross margin decreased slightly due to the $ 2.1 million impairment charge related to splunk storm , as discussed above . fiscal 2013 compared to fiscal 2012. total cost of revenues increased $ 9.8 million due to a $ 10.0 million increase in cost of maintenance and services revenues , offset slightly by the decrease in cost of license revenue . the increase in cost of maintenance and services revenues of $ 10.0 million was primarily related to an increase of $ 4.7 million in salaries and benefits expense due to increased headcount , which also includes a $ 1.1 million increase in stock-based compensation expense , and $ 5.3 million related to professional services expense , as we continue to invest in our professional services organization . total gross margin decreased slightly , while license gross
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nccn collaboration in january 2016 , we announced that we entered into a research collaboration with nccn , a not-for-profit alliance of 27 of the world 's leading cancer centers , to expand the clinical research and development of bavituximab for the treatment of a range of tumors . under this research collaboration , we plan to fund multiple ists and correlative studies with bavituximab at nccn member institutions and their affiliate community hospitals through a $ 2 million research grant to nccn 's oncology research program . nccn will be responsible for oversight and monitoring of all clinical studies under the research grant . it is expected that between two and five different clinical studies will be conducted as part of this collaboration , potentially providing us with significant human data to steer the future development of bavituximab . while specific timing has not been established , we expect that the first studies will be initiated in late calendar year 2016 or early 2017. bavituximab in front-line rectal adenocarcinoma ist this phase i ist was designed to assess bavituximab in combination with capecitabine and radiation therapy in up to 18 patients with stage ii or iii rectal adenocarcinoma . the primary endpoint is to determine the safety , feasibility and tolerability with a standard platform of capecitabine and radiation therapy . secondary endpoints include overall response rate and pathological complete response ( pcr ) rate in patients . patient enrollment was completed in october 2015 and we anticipate the investigator will present data from this trial in calendar year 2016 . 31 phase iii sunrise trial in december 2013 , we initiated a randomized , double-blind , placebo-controlled phase iii trial evaluating bavituximab plus docetaxel versus docetaxel plus placebo , for the treatment of previously-treated nsclc ( the “ phase iii sunrise trial ” ) . in february 2016 , we announced that we were discontinuing the phase iii sunrise trial based on the recommendation of the study 's independent data monitoring committee following a pre-specified interim analysis performed after 33 % of targeted overall events ( patient deaths ) in the study were reached . results of the analysis demonstrated that the patients treated in the bavituximab plus docetaxel treatment arm did not show a sufficient improvement in overall survival as compared to the patients treated in the docetaxel plus placebo treatment arm to warrant continuation of the study . patient enrollment has been discontinued and existing patients in the trial have been given the choice to continue chemotherapy and or bavituximab , as appropriate . clinical trial data from the study will continue to be collected until trial completion . we are currently conducting an extensive review of the available data in order to understand what subgroups or other patient characteristics may have impacted the performance of the study . we believe such information will be critical in supporting our clinical strategy as discussed above . story_separator_special_tag margin : 0pt 7.9pt 0pt 0 ; text-align : justify ; text-indent : 0.5in '' > selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses consist primarily of payroll and related expenses and share-based compensation expense ( non-cash ) , for personnel in executive , finance , accounting , business development , legal , human resources , information technology , and other internal support functions . in addition , sg & a expenses include corporate and patent legal fees , audit and accounting fees , investor relation expenses , non-employee director fees , insurance expense , and other expenses relating to our general management , administration , and business development activities . fiscal year 2016 compared to fiscal year 2015 : sg & a expenses for fiscal year 2016 remained consistent with fiscal year 2015 decreasing slightly by $ 140,000 ( 1 % ) . the current fiscal year decrease in sg & a expenses was primarily due to current fiscal year decreases in share-based compensation expense ( non-cash ) and other general corporate expenses , offset by a current fiscal year increase in payroll and related expenses . we expect sg & a expenses in fiscal year 2017 to remain in-line with fiscal year 2016. fiscal year 2015 compared to fiscal year 2014 : the increase in sg & a expenses of $ 1,417,000 ( 8 % ) during fiscal year 2015 compared to fiscal year 2014 was primarily due to increases in payroll and related expenses of $ 469,000 , share-based compensation expense of $ 404,000 , and non-employee director fees of $ 334,000. the increase in payroll and related expenses was primarily attributed to compensation increases associated with annual merit increases , increased health insurance benefit costs and increased employee headcount , offset by a decrease in severance expense incurred in fiscal year 2014 associated with a former employee . the increase in share-based compensation expense was primarily related to the amortization of the fair value of stock options granted to employees and non-employee directors under our routine annual broad-based grants of stock option awards . the increase in non-employee director fees was directly related to the fiscal year 2015 increase in annual cash retainer fees paid to our non-employee directors as a result of their increased time commitments associated with the oversight of our operations . interest and other income fiscal year 2016 compared to fiscal year 2015 : the increase in interest and other income of $ 580,000 during fiscal year 2016 compared to fiscal year 2015 was directly related to the receipt of a $ 600,000 settlement payment from clinical supplies management , inc. ( “ csm ” ) during the current fiscal year in accordance with the terms of the confidential settlement and release agreement we entered into with csm on september 8 , 2015 ( as described in this annual report under part i , item 4 , “ legal proceedings ” ) . story_separator_special_tag fiscal year 2015 compared to fiscal year 2014 : the decrease in interest and other income of $ 207,000 during fiscal year 2015 compared to fiscal year 2014 was due to a $ 35,000 increase in interest income , offset by a $ 242,000 decrease in other income . 