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cost of operations for our third-party managed segment is reimbursed on a pass-through basis ( typically within two weeks ) . transportation . we charge transportation fees , including fuel surcharges , to our customers for whom we arrange the transportation of their products . cost of operations for our transportation segment consists primarily of third-party carrier charges , which are impacted by factors affecting those carriers . additionally , in connection with the cloverleaf acquisition , we acquired trucks and associates that support certain customers within the geographic area . we supplemented our regional , national and truckload consolidation business with the hall 's acquisition , which services the northeast corridor of the u.s. with an owned and maintained fleet . our acquisition of agro merchants further expands our transportation service offering . agro merchants operates its own fleet of temperature-controlled vehicles in the u.s. , ireland and uk and also offers a variety of non-asset based transportation management services . these include multi-modal global freight forwarding services to support our customers ' needs . other . in addition to our primary business segments , we owned and operated a limestone quarry in carthage , missouri for the first half of 2020. revenues were generated from the sale of limestone mined at our quarry . cost of operations for our quarry consisted primarily of labor , equipment , fuel and explosives . the sale of our quarry business segment was completed on july 1 , 2020. other consolidated operating expenses . we also incur depreciation and amortization expenses , corporate-level selling , general and administrative expenses and corporate-level acquisition , litigation and other expenses . our depreciation and amortization charges result primarily from the capital-intensive nature of our business . the principal components of depreciation relate to our warehouses , including buildings and improvements , refrigeration equipment , racking , leasehold improvements , material handling equipment , furniture and fixtures , and our computer hardware and software . amortization relates primarily to intangible assets for customer relationships . our corporate-level selling , general and administrative expenses consist primarily of wages and benefits for management , administrative , business development , account management , project management , marketing , engineering , supply-chain solutions , human resources and information technology personnel , as well as expenses related to equity incentive plans , communications and data processing , travel , professional fees , bad debt , training , office equipment and supplies . trends in corporate-level selling , general and administrative expenses are influenced by changes in headcount and compensation levels and achievement of incentive compensation targets . to position ourselves to meet the challenges of the current business environment , we have implemented a shared services support structure to better manage costs and enhance the efficiency of our operations . our corporate-level acquisition , litigation and other expenses consist of costs that we view outside of selling , general and administrative expenses with a high level of variability from period-to-period , and include the following : acquisition related costs include costs associated with transactions , whether consummated or not , such as advisory , legal , accounting , valuation and other professional or consulting fees . we also include integration costs pre- and post-acquisition that reflect work being performed to facilitate merger and acquisition integration , such as employee retention expense and work associated with information systems and other projects including spending to support future acquisitions , which primarily consist of professional services . litigation costs incurred in order to defend ourselves from litigation charges outside of the normal course of business and related settlement costs . severance costs representing certain contractual and negotiated severance and separation costs from exited former executives , reduction in headcount due to synergies achieved through acquisitions or operational efficiencies , and reduction in workforce costs associated with exiting or selling non-strategic warehouses . equity acceleration costs representing the unrecognized expense for share-based awards that vest and convert to common shares in advance of the original negotiated vesting date and any other equity award changes resulting in accounting for the award as a modification . non-offering related equity issuance expenses whether incurred through our initial public offering , follow-on offerings or secondary offerings . non-recurring public company implementation costs associated with the implementation of financial reporting systems and processes needed to convert the organization to a public reporting company . terminated site operations costs represent expenses incurred to return leased sites to their original physical state at lease inception in connection with the termination of the applicable underlying lease . these terminations were part of our strategic efforts to exit or sell non-strategic warehouses as opposed to ordinary course lease expirations . repair and maintenance expenses associated with our ordinary course operations are reflected as operating expenses on our consolidated statement of operations . other costs relate to additional superannuation pension costs related to prior years upon review by the australian tax office . key factors affecting our business and financial results acquisitions and joint ventures on february 1 , 2019 , we completed the portfresh acquisition for a purchase price of approximately $ 35.9 million , utilizing available cash on hand . portfresh consisted of one facility operating near the port of savannah , georgia and adjacent land upon which we have constructed a newly developed facility . this newly constructed facility received its certificate of occupancy during the second quarter of 2020. since the date of acquisition , we have reported the results of the acquired facility within our warehouse segment . on may 1 , 2019 , we completed the cloverleaf acquisition for a purchase price of approximately $ 1.24 billion , utilizing the $ 1.21 billion net proceeds from our april 2019 follow-on offering and cash drawn from our senior unsecured revolving credit facility . cloverleaf was the fifth largest temperature-controlled warehousing provider in the united states , based in sioux city , iowa and consisted of 22 facilities in nine states . cloverleaf also generates income through a small component of transportation operations . story_separator_special_tag since the date of acquisition , we have reported the results of 21 facilities within our warehouse segment , the results of one facility within our third-party managed segment and the results of cloverleaf 's transportation operations within our transportation segment . also , on may 1 , 2019 , we completed the lanier acquisition for approximately $ 82.5 million utilizing cash drawn from our senior unsecured revolving credit facility . lanier consisted of two temperature-controlled storage facilities in georgia serving the poultry industry . since the date of acquisition , we have reported the results of these facilities within our warehouse segment . on november 19 , 2019 , we completed the mhw acquisition for a purchase price of approximately $ 51.6 million , utilizing available cash on hand . mhw consisted of two temperature-controlled storage facilities , one located in chambersburg , pennsylvania and another in perryville , maryland . since the date of acquisition , we have reported the results of these facilities within our warehouse segment . on january 2 , 2020 , we completed the purchase of all outstanding shares of nova cold for cash consideration of c $ 338.7 million ( usd $ 260.6 million ) . nova cold consisted of four temperature-controlled facilities in toronto , calgary and halifax . the acquisition was funded utilizing proceeds from the settlement of our april 2019 forward sale agreement combined with funds drawn on our 2018 senior unsecured revolving credit facility . since the date of acquisition , we have reported the results of these facilities within our warehouse segment . also , on january 2 , 2020 , we completed the purchase of all outstanding membership interests of newport cold for cash consideration of $ 57.7 million , utilizing available cash on hand . newport cold consists of a single temperature-controlled warehouse located in st. paul , minnesota . since the date of acquisition , we have reported the results of this facility within our warehouse segment . on march 6 , 2020 , we acquired a 14.99 % ownership interest in superfrio armazéns gerais s.a. ( superfrio ) for brazil real dollars of r $ 117.8 million , or approximately usd $ 25.7 million , inclusive of certain legal fees . we funded the purchase price using cash on hand . our pro-rata share of the brazil jv 's results are included within “ ( loss ) income from investments in partially owned entities ” . as of december 31 , 2020 , superfrio owns or operates 22 temperature-controlled warehouses in brazil . on august 31 , 2020 , we completed the acquisition of caspers cold storage for cash consideration of approximately $ 25.6 million , utilizing available cash on hand . caspers consisted of a single temperature-controlled warehouse located in tampa , florida . since the date of acquisition , we have reported the results of this facility within our warehouse segment . additionally , on august 31 , 2020 , we completed the acquisition of am-c warehouses for cash consideration of approximately $ 82.7 million , utilizing available cash on hand . am-c warehouses consisted of an owned facility in mansfield , texas and a leased facility in grand prairie , texas . since the date of acquisition , we have reported the results of these facilities within our warehouse segment . on november 2 , 2020 , we completed the acquisition of new jersey based halls warehouse corporation for $ 489.2 million . halls consisted of eight facilities near the port of newark . halls also provides transportation services to its customers . since the date of acquisition , we have reported the results of the facilities within our warehouse segment , and the results of halls transportation services within our transportation segment . on december 30 , 2020 , we completed the acquisition of agro merchants for total consideration of $ 1.59 billion , including cash received of $ 47.5 million . this was comprised of cash consideration totaling $ 1.08 billion , of which $ 49.7 million was deferred , and the issuance of 14,166,667 common shares of beneficial interest to oaktree , with a fair value of $ 512.1 million based upon the closing share price on december 29 , 2020 of $ 36.15. financing lease and sale-leaseback obligations associated with the acquisition totaled $ 119.9 million , and when added to the total consideration transferred brings the total transaction cost to approximately $ 1.7 billion . the one business day of results was immaterial to the consolidated statement of operations for the year ended december 31 , 2020. agro merchants operates more tha n 236 million cubic feet of temperatur e-controlled warehouse and distribution space across 46 facilities and provides transportation services in the united states , europe , australia and chile . we expect to report the results of these facilities within our warehouse segment in 2021 , and the results of the transportation operations within our transportation segment in 2021. our results of operations for the year ended december 31 , 2020 includes the four months for the activity of the am-c and caspers acquisitions , and the two months for the activity of the halls acquisition . our results of operations for the year ended december 31 , 2019 includes the one month and partial period of november for the activity of the mhw acquisition , eight months of activity for the cloverleaf acquisition and lanier acquisition , and eleven months of activity for the portfresh acquisition . refer to notes 2 and 3 to the consolidated financial statements in this annual report on form 10-k for further information . covid-19 we are continuing to closely monitor the impact of the covid-19 pandemic on all aspects of our business and geographies , including how it will impact our customers and business partners .