35 critical accounting policies our discussion and analysis of our consolidated financial position 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 ( “ gaap ” ) . the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosures . we review our estimates and assumptions on an ongoing basis . we base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may vary from what we anticipate , and different assumptions or estimates about the future could change our reported results . we believe the following accounting policies to be critical to the assumptions and estimates used in the preparation of our consolidated financial statements . revenue recognition we currently derive revenue from the following two sources : ( i ) contract manufacturing services provided by avid , and ( ii ) licensing revenue related to agreements associated with peregrine 's technologies under development . we recognize revenue in accordance with the authoritative guidance for revenue recognition when all of the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery ( or passage of title ) has occurred or services have been rendered , ( iii ) the seller 's price to the buyer is fixed or determinable , and ( iv ) collectability is reasonably assured . we also comply with the authoritative guidance for revenue recognition regarding arrangements with multiple elements . revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met , including whether the delivered element has stand-alone value to the customer or licensing partner . when deliverables are separable , consideration received is allocated among the separate units based on their respective fair values , and the applicable revenue recognition criteria are applied to each of the separate units , which may require the use of significant judgement . deliverables are considered separate units of accounting if ( 1 ) the delivered item ( s ) has value to the customer on a stand-alone basis and ( 2 ) the arrangement includes a general right of return relative to the delivered item ( s ) , delivery or performance of the undelivered item ( s ) is considered probable and substantially in our control . arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price . the relative selling price for each deliverable is determined using vendor specific objective evidence ( “ vsoe ” ) of selling price or third-party evidence of selling price if vsoe does not exist . if neither vsoe nor third-party evidence of selling price exists , we use our best estimate of the selling price for the deliverable . the amount of allocable arrangement consideration is limited to amounts that are fixed or determinable . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units . changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement . contract manufacturing revenue revenue associated with contract manufacturing services provided by avid is recognized once the service has been rendered and or upon shipment ( or passage of title ) of the product to the customer . for arrangements that include multiple elements , we follow the authoritative guidance for revenue recognition regarding arrangements with multiple deliverables , as described above . in addition , we also follow the authoritative guidance when reporting revenue as gross when we act as a principal versus reporting revenue as net when we act as an agent . for transactions in which we act as a principal , have discretion to choose suppliers , bear credit and inventory risk and perform a substantive part of the services , revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services . any amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue or customer deposits in the accompanying consolidated financial statements . we also record a provision for estimated contract losses , if any , in the period in which they are determined . license revenue license revenue related to licensing agreements associated with our technologies under development primarily consists of non-refundable upfront license fees , non-refundable annual license fees and milestone payments . non-refundable upfront license fees received under license agreements , whereby continued performance or future obligations are considered inconsequential to the relevant license technology , are recognized as revenue upon delivery of the technology . for licensing agreements that include multiple elements , we follow the authoritative guidance for revenue recognition regarding arrangements with multiple deliverables , as described above . 36 we recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety .
| based on our existing license agreements , we do not expect license revenue to be a significant source of revenue in fiscal year 2017. cost of contract manufacturing fiscal year 2016 compared to fiscal year 2015 : the increase in cost of contract manufacturing of $ 7,373,000 ( 47 % ) during fiscal year 2016 was directly related to the current fiscal year increase in contract manufacturing revenue . in addition , we saw an improvement in our gross margin , which increased to 48 % in the current fiscal year compared to 42 % in the prior fiscal year due to greater utilization of our manufacturing facility combined with a decrease in expenses associated with the write-off of unusable work-in process inventory . fiscal year 2015 compared to fiscal year 2014 : the increase in cost of contract manufacturing of $ 2,483,000 ( 19 % ) during fiscal year 2015 was directly related to the fiscal year 2015 increase in contract manufacturing revenue combined with an increase in the write-off of unusable work-in process inventory . in addition , our gross margin on contract manufacturing revenues for fiscal years 2015 and 2014 remained in-line at 42 % and 41 % , respectively . research and development expenses research and development expenses primarily include ( i ) payroll and related costs and share-based compensation expense ( non-cash ) , associated with research and development personnel , ( ii ) costs related to clinical trials and preclinical testing , ( iii ) costs to develop and manufacture our product candidates , including raw materials and supplies , product testing , depreciation , and facility related expenses , ( iv ) expenses for research services provided by universities and contract laboratories , including sponsored research funding , and ( v ) other research and development expenses . research and development expenses are charged to expense as incurred when these expenditures relate to our research and development efforts and have no alternative future uses . for the years ended april 30 , 2016 , 2015 and 2014 , approximately 100 % , 98 % and 94 % , respectively , of our total research and development expenses related to our ps-targeting platform , which includes our lead immunotherapy candidate , bavituximab . 33 fiscal year 2016 compared to fiscal year
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