| we acquired 23 warehouse facilities as a result of the cloverleaf and lanier acquisitions on may 1 , 2019 , two facilities in connection with the mhw acquisition on november 19 , 2019 and one facility as a result of the portfresh acquisition on february 1 , 2019 , and therefore did not have ownership of these facilities during the entirety of the comparable prior period . in 2020 , we acquired 62 facilities in the warehouse segment in the agro , am-c , caspers , halls , newport and nova cold acquisitions . agro 's revenue is not reflected in the operating results of our warehouse segment as the acquisition closed on december 30 , 2020 with only one day of results for the year ended december 31 , 2020. we consider the results to be immaterial and have excluded it for the year ended december 31 , 2020. throughout 2020 , revenue growth has been driven by the impact of acquisitions . additionally , we experienced higher than seasonal grocery demand within the retail sector due to the covid-19 pandemic . however , this was mostly offset by decreased consumption in the food services sector due to stay-at-home orders and continued social distancing which resulted in lower services revenue due to the shift in demand . later in the second quarter of 2020 , the food service sector volumes began to increase as re-opening plans were implemented but still significantly lower than the prior comparable period . the increase was also partially due to higher economic occupancy in our same-store pool from higher commodity holdings and a slowdown in food service activity and exports , coupled with an increase in fixed committed contracts . the remaining increase was primarily due to a more favorable customer mix , improvements in our commercial terms and contractual rate escalations , the incremental revenue from our expansion of the rochelle , illinois facility and the opening of the development in savannah . the foreign currency translation of revenue received by our foreign operations had a $ 5.6 million unfavorable impact during the year
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overview and strategy we serve as a holding company for the bank , which is our primary asset and only operating subsidiary . we follow a business plan that emphasizes the delivery of customized banking services in our market area to customers who desire a high level of personalized service and responsiveness . the bank conducts a traditional banking business , making commercial loans , consumer loans and residential and commercial real estate loans . in addition , the bank offers various non-deposit products through non-proprietary relationships with third party vendors . the bank relies upon deposits as the primary funding source for its assets . the bank offers traditional deposit products . many of our customer relationships start with referrals from existing customers . we then seek to cross sell our products to customers to grow the customer relationship . for example , we will frequently offer an interest rate concession on credit products for customers that maintain a non-interest bearing deposit account at the bank . this strategy has lowered our funding costs and helped slow the growth of our interest expense even as we have substantially increased our total deposits . it has also helped fuel our significant loan growth . we believe that the bank 's significant growth and increasing profitability demonstrate the need for and success of our brand of banking . our results of operations depend primarily on our net interest income , which is the difference between the interest earned on our interest-earning assets and the interest paid on funds borrowed to support those assets , primarily deposits . net interest margin is the difference between the weighted average rate received on interest-earning assets and the weighted average rate paid to fund those interest-earning assets , which is also affected by the average level of interest-earning assets as compared with that of interest-bearing liabilities . net income is also affected by the amount of non-interest income and non-interest expenses . - 30 - story_separator_special_tag width= '' 100 % '' > interest income is presented on a tax equivalent basis using 35 % federal tax rate . ( 3 ) includes loan fee income . ( 4 ) loans receivable include nonaccrual loans . ( 5 ) represents difference between the average yield on interest earnings assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis . ( 6 ) represents net interest income on a fully taxable equivalent basis divided by average total interest-earning assets . - 32 - rate/volume analysis the following table presents , by category , the major factors that contributed to the changes in net interest income . changes due to both volume and rate have been allocated in proportion to the relationship of the dollar amount change in each . replace_table_token_9_th provision for loan and lease losses in determining the provision for loan and lease losses , management considers national and local economic trends and conditions ; trends in the portfolio including orientation to specific loan types or industries ; experience , ability and depth of lending management in relation to the complexity of the portfolio ; effects of changes in lending policies , trends in volume and terms of loans ; levels and trends in delinquencies , impaired loans and net charge-offs and the results of independent third party loan and lease review . for the year ended december 31 , 2015 , the provision for loan and lease losses was $ 12.6 million , an increase of $ 7.9 million , compared to the provision for loan and lease losses of $ 4.7 million for the same period in 2014. the increase resulted from an increase in organic loan growth during 2015 , higher levels of specific reserves including $ 4.5 million related to the taxi medallion portfolio and $ 1.3 million related to the union center 's former operations center that was repositioned as a lease financing receivable and the maturity and extension of acquired portfolio loans . for the year ended december 31 , 2014 , the provision for loan and lease losses was $ 4.7 million , an increase of $ 4.3 million , compared to the provision for loan and lease losses of $ 0.4 million for the same period in 2013. this increase resulted from organic loan growth during 2014 , the maturity and extension of acquired portfolio loans during the second half of 2014 and an increase in net loan charge-offs . noninterest income noninterest income for the full-year 2015 increased by $ 3.7 million , or 49.0 % to $ 11.2 million from $ 7.5 million in 2014. the increase was primarily the result of a 2015 insurance recovery of $ 2.2 million and higher net investment securities gains , increasing by $ 1.1 million to $ 3.9 million for the year ended december 31 , 2015 from $ 2.8 million for the year ended december 31 , 2014 , partially offset by a slight decline in deposit , loan and other income of $ 0.1 million to $ 2.7 million and a decline in annuities and insurance commissions of $ 0.2 million to $ 0.2 million for the year ended december 31 , 2015. noninterest income for the full-year 2014 increased by $ 0.6 million , or 9.4 % to $ 7.5 million from $ 6.9 million in 2013. the increase was primarily the result of higher net investment securities gains , increasing by $ 1.1 million to $ 2.8 million for the year ended december 31 , 2014 from $ 1.7 million for the year ended december 31 , 2013 , partially offset by a slight decline in deposit , loan and other income of $ 0.2 million to $ 2.8 million and a decline in annuities and insurance commissions of $ 0.1 million to $ 0.4 million for the year ended december 31 , 2014 . - 33 - the decline in fee income was the result of the company de-emphasizing service charges , focusing instead on customer growth and retention . story_separator_special_tag this strategy was particularly important during the merger conversion process as the implementation of certain fees and other charges were intentionally delayed or waived . noninterest expense noninterest expenses for the full-year 2015 decreased by $ 0.3 million , or 0.6 % to $ 54.5 million from $ 54.8 million in 2014. the decrease was a result of merger-related charges of $ 12.4 million in 2014 , offset by increases attributable to the merger ( 2015 reflected a full-year of combined company expenses whereas 2014 reflected only the second half ) as well as an increased level of business and staff resulting from organic growth . salary and employee benefits increased by $ 8.9 million , occupancy and equipment expenses increased by $ 2.3 million and professional and consulting fees increased by $ 1.3 million . noninterest expenses for the full-year 2014 increased by $ 29.5 million , or 116.8 % to $ 54.8 million from $ 25.3 million in 2013. the increase was primarily due to the impact of the merger , including merger-related charges of $ 12.4 million . in addition , at the end of the third quarter of 2014 , the company repurchased $ 70.0 million of putable federal home loan bank advances which resulted in a loss on debt extinguishment of $ 4.6 million . income taxes income tax expense was $ 19.9 million for the full-year 2015 compared to $ 8.8 million for the full-year 2014 and $ 7.5 million for the full-year 2013. the effective tax rates were 32.5 % for 2015 and 32.3 % for 2014 and 27.3 % for 2013. the effective tax rate in 2015 from 2014 remained relatively flat , while the effective tax rate increased in 2014 from 2013 due to nondeductible merger-related expenses incurred in 2014 as well as an increase in income subject to state taxes . for a more detailed description of income taxes see note 12 of the notes to consolidated financial statements . financial condition overview at december 31 , 2015 , the company 's total assets were $ 4.0 billion , an increase of $ 568 million from december 31 , 2014. loans receivable were $ 3.1 billion , an increase of $ 560 million from december 31 , 2014. deposits were $ 2.5 billion , an increase of $ 315 million from december 31 , 2014. at december 31 , 2014 , the statement of financial condition reflected the merger . the company 's total assets were $ 3.4 billion , an increase of $ 1.8 billion from december 31 , 2013. loans receivable were $ 2.5 billion , an increase of $ 1.6 billion from december 31 , 2013. deposits were $ 2.5 billion , an increase of $ 1.1 billion from december 31 , 2013. loan portfolio the bank 's lending activities are generally oriented to small-to-medium sized businesses , high net worth individuals , professional practices and consumer and retail customers living and working in the bank 's market area of bergen , union , morris , essex , hudson , mercer and monmouth counties , new jersey . the bank has not made loans to borrowers outside of the united states . the bank believes that its strategy of high-quality customer service , competitive rate structures and selective marketing have enabled it to gain market share . commercial loans are loans made for business purposes and are primarily secured by collateral such as cash balances with the bank , marketable securities held by or under the control of the bank , business assets including accounts receivable , taxi medallions , inventory and equipment and liens on commercial and residential real estate . commercial construction loans are loans to finance the construction of commercial or residential properties secured by first liens on such properties . commercial real estate loans include loans secured by first liens on completed commercial properties , including multi-family properties , to purchase or refinance such properties . residential mortgages include loans secured by first liens on residential real estate , and are generally made to existing customers of the bank to purchase or refinance primary and secondary residences . home equity loans and lines of credit include loans secured by first or second liens on residential real estate for primary or secondary residences . consumer loans are made to individuals who qualify for auto loans , cash reserve , credit cards and installment loans . during 2015 and 2014 , loan portfolio growth was positively impacted in several ways including ( i ) an increase in demand for small business lines of credit , and business term loans as economic conditions have stabilized and begun to improve , ( ii ) industry consolidation and lending restrictions involving larger competitors allowing the bank to gain market share , ( iii ) an increase in refinancing strategies employed by borrowers during the current low rate environment , and ( iv ) the bank 's success in attracting highly experienced commercial loan officers with substantial local market knowledge . - 34 - gross loans at december 31 , 2015 totaled $ 3.1 billion , an increase of $ 562 million , or 22.1 % , over gross loans at december 31 , 2014 of $ 2.5 billion . the increase in gross loans was attributed to organic loan growth . the largest component of our loan portfolio at december 31 , 2015 and december 31 , 2014 was commercial real estate loans . our commercial real estate loans at december 31 , 2015 totaled $ 2.0 billion , an increase of $ 332 million , or 20.3 % , over commercial real estate loans at december 31 , 2014 of $ 1.6 billion . our commercial loans totaled $ 570.1 million at december 31 , 2015 , an increase of $ 70.3 million , or 14.1 % , over commercial loans at december 31 , 2014 of $ 499.8 million .
| in net gains on sale of investment securities ( $ 1.1 million ) , ● noninterest expense remained relatively flat due to an increase in salaries and employee benefits ( $ 8.9 million ) , occupancy and equipment ( $ 2.3 million ) , and professional and consulting ( $ 1.3 million ) , offset by impact of the merger ( including direct merger charges of $ 12.4 million in 2014 ) , and ● increased income tax expense of $ 11.1 million resulting from higher pretax income in 2015 offset by nondeductible merger-related expenses incurred in 2014. net income for the year ended december 31 , 2014 was $ 18.6 million , a decrease of $ 1.4 million , or 6.8 % , compared to net income of $ 19.9 million for 2013. net income available to common shareholders for the year ended december 31 , 2014 was $ 18.5 million , a decrease of $ 1.3 million , or 6.7 % , compared to net income available to common shareholders of $ 19.8 million for 2013. diluted earnings per share were $ 0.79 for 2014 , a 34.7 % decrease from $ 1.21 for 2013. the decrease in net income from 2013 to 2014 was attributable to the following : ● increased net interest income of $ 33.2 million primarily due to the impact of the merger and including net favorable purchase accounting adjustments of $ 5.3 million , ● a higher loan loss provision of $ 4.3 million largely due to an increase in organic loan growth during 2014 , the maturity and extension of acquired portfolio loans during the second half of 2014 and an increase in net loan charge-offs , ● a $ 29.5 million increase in non-interest expense principally due to the impact of the merger ( including direct merger charges of $ 12.4 million ) , a $ 4.6 million loss on the extinguishment of debt and a $ 2.4 million charge on a fraudulent wire
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we expense our clinical r & d costs as they are incurred . internal r & d expenses primarily consist of payroll-related costs , but also include equipment costs , travel expenses and supplies . while we expect clinical r & d expenses to decline in 2019 as compared to 2018 , some areas of r & d are expected to increase , such as medical affairs , pharmacovigilance and regulatory affairs as we prepare to apply for global regulatory approval of nerlynx both in the current and future indications . story_separator_special_tag style= '' width:3.33 % ; white-space : nowrap '' valign= '' top '' > an approximately $ 16.8 million increase in payroll and related expenses related to the hiring and training of a commercial sales force and field based support personnel upon obtaining fda approval of nerlynx ; an approximately $ 4.6 million increase in stock-based compensation expense primarily attributable to the increase in headcount upon hiring a commercial sales force and support staff ; an approximately $ 3.0 million increase in travel and meeting expenses primarily attributable to the hiring of a commercial sales forces and the commercial launch of nerlynx ; an approximately $ 1.3 million increase in other expenses such as software , supplies , education and training and telecommunications ; and an approximately $ 0.5 million increase in facilities and equipment costs to support the overall corporate growth . research and development expenses : replace_table_token_6_th year ended december 31 , 2018 compared to year ended december 31 , 2017 total r & d expenses decreased approximately 20.7 % to $ 164.9 million for the year ended december 31 , 2018 from $ 207.8 million for the year ended december 31 , 2017. the decrease is attributable to the following : an approximately $ 25.5 million decrease in stock-based compensation expense ; an approximately $ 16.8 million decrease in clinical trial expenses , primarily from a reduction in costs associated with the extenet trial which has been winding down since 2016 ; and an approximately $ 2.6 million decrease in consultant and contractor expense primarily from the 2017 support for the implementation of a data hub ; partially offset by an approximately $ 2.0 million increase in internal r & d expense , primarily from increased payroll in areas such as medical affairs , quality assurance , regulatory affairs and pharmacovigilance . 63 year ended decemb er 31 , 2017 compared to year ended december 31 , 2016 total r & d expenses decreased approximately 6.7 % to $ 207.8 million for the year ended december 31 , 2017 from $ 222.8 million for the year ended december 31 , 2016. the decrease was primarily attributable to an approximately $ 13.1 million decrease in stock-based compensation expense , an approximately $ 7.4 million decrease in clinical trial expense primarily attributable to an approximately $ 10.0 million decrease in manufacturing costs related to launch preparation partially offset by an increase of approximately $ 2.6 million in clinical trial expenses ; partially offset by an approximately $ 3.3 million increase in internal r & d expenses primarily attributable to adding 19 new employees in clinical development and medical affairs ; and an approximately $ 2.2 million increase in consultant and contractor expenses primarily attributable to support of our clinical trials during 2017. other income and expenses : replace_table_token_7_th year ended december 31 , 2018 compared to year ended december 31 , 2017 interest income : for the year ended december 31 , 2018 , we recognized approximately $ 1.8 million in interest income compared to approximately $ 1.3 million of interest income for the year ended december 31 , 2017. the increase in interest income reflects more cash invested in money market accounts and “ high yield ” savings accounts for 2018 compared to 2017 ( see note 2 in the accompanying notes to consolidated financial statements ) . interest expense : for the year ended december 31 , 2018 , we recognized approximately $ 11.0 million in interest expense compared to $ 0.7 million of interest expense for the year ended december 31 , 2017. this increase in interest expense is primarily a result of a full year 's interest expense , compared to three months of interest expense in 2017 , for amounts borrowed under a loan and security agreement initially entered in october 2017. the increase in interest expense is also attributable to increased borrowings as well as a higher interest rate year over year . class action verdict expense : for the year ended december 31 , 2018 , we recorded an accrued expense of $ 9.0 million that represents an initial estimate of potential amounts that may be owed to class action participants as a result of the recent jury verdict in hsu v. puma biotechnology , inc. , et al . the total amount of aggregate class-wide damages is uncertain and will be ascertained only after an extensive claims process and the exhaustion of any appeals . it is also possible that the total damages will be higher than this estimate . year ended december 31 , 2017 compared to year ended december 31 , 2016 interest income : for the year ended december 31 , 2017 , we recognized approximately $ 1.3 million in interest income compared to approximately $ 1.0 million of interest income for the year ended december 31 , 2016. the increase in interest income reflects more cash invested in money market accounts and “ high yield ” savings accounts for 2017 compared to 2016 ( see note 2 in the accompanying notes to consolidated financial statements ) . story_separator_special_tag 64 interest expense : for the year ended december 31 , 2017 , we recognized approximately $ 0.7 million in interest expense compared to $ 0 of interest expense for the year ended december 31 , 2016. this increase in interest expense is as a result of amounts borrowed under a loan and security agreement in october 2017. non-gaap financial measures : in addition to our operating results , as calculated in accordance with generally accepted accounting principles , or gaap , we use certain non-gaap financial measures when planning , monitoring , and evaluating our operational performance . the following table presents our net loss and net loss per share , as calculated in accordance with gaap , as adjusted to remove the impact of stock-based compensation . for the twelve months ended december 31 , 2018 , stock-based compensation represented approximately 76.5 % of our net loss , respectively . our management believes that these non-gaap financial measures are useful to enhance understanding of our financial performance , are more indicative of our operational performance and facilitate a better comparison among fiscal periods . these non-gaap financial measures are not , and should not be viewed as , substitutes for gaap reporting measures . reconciliation of gaap net loss to non-gaap adjusted net loss and gaap net loss per share to non-gaap adjusted net loss per share ( in thousands except share and per share data ) for the year ended december 31 , 2018 2017 2016 gaap net loss $ ( 113,575 ) $ ( 291,955 ) $ ( 276,011 ) adjustments : stock-based compensation - selling , general and administrative 34,914 31,194 26,623 ( 1 ) research and development 52,025 77,541 90,641 ( 2 ) non-gaap adjusted net loss $ ( 26,636 ) $ ( 183,220 ) $ ( 158,747 ) gaap net loss per share—basic and diluted $ ( 2.99 ) $ ( 7.85 ) $ ( 8.29 ) adjustment to net loss ( as detailed above ) 2.29 2.92 3.52 non-gaap adjusted basic net loss per share $ ( 0.70 ) $ ( 4.93 ) $ ( 4.77 ) ( 3 ) ( 1 ) to reflect a non-cash charge to operating expense for selling , general and administrative stock-based compensation . ( 2 ) to reflect a non-cash charge to operating expense for research and development stock-based compensation . ( 3 ) non-gaap adjusted basic net loss per share was calculated based on 37,942,411 , 37,169,678 , and 33,295,114 weighted-average shares of common stock outstanding for the years ended december 31 , 2018 , 2017 and 2016 , respectively . liquidity and capital resources operating activities we recorded net losses of approximately $ 113.6 million , $ 292.0 million and $ 276.0 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . we also reported negative cash flows from operating activities of approximately $ 24.1 million , $ 172.5 million and $ 141.7 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . net cash used in operating activities for the year ended december 31 , 2018 , included a net loss of $ 113.6 million adjusted for non-cash items of approximately $ 86.9 million for stock-based compensation expense and of approximately $ 7.4 million for depreciation of property and equipment and license amortization . further changes in cash flows from operations included decreases in accounts receivable of $ 11.1 million , a decrease in accounts payable of $ 7.0 million , a decrease in other current assets of $ 1.8 million , a decrease in prepaid expenses and other of $ 0.8 million , and a decrease in inventory of $ 0.6 million . these decreases were offset by an increase in accrued expenses of approximately $ 15.8 million and deferred rent of $ 0.4 million . 65 net cash used in operating activities for the year ended december 31 , 2017 , included a net loss of $ 292.0 million adjusted for non-cash items of approximately $ 108.7 million for stock-based compensation expense and of approximately $ 2.8 million for depreci ation of property and equipment and license amortization . further changes in cash flows from operations included an increase in accounts payable and accrued expenses of approximately $ 21.6 million , an increase in accounts receivable of approximately $ 9.7 million , an increase in inventory of approximately $ 2.0 million , an increase in prepaid expenses and other of approximately $ 1.1 million and a decrease in the accrued liability for deferred rent of approximately $ 0.1 million . net cash used in operating activities for the year ended december 31 , 2016 , included a net loss of $ 276.0 million adjusted for non-cash items of approximately $ 117.3 million for stock-based compensation expense , of approximately $ 3.0 million for build-out allowance , of approximately $ 1.1 million for depreciation and amortization of property and equipment , and of approximately $ 0.4 million for disposal of leasehold improvements . further changes in cash flows from operations included an increase in accounts payable and accrued expenses of approximately $ 5.0 million , a decrease in prepaid expenses and other of approximately $ 3.4 million and an increase in an accrued liability for deferred rent of approximately $ 4.1 million . investing activities net cash used in investing activities was approximately $ 57.6 million for the year ended december 31 , 2018. this included the purchase of available-for-sale securities of approximately $ 107.5 million , offset by the maturity of available-for-sale securities of approximately $ 50.5 million and cash used for the purchase of property and equipment of approximately $ 0.6 million in connection with the expansion of our salesforce and the commercial launch of nerlynx . net cash used in investing activities was approximately $ 15.4 million for the year ended december 31 , 2017. this included an increase in intangible assets of approximately $ 50.0 million and the purchase of available-for-sale securities of approximately $ 79.7 million , offset by the maturity of available-for-sale securities of approximately $ 114.7
| 61 year ended december 31 , 2017 compared to year ended december 31 , 2016 total revenue total revenue was approximately $ 27.7 million for the year ended december 31 , 2017 compared to $ 0 for the year ended december 31 , 2016. product revenue , net product revenue , net was approximately $ 26.2 million for the year ended december 31 , 2017 , compared to $ 0 for the year ended december 31 , 2016. this increase in product revenue , net was entirely attributable to sales of nerlynx , our initial product , following its commercial launch in july 2017. license revenue license revenue was approximately $ 1.5 million for the year ended december 31 , 2017 , compared to $ 0 for the year ended december 31 , 2016. this increase in license revenue was entirely attributable to an upfront payment in an out-license agreement . cost of sales cost of sales was approximately $ 5.6 million for the year ended december 31 , 2017 , compared to $ 0 for the year ended december 31 , 2016. the increase in cost of sales was entirely attributable to the commercial launch of nerlynx , our initial product , in july 2017. selling , general and administrative expenses : replace_table_token_5_th year ended december 31 , 2018 compared to year ended december 31 , 2017 total sg & a expenses increased approximately 37.0 % to $ 146.2 million for the year ended december 31 , 2018 from $ 106.7 million for the year ended december 31 , 2017. the increase is primarily attributable to the following : an approximately $ 18.9 million increase in payroll and related costs as the average headcount increased from 247 in 2017 to 301 in 2018 , primarily from the addition of a sales force and support positions in mid-2017 related to the commercial launch of nerlynx ; an approximately $ 8.2 million increase in travel and meeting expenses , primarily to support sales activities ; an approximately $ 6.0 million increase in professional fees and expenses , primarily from increased marketing , market access and analytics activities ; an approximately $ 3.7 million increase in stock-based compensation ; an approximately $ 1.9 million increase in other costs such as software , primarily related to commercial activities which began in 2017 , and an approximately $ 0.8 million increase in facilities and equipment costs , primarily from additional
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refer to note 3 to our consolidated financial statements for more information on this acquisition . in february 2020 , sirius xm completed a $ 75 investment in soundcloud . soundcloud is the world 's largest open audio platform , with a connected community of creators , listeners , and curators . soundcloud 's platform enables its users to upload , promote , share and create audio entertainment . the minority investment complements the existing ad sales relationship between soundcloud and pandora . liberty media as of december 31 , 2020 , liberty media beneficially owned , directly and indirectly , approximately 76 % of the outstanding shares of our common stock . as a result , we are a “ controlled company ” for the purposes of the nasdaq corporate governance requirements . 35 results of operations actual results set forth below are our results of operations for the year ended december 31 , 2020 compared with the year ended december 31 , 2019 and for the year ended december 31 , 2019 compared with the year ended december 31 , 2018. the discussion of our results of operations for the year ended december 31 , 2020 includes the financial results of pandora for the entire period , while the results of operations for the year ended december 31 , 2019 includes the financial results of pandora from the date of the pandora acquisition , february 1 , 2019. the inclusion of pandora 's results in the year ended december 31 , 2020 for the entire period may render direct comparisons with results for prior year period less meaningful . the results of operations are presented for each of our reporting segments for revenue and cost of services and on a consolidated basis for all other items . replace_table_token_3_th nm - not meaningful 36 sirius xm revenue refer to page 42 for our discussion on sirius xm revenue . pandora revenue the year ended december 31 , 2020 includes pandora 's revenue for the entire period while the year ended december 31 , 2019 includes pandora 's revenue from the acquisition date , february 1 , 2019. refer to page 43 for our discussion on pandora revenue . sirius xm cost of services refer to page 43 for our discussion on sirius xm cost of services . pandora cost of services the year ended december 31 , 2020 includes pandora 's cost of services for the entire period while the year ended december 31 , 2019 includes pandora 's cost of services from the acquisition date , february 1 , 2019. refer to page 45 for our discussion on pandora cost of services . operating costs subscriber acquisition costs are costs associated with our satellite radio service and include hardware subsidies paid to radio manufacturers , distributors and automakers ; subsidies paid for chipsets and certain other components used in manufacturing radios ; device royalties for certain radios and chipsets ; product warranty obligations ; and freight . the majority of subscriber acquisition costs are incurred and expensed in advance of acquiring a subscriber . subscriber acquisition costs do not include advertising costs , marketing , loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios . 2020 vs. 2019 : for the years ended december 31 , 2020 and 2019 , subscriber acquisition costs were $ 362 and $ 427 , respectively , a decrease of 15 % , or $ 65 , and decreased as a percentage of total revenue . the decrease was driven by a decline in oem installations as a result of the covid-19 pandemic as well as lower hardware subsidies as certain subsidy rates decreased . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , subscriber acquisition costs were $ 427 and $ 470 , respectively , a decrease of 9 % , or $ 43 , and decreased as a percentage of total revenue . the decrease was driven by reductions to oem hardware subsidy rates , lower subsidized costs related to the transition of chipsets , and a decrease in the volume of satellite radio installations . we expect subscriber acquisition costs to fluctuate with oem installations ; however , the subsidized chipsets cost is expected to decline as we transition to a new generation of chipsets . we intend to continue to offer subsidies and other incentives to induce oems to include our technology in their vehicles . sales and marketing includes costs for marketing , advertising , media and production , including promotional events and sponsorships ; cooperative and artist marketing ; and personnel related costs including salaries , commissions , and sales support . marketing costs include expenses related to direct mail , outbound telemarketing , email communications , social media , television and digital performance media . 2020 vs. 2019 : for the years ended december 31 , 2020 and 2019 , sales and marketing expenses were $ 957 and $ 937 , respectively , an increase of 2 % , or $ 20 , and decreased as a percentage of total revenue . the increase was primarily due to the inclusion of pandora for a full twelve months in 2020 , and additional subscriber communications and acquisition campaigns ; partially offset by lower travel , entertainment and personnel-related costs . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , sales and marketing expenses were $ 937 and $ 484 , respectively , an increase of 94 % , or $ 453 , and increased as a percentage of total revenue . the increase was primarily due to the inclusion of pandora , and additional subscriber communications and acquisition campaigns . 37 we anticipate that sales and marketing expenses will increase with growth in our trial subscriber base , as we expand programs to retain our existing subscribers , win back former subscribers , attract new subscribers and listeners , and as we grow advertising revenue . story_separator_special_tag engineering , design and development consists primarily of compensation and related costs to develop chipsets and new products and services , including streaming and connected vehicle services , research and development for broadcast information systems and the design and development costs to incorporate sirius xm radios into new vehicles manufactured by automakers . 2020 vs. 2019 : for the years ended december 31 , 2020 and 2019 , engineering , design and development expenses were $ 263 and $ 280 , respectively , a decrease of 6 % , or $ 17 , and decreased as a percentage of total revenue . the decrease was driven primarily by lower personnel-related costs , partially offset by the inclusion of pandora for a full twelve months in 2020 . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , engineering , design and development expenses were $ 280 and $ 123 , respectively , an increase of 128 % , or $ 157 , and increased as a percentage of total revenue . the increase was driven primarily by the inclusion of pandora . we expect engineering , design and development expenses to increase in future periods as we continue to develop our infrastructure , products and services . general and administrative primarily consists of compensation and related costs for personnel and facilities , and include costs related to our finance , legal , human resources and information technologies departments . 2020 vs. 2019 : for the years ended december 31 , 2020 and 2019 , general and administrative expenses were $ 511 and $ 524 , respectively , a decrease of 2 % , or $ 13 , and decreased as a percentage of total revenue . the decrease was driven by a one-time $ 25 legal settlement associated with do-not-call litigation recorded in the first quarter of 2019 , lower personnel-related costs , the closure of a sales and use tax audit in the second quarter of 2020 , and lower travel and entertainment costs , partially offset by the inclusion of pandora for a full twelve months in 2020 , a $ 25 million contribution to a donor advised fund that will be the source of our future charitable donations , and higher legal costs . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , general and administrative expenses were $ 524 and $ 354 , respectively , an increase of 48 % , or $ 170 , and increased as a percentage of total revenue . the increase was driven by the inclusion of pandora and by a $ 25 legal settlement associated with do-not-call litigation . we expect our general and administrative expenses to remain relatively flat . depreciation and amortization represents the recognition in earnings of the cost of assets used in operations , including our satellite constellations , property , equipment and intangible assets , over their estimated service lives . 2020 vs. 2019 : for the years ended december 31 , 2020 and 2019 , depreciation and amortization expense was $ 506 and $ 468 , respectively , an increase of 8 % , or $ 38 , and increased as a percentage of total revenue . the increase was driven by additional assets placed in-service and the inclusion of pandora for a full twelve months in 2020 . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , depreciation and amortization expense was $ 468 and $ 301 , respectively , an increase of 55 % , or $ 167 , and increased as a percentage of total revenue . the increase was driven by the amortization of definite life intangibles resulting from the pandora acquisition and higher depreciation costs related to additional assets placed in-service . acquisition and restructuring costs represents expenses associated with the acquisitions of pandora , simplecast and stitcher and restructuring costs . 2020 vs. 2019 : for the years ended december 31 , 2020 and 2019 , acquisition and restructuring costs were $ 28 and $ 84 , respectively . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , acquisition and other related costs were $ 84 and $ 3 , respectively . 38 impairment charges represents the amount by which the carrying amount of an asset exceeds the asset 's fair value . 2020 vs. 2019 : for the year ended december 31 , 2020 , impairment charge was $ 976. we recorded a goodwill impairment charge of $ 956 during the year ended december 31 , 2020 to reflect the carrying amount of the pandora goodwill and an impairment charge of $ 20 to write down the carrying value of our pandora trademark . we did not record an impairment charge in 2019 or 2018. other income ( expense ) interest expense includes interest on outstanding debt . 2020 vs. 2019 : for the years ended december 31 , 2020 and 2019 , interest expense was $ 394 and $ 390 , respectively , an increase of 1 % , or $ 4. the increase was primarily driven by higher average debt due to the issuances of sirius xm 's 5.500 % senior notes due 2029 , 4.625 % senior notes due 2024 in 2019 , and 4.125 % senior notes due 2030 in 2020 ; partially offset by the redemption of sirius xm 's 6.00 % senior notes due 2024 , redemption of the pandora convertible notes in 2019 , a lower average outstanding balance under the credit facility , and lower interest rates .
| 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , subscriber revenue was $ 5,644 and $ 5,264 , respectively , an increase of 7 % , or $ 380. the increase was primarily driven by higher u.s. music royalty fees due to a higher music royalty rate , higher self-pay subscription revenue as a result of a 3 % increase in the daily weighted average number of subscribers and higher revenue from our connected vehicle services . we expect subscriber revenues to increase based on the growth of our subscriber base , increases in the average price charged and the sale of additional services to subscribers . sirius xm advertising revenue includes the sale of advertising on sirius xm 's non-music channels . 2020 vs. 2019 : for the years ended december 31 , 2020 and 2019 , advertising revenue was $ 157 and $ 205 , respectively , a decrease of 23 % , or $ 48. the decrease was primarily due to lower advertising as a result of the impact of the covid-19 pandemic . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , advertising revenue was $ 205 and $ 188 , respectively , an increase of 9 % , or $ 17. the increase was primarily due to a greater number of advertising spots sold and transmitted as well as increases in rates charged per spot . we expect our sirius xm advertising revenue to grow as we continue our recovery to pre-covid-19 levels . sirius xm equipment revenue includes revenue and royalties from the sale of satellite radios , components and accessories . 2020 vs. 2019 : for the years ended december 31 , 2020 and 2019 , equipment revenue was $ 173 and $ 173 , respectively . increased oem royalty revenue was offset by lower direct sales to consumers and loss of revenue resulting from the termination of the automatic service . 2019 vs. 2018 : for the years ended december 31 , 2019 and 2018 , equipment revenue was $ 173 and $ 155 , respectively , an increase of 12 % , or $ 18. the increase was driven by an increase in royalty revenue due to our transition to a
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20 key elements of the company 's growth strategies and operating policies are to : § acquire neighborhood and community shopping centers in the northeastern part of the united states with a concentration in fairfield county , connecticut , westchester and putnam counties , new york and bergen county , new jersey § hold core properties for long-term investment and enhance their value through regular maintenance , periodic renovation and capital improvement § selectively dispose of non-core and underperforming properties and re-deploy the proceeds into properties located in the northeast region § increase property values by aggressively marketing available gla and renewing existing leases § renovate , reconfigure or expand existing properties to meet the needs of existing or new tenants § negotiate and sign leases which provide for regular or fixed contractual increases to minimum rents § control property operating and administrative costs critical accounting policies critical accounting policies are those that are both important to the presentation of the company 's financial condition and results of operations and require management 's most difficult , complex or subjective judgments . set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements . this summary should be read in conjunction with the more complete discussion of the company 's accounting policies included in note 1 to the consolidated financial statements of the company . revenue recognition revenues from operating leases include revenues from core properties and non-core properties . rental income is generally recognized based on the terms of leases entered into with tenants . in those instances in which the company funds tenant improvements and the improvements are deemed to be owned by the company , revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant . when the company determines that the tenant allowances are lease incentives , the company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin . minimum rental income from leases with scheduled rent increases is recognized on a straight-line basis over the lease term . percentage rent is recognized when a specific tenant 's sales breakpoint is achieved . property operating expense recoveries from tenants of common area maintenance , real estate taxes and other recoverable costs are recognized in the period the related expenses are incurred . lease incentives are amortized as a reduction of rental revenue over the respective tenant lease terms . lease termination amounts are recognized in operating revenues when there is a signed termination agreement , all of the conditions of the agreement have been met , the tenant is no longer occupying the property and the termination consideration is probable of collection . lease termination amounts are paid by tenants who want to terminate their lease obligations before the end of the contractual term of the lease by agreement with the company . there is no way of predicting or forecasting the timing or amounts of future lease termination fees . interest income is recognized as it is earned . gains or losses on disposition of properties are recorded when the criteria for recognizing such gains or losses under accounting principles generally accepted in the united states of america ( `` gaap '' ) have been met . allowance for doubtful accounts the allowance for doubtful accounts is established based on a quarterly analysis of the risk of loss on specific accounts . the analysis places particular emphasis on past-due accounts and considers information such as the nature and age of the receivables , the payment history of the tenants or other debtors , the financial condition of the tenants and any guarantors and management 's assessment of their ability to meet their lease obligations , the basis for any disputes and the status of related negotiations , among other things . management 's estimates of the required allowance are subject to revision as these factors change and are sensitive to the effects of economic and market conditions on tenants , particularly those at retail properties . estimates are used to establish reimbursements from tenants for common area maintenance , real estate tax and insurance costs . the company analyzes the balance of its estimated accounts receivable for real estate taxes , common area maintenance and insurance for each of its properties by comparing actual recoveries versus actual expenses and any actual write-offs . based on its analysis , the company may record an additional amount in its allowance for doubtful accounts related to these items . it is also the company 's policy to maintain an allowance of approximately 10 % of the deferred straight-line rents receivable balance for future tenant credit losses . real estate land , buildings , property improvements , furniture/fixtures and tenant improvements are recorded at cost . expenditures for maintenance and repairs are charged to operations as incurred . renovations and or replacements , which improve or extend the life of the asset , are capitalized and depreciated over their estimated useful lives . the amounts to be capitalized as a result of an acquisition and the periods over which the assets are depreciated or amortized are determined based on estimates as to fair value and the allocation of various costs to the individual assets . the company allocates the cost of an acquisition based upon the estimated fair value of the net assets acquired . the company also estimates the fair value of intangibles related to its acquisitions . the valuation of the fair value of intangibles involves estimates related to market conditions , probability of lease renewals and the current market value of in-place leases . this market value is determined by considering factors such as the tenant 's industry , location within the property and competition in the specific region in which the property operates . differences in the amount attributed to the intangible assets can be significant based upon the assumptions made in calculating these estimates . story_separator_special_tag 21 the company is required to make subjective assessments as to the useful life of its properties for purposes of determining the amount of depreciation . these assessments have a direct impact on the company 's net income . properties are depreciated using the straight-line method over the estimated useful lives of the assets . the estimated useful lives are as follows : buildings 30-40 years property improvements 10-20 years furniture/fixtures 3-10 years tenant improvements shorter of lease term or their useful life asset impairment on a periodic basis , management assesses whether there are any indicators that the value of the real estate properties may be impaired . a property value is considered impaired when management 's estimate of current and projected operating cash flows ( undiscounted and without interest ) of the property over its remaining useful life is less than the net carrying value of the property . such cash flow projections consider factors such as expected future operating income , trends and prospects , as well as the effects of demand , competition and other factors . to the extent impairment has occurred , the loss is measured as the excess of the net carrying amount of the property over the fair value of the asset . changes in estimated future cash flows due to changes in the company 's plans or market and economic conditions could result in recognition of impairment losses which could be substantial . management does not believe that the value of any of its rental properties is impaired at october 31 , 2012. liquidity and capital resources in october 2012 , the company completed two equity offerings and raised approximately $ 173 million in capital . through october 31 , 2012 and in the subsequent period to the date of this report the company has used approximately $ 16.3 million to repay outstanding variable rate and fixed rate mortgage debt that matured and used approximately $ 81 million in connection with the repurchase of a portion of the company 's series c senior cumulative preferred stock and the redemption of all of its outstanding series e senior cumulative preferred stock . in addition , the company is planning on redeeming the remaining series c cumulative preferred stock when it is able to in may of 2013. subsequent to year end the company used approximately $ 24.7 million and is committed to use an additional $ 34 million in proceeds from the aforementioned stock offerings to purchase income producing commercial real estate . see note 16 , included in the company 's financial statements in item 8 for more information . at october 31 , 2012 , the company had unrestricted cash and cash equivalents of $ 78.1 million compared to $ 4.5 million at october 31 , 2011. the company 's sources of liquidity and capital resources include its cash and cash equivalents , proceeds from bank borrowings and long-term mortgage debt , capital financings and sales of real estate investments . payments of expenses related to real estate operations , debt service , management and professional fees , and dividend requirements place demands on the company 's short-term liquidity . the company maintains a very conservative capital structure with low leverage levels by commercial real estate standards . as a result of this low leverage level , the company has been able to avoid the balance sheet recapitalizations that many other commercial real estate companies have had to undertake during the recent down-turn in the economy . the company maintains a ratio of total debt to total assets below 30 % and a very strong fixed charge coverage ratio of over 2.2 to 1 , which we believe will allow the company to obtain additional secured mortgage borrowings if necessary . the company has $ 3.2 million of fixed rate debt coming due in fiscal 2013 , which it plans to repay with available cash or borrowings on its lines of credit . at october 31 , 2012 , the company had loan availability of $ 68.4 million on its unsecured revolving line of credit . in addition , $ 11.6 million in borrowings on the company 's unsecured revolving credit facility were loaned to the company 's midway unconsolidated joint venture investment . this loan was repaid in january 2013 when midway completed the refinancing of its first mortgage . the company then re-paid the aforementioned $ 11.6 million borrowing on its unsecured line of credit , leaving a full un-drawn balance of $ 80 million available to the company as of the date of this report . the company is currently experiencing a reduction of rental revenues at some of the company 's properties because of tenant vacancies . until these vacancies are re-leased and new tenants begin to pay rent , the company 's cash flow will continue to be negatively affected . currently the company is paying approximately 90 % of its funds from operations ( excluding preferred stock redemption charges ) out to shareholders in the form of common stock dividends . although the company does not anticipate having to reduce its dividend on common stock , and has no plans to do so , a further significant decline in rental revenue , without a corresponding reduction in expenses , could lead the company to conclude that it should reduce its common stock dividend until the dividend payout ratio returns to more conservative levels . cash flows the company expects to meet its short-term liquidity requirements primarily by generating net cash from the operations of its properties . the company believes that its net cash provided by operations will be sufficient to fund its short-term liquidity requirements for fiscal 2013 and to meet its dividend requirements necessary to maintain its reit status . in fiscal 2012 , 2011 and 2010 , net cash flow provided by operations amounted to $ 52.5 million , $ 46.5 million and $ 45.2 million , respectively .
| at october 31 , 2012 , the company 's core properties were 89 % leased , a decrease of 1.2 % from the end of fiscal 2011. for the year ended october 31 , 2012 recoveries from tenants for properties owned in both periods ( which represent reimbursements from tenants for operating expenses and property taxes ) decreased by a net $ 1,727,000. this net decrease was a result of lower operating expenses at properties held in both periods and some credits negotiated with tenants at some properties in settlements of prior period billing disputes . expenses : property operating expenses for properties held in both periods decreased by $ 1,139,000 in fiscal 2012 when compared with the same period of fiscal 2011 caused by a reduction of snow removal costs of $ 1,527,000. this decrease was offset by an increase in parking lot , building roof and building repair costs . real estate taxes for properties held in both periods were relatively unchanged in fiscal 2012 when compared with the prior year . interest expense for properties held in both fiscal 2012 and 2011 increased by $ 992,000 when compared with the prior year ; this increase was a result of the company placing a $ 28 million mortgage on a formerly unencumbered property in february 2012 and assumption of two mortgages relating to property acquisitions in fiscal 2012. depreciation and amortization expense from properties held in both periods increased by $ 568,000. the increase was predominantly the result of depreciation relating to property acquisitions in the later part of fiscal 2011 and fiscal 2012 and tenant improvements completed in fiscal 2012 and an increase in tenant improvement costs written off for tenants that vacated the portfolio in fiscal 2012. general and administrative expenses were relatively unchanged . 29 fiscal 2011 vs. fiscal 2010 the following information summarizes the company 's results of operations for the years ended october 31 , 2011 and 2010 ( amounts in thousands ) : replace_table_token_14_th revenues : base rents increased by 1.3 % to $ 64.2 million in fiscal 2011 as compared with $ 63.4 million in the comparable period of 2010 .
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management has discussed the development , selection and disclosure of our critical accounting estimates with the audit committee of our board . we believe the following critical accounting estimates require us to make the most difficult , subjective or complex judgments . allowance for doubtful accounts we maintain an allowance for doubtful accounts based on an estimate of the losses we will incur if our customers do not make required payments . we perform periodic credit evaluations of our customers and typically do not require collateral . consistent with industry practices , we generally require payment from our north american customers within 30 days , except for sales under early buy programs for which we provide extended payment terms to qualified customers . the extended terms usually require payments in equal installments in april , may and june or may and june , depending on geographic location . credit losses have generally been within or better than our expectations . similar to our business , our customers ' businesses are seasonal . sales are lowest in the winter months and our past due accounts receivable balance as a percentage of total receivables generally increases during this time . we provide reserves for uncollectible accounts based on our accounts receivable aging . these reserves range from 0.05 % for amounts currently due to up to 100 % for specific accounts more than 60 days past due . at the end of each quarter , we perform a reserve analysis of all accounts with balances greater than $ 20,000 and more than 60 days past due . additionally , we perform a separate reserve analysis on the balance of our accounts receivables with emphasis on past due accounts . as we review these past due accounts , we evaluate collectibility based on a combination of factors including : aging statistics and trends ; customer payment history ; independent credit reports ; and discussions with customers . during the year , we write off account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote . these write-offs are charged against our allowance for doubtful accounts . in the past five years , write-offs have averaged approximately 0.10 % of net sales annually . write-offs as a percentage of net sales approximated 0.05 % in 2015 , 0.10 % in 2014 and 0.10 % in 2013 . we expect that write-offs will approximate 0.10 % of net sales in 2016 . at the end of each fiscal year , we prepare a hindsight analysis by comparing the prior year-end allowance for doubtful accounts balance to ( i ) current year write-offs and ( ii ) any significantly aged outstanding receivable balances . we concluded that the prior year allowance was within a range of acceptable estimates , but conservative overall based on lower write-offs in 2015 and improvements in our accounts receivable aging . while we slightly lowered our general reserve percentage in 2015 to account for these trends , our overall reserve methodology and process for estimating specific reserves remains unchanged . if the balance of the accounts receivable reserve increased or decreased by 20 % at december 31 , 2015 , pretax income would change by approximately $ 0.8 million and earnings per share would change by approximately $ 0.01 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2015 ) . 22 inventory obsolescence product inventories represent the largest asset on our balance sheet . our goal is to manage our inventory such that we minimize stock-outs to provide the highest level of service to our customers . to do this , we maintain at each sales center an adequate inventory of stock keeping units ( skus ) with the highest sales volumes . at the same time , we continuously strive to better manage our slower moving classes of inventory , which are not as critical to our customers and thus , inherently have lower velocity . we classify products into 13 classes at the sales center level based on sales at each location over the past 12 months ( or 36 months for tile and parts products ) . all inventory is included in these classes , except for special order non-stock items that lack a sku in our system and products with less than 12 months of usage . the table below presents a description of these inventory classes : class 0 new products with less than 12 months usage ( or 36 months for tile and parts products ) classes 1-4 highest sales value items , which represent approximately 80 % of net sales at the sales center classes 5-12 lower sales value items , which we keep in stock to provide a high level of customer service class 13 products with no sales for the past 12 months at the local sales center level , excluding special order products not yet delivered to the customer null class non-stock special order items there is little risk of obsolescence for products in classes 1-4 because products in these classes generally turn quickly . we establish our reserve for inventory obsolescence based on inventory classes 5-13 , which we believe represent some exposure to inventory obsolescence , with particular emphasis on skus with the least sales over the previous 12 months . the reserve is intended to reflect the value of inventory that we may not be able to sell at a profit . we provide a reserve of 5 % for inventory in classes 5-13 and non-stock inventory as determined at the sales center level . we also provide an additional 5 % reserve for excess inventory in classes 5-12 and an additional 45 % reserve for excess inventory in class 13. we determine excess inventory , which is defined as the amount of inventory on hand in excess of the previous 12 months ' usage , on a company-wide basis . story_separator_special_tag we also evaluate whether the calculated reserve provides sufficient coverage of the total class 13 inventory . in evaluating the adequacy of our reserve for inventory obsolescence , we consider a combination of factors including : the level of inventory in relation to historical sales by product , including inventory usage by class based on product sales at both the sales center and on a company-wide basis ; changes in customer preferences or regulatory requirements ; seasonal fluctuations in inventory levels ; geographic location ; and superseded products and new product offerings . we periodically adjust our reserve for inventory obsolescence as changes occur in the above-identified factors . at the end of each fiscal year , we prepare a hindsight analysis by comparing the prior year-end obsolescence reserve balance to ( i ) current year inventory write-offs and ( ii ) the value of products with no sales for the past 12 months that remain in inventory . based on our hindsight analysis , we concluded that our prior year reserve was within a range of acceptable estimates and that our reserve methodology is appropriate . if the balance of our inventory reserve increased or decreased by 20 % at december 31 , 2015 , pretax income would change by approximately $ 1.4 million and earnings per share would change by approximately $ 0.02 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2015 ) . vendor incentives many of our vendor arrangements provide for us to receive incentives of specified amounts of consideration when we achieve any of a number of measures . these measures are generally related to the volume level of purchases from our vendors and may include negotiated pricing arrangements . we account for vendor incentives as a reduction of the prices of the vendor 's products and therefore a reduction of inventory until we sell the product , at which time such incentives are recognized as a reduction of cost of sales in our income statement . 23 throughout the year , we estimate the amount of the incentive earned based on our estimate of total purchases for the fiscal year relative to the purchase levels that mark our progress toward earning the incentives . we accrue vendor incentives on a monthly basis using these estimates provided that we determine they are probable and reasonably estimable . our estimates for annual purchases , future inventory levels and sales of qualifying products are driven by our sales projections , which can be significantly impacted by a number of external factors including weather and changes in economic conditions . changes in our purchasing mix also impact our incentive estimates , as incentive rates can vary depending on our volume of purchases from specific vendors . we continually revise these estimates throughout the year to reflect actual purchase levels and identifiable trends . as a result , our estimated quarterly vendor incentive accruals may include cumulative catch-up adjustments to reflect any changes in our estimates between reporting periods . these adjustments tend to have a greater impact on gross margin in the fourth quarter since it is our seasonally slowest quarter and because the majority of our vendor incentive arrangements are based on calendar year periods . we update our estimates for these arrangements at year end to reflect actual annual purchase levels . in the first quarter of the subsequent year , we prepare a hindsight analysis by comparing actual vendor incentives received to the prior year vendor incentive balances . based on our hindsight analysis , we concluded that our vendor incentive estimates were within a range of acceptable estimates and that our estimation methodology is appropriate . if market conditions were to change , vendors may change the terms of some or all of these programs . although such changes would not affect the amounts we have recorded related to products already purchased , they may lower or raise our cost for products purchased and sold in future periods . income taxes we record deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when we expect the differences to reverse . due to changing tax laws and state income tax rates , significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future . as of december 31 , 2015 , we have not provided for united states income taxes on undistributed earnings of our foreign subsidiaries , as we have invested or expect to invest the undistributed earnings indefinitely . if these earnings are repatriated to the united states in the future , or if we determine that the earnings will be remitted in the foreseeable future , additional tax provisions may be required . determining the amount of unrecognized deferred tax liability on these undistributed earnings is not practicable due to the complexity of tax laws and regulations and the varying circumstances , tax treatments and timing of any future repatriation . we hold , through our wholly owned affiliates , cash balances in the countries in which we operate , including amounts held outside the united states . most of the amounts held outside the united states could be repatriated to the united states , but under current law , may be subject to united states federal income taxes , less applicable foreign tax credits . repatriation of some foreign balances is restricted by local laws including the imposition of withholding taxes in some jurisdictions . historically our foreign locations have not generated adequate earnings to both repatriate to the united states and fund foreign operations . those historical and future foreign earnings will remain permanently reinvested and be used to support our foreign operations and pay non-u.s. obligations . we have operations in 39 states , 1 united states territory and 11 foreign countries .
| net income attributable to pool corporation increased 16 % compared to 2014 , while earnings per share was up 19 % to a record $ 2.90 per diluted share . financial position and liquidity cash provided by operations was $ 146.1 million in 2015 and exceeded total net income by $ 17.8 million . combined with $ 8.9 million in net proceeds from borrowings , cash from operating activities helped fund the following initiatives : share repurchases in the open market of $ 92.4 million ; quarterly cash dividend payments to shareholders , totaling $ 43.1 million for the year ; net capital expenditures of $ 29.1 million ; and payments of $ 4.5 million for acquisitions . total net receivables , including pledged receivables , in creased 11 % compared to december 31 , 2014 , indicating our december 2015 sales growth . our allowance for doubtful accounts increased 5 % compared to december 31 , 2014 . overall we noted lower write-offs as a percentage of net sales throughout 2015 and a smaller percentage of total receivables being greater than 60 days past due . inventory levels grew 2 % to $ 474.3 million at december 31 , 2015 compared to $ 467.0 million at december 31 , 2014 . our reserve for inventory obsolescence was $ 7.0 million at december 31 , 2015 compared to $ 6.4 million at december 31 , 2014 . our inventory turns , as calculated on a trailing twelve month basis , were 3.5 times at december 31 , 2015 and 3.4 times at december 31 , 2014 . total debt outstanding of $ 329.7 million at december 31 , 2015 in creased $ 8.9 million or 3 % compared to december 31 , 2014 . 19 current trends and outlook over the past five years , the pool industry has continued to show signs of recovery , mostly due to the gradual improvement in remodeling and replacement activity . the rebound in our base business sales growth since 2010 reflects increased consumer discretionary spending and higher replacement activities . improvements in general external market factors
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liquidity and capital resources summary of sources and uses of cash as of december 31 , 2020 , seaboard had cash and short-term investments of $ 1.5 billion and additional total working capital of $ 737 million . cash and short-term investments as of december 31 , 2020 decreased $ 18 million from december 31 , 2019. the decrease was primarily the result of $ 259 million of capital expenditures and $ 69 million of long-term debt payments , partially offset by $ 291 million of cash from operations . cash from operating activities increased $ 120 million primarily due to higher adjusted earnings partially offset by uses of cash for working capital . as of december 31 , 2020 , $ 52 million of the $ 1.5 billion of cash and short-term investments were held by seaboard 's foreign subsidiaries . historically , seaboard has considered substantially all foreign profits as being permanently invested in its foreign operations , including all cash and short-term investments held by foreign subsidiaries . seaboard intends to continue permanently reinvesting the majority of these funds outside the u.s. as current plans do not demonstrate a need to repatriate them to fund seaboard 's u.s. operations . for any planned repatriation to the u.s. , seaboard would record applicable deferred taxes for state or foreign withholding taxes . capital expenditures , acquisitions and other investing activities during 2020 , seaboard invested $ 259 million in property , plant and equipment , of which $ 207 million was in the pork segment and $ 27 million in the power segment . the pork segment expenditures were primarily for the expansion of the oklahoma pork processing plant and the modifications of an idle ethanol plant and its related assets in hugoton , kansas . the power segment expenditures were primarily for its power generating barge under construction . all other capital expenditures were primarily of a normal recurring nature such as replacements of machinery and equipment and general facility modernizations and upgrades . the total budget for 2021 capital expenditures is approximately $ 456 million , with $ 340 million planned in the pork segment and $ 25 million in the power segment to complete the new barge and interconnection for existing barge at a different site . the pork segment budgeted approximately $ 173 million to complete modifications to convert an acquired idle ethanol facility to a renewable diesel plant with operations currently expected to begin in 2022 , and the remainder to new projects , including biogas recovery projects . certain projects or purchases were delayed due to covid-19 , so overall capital expenditures are expected to be higher than last year . management anticipates paying for these capital expenditures from a combination of available cash , the use of available short-term investments and seaboard 's available borrowing capacity . seaboard has acquired businesses in 2020 , 2019 and 2018 , and intends to continue to look for opportunities to further grow and diversify its operations , but there are no definitive plans at this time . also , from time to time , seaboard may fund capital calls and issue borrowings for its equity method investments based on the specific facts and circumstances . during 2020 , seaboard contributed $ 8 million to non-consolidated affiliates for working capital needs . 18 financing activities the following table presents a summary of seaboard 's available borrowing capacity . during 2020 , seaboard entered into a committed line of credit agreement for $ 250 million of additional liquidity for working capital and general corporate purposes . total amount ( millions of dollars ) available short-term uncommitted and committed lines $ 1,028 amounts drawn against lines ( 222 ) available borrowing capacity as of december 31 , 2020 $ 806 seaboard has debt of $ 763 million , which includes term loans of $ 714 million and foreign subsidiary obligations of $ 49 million . subsequent to year-end , seaboard repaid $ 46 million of foreign subsidiary obligations . seaboard has capacity under its debt covenants to undertake additional debt financings of approximately $ 1.3 billion as of december 31 , 2020. see note 8 to the consolidated financial statements for further discussion of debt . management intends to continue seeking opportunities for expansion in the industries in which seaboard operates , utilizing existing liquidity , available borrowing capacity and other financing alternatives . the terms and availability of such financing may be impacted by economic and financial market conditions , as well as seaboard 's financial condition and results of operations at the time seaboard seeks such financing , and there can be no assurances that seaboard will be able to obtain such financing on terms that will be acceptable or advantageous . accordingly , management believes seaboard 's combination of internally generated cash , liquidity , capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations for the next twelve months . contractual obligations and off-balance sheet arrangements several of seaboard 's segments have long-term contractual obligations , including non-cancelable lease agreements and purchase commitments . see notes 6 and 9 to the consolidated financial statements for discussion on purchase commitments and leases , respectively . the following table provides a summary of seaboard 's long-term contractual obligations as of december 31 , 2020 : replace_table_token_3_th ( a ) interest payments in the table above include expected cash payments for interest on variable and fixed rate long term debt . variable interest rates are based on interest rates as of december 31 , 2020 . ( b ) retirement benefit payments in the table above represent expected benefit payments for various non-qualified pension plans and supplemental retirement arrangements as discussed in note 10 to the consolidated financial statements , which are unfunded obligations that are deemed to be employer contributions . story_separator_special_tag no contributions are planned at this time to the qualified pension plan . ( c ) u.s. federal income tax payable on mandatory deemed repatriation pursuant to the 2017 tax act . deferred income taxes and certain other long-term liabilities in the consolidated balance sheets are not included in the table above as management is unable to reliably estimate the timing of the payments for these items . 19 story_separator_special_tag evaluate period-to-period financial results for this segment . net sales for the ct & m segment increased $ 244 million for the year ended december 31 , 2019 compared to 2018. the increase primarily reflected higher volumes of certain commodities for third-party customers , including sales for a business acquired in january 2018 with certain entities on a three-month lag and another business acquired in october 2019 , and higher wheat , corn and other commodity prices , partially offset by lower affiliate volumes and sales prices . operating income for the ct & m segment increased $ 16 million for the year ended december 31 , 2019 compared to 2018. the increase primarily reflected higher margins on t hird-party sales , partially offset by higher selling , general and administrative costs related to the business acquired . marine segment replace_table_token_6_th net sales for the marine segment decreased $ 56 million for the year ended december 31 , 2020 compared to 2019. the decrease was primarily the result of lower cargo volumes , partially offset by slightly higher rates due to a change in cargo mix with more refrigerated containers that generally have a higher freight rate . the marine segment 's results were significantly impacted in the second quarter of 2020 with a decrease of $ 67 million in sales compared to the same period in 2019 due to less demand with many of marine 's customers temporarily shut down due to government orders associated with covid-19 . operating income for the marine segment increased $ 17 million for the year ended december 31 , 2020 compared to 2019. the increase was primarily the result of lower fuel costs due to the decrease in price and consumption and lower other 21 voyage costs and terminal costs related to the reduction in cargo volumes . management can not predict fuel costs , cargo volumes and cargo rates , the ongoing impacts of the covid-19 pandemic or to what extent changes in economic conditions in markets served will affect net sales or operating income for future periods . however , management anticipates positive operating income for this segment in 2021. net sales for the marine segment increased $ 4 million for the year ended december 31 , 2019 compared to 2018. the increase was primarily the result of a change in cargo mix , with more refrigerated containers that generally have a higher rate , partially offset by lower cargo volumes . operating income for the marine segment decreased $ 21 million for the year ended december 31 , 2019 compared to 2018. the decrease was primarily the result of higher voyage costs related to charter hire rates , terminal costs and fuel costs . the reduced global sulfur emissions cap from 3.5 % to 0.5 % became effective on january 1 , 2020 and resulted in higher fuel costs as purchases of low-sulfur fuel began in late 2019. sugar and alcohol segment replace_table_token_7_th net sales for the sugar and alcohol segment decreased $ 15 million for the year ended december 31 , 2020 compared to 2019. the decrease primarily reflected lower volumes and prices of alcohol sold as a result of less demand for fuels with the lengthy covid-19 pandemic lockdown , partially offset by higher sugar prices . sugar and alcohol sales are denominated in argentine pesos , and an increase in local sales prices may be offset by exchange rate changes in the argentine peso against the u.s. dollar . this segment 's functional currency is the u.s. dollar , which will continue to be effective as long as the argentine economy is considered highly inflationary . operating income for the sugar and alcohol segment increased $ 18 million for the year ended december 31 , 2020 compared to 2019. the increase primarily reflected higher margins on sugar due to higher prices and lower alcohol and sugar production costs . management can not predict local sugar and alcohol prices , the volatility in the currency exchange rate or the ongoing impacts of the covid-19 pandemic for future periods . based on these conditions , management can not predict if this segment will be profitable in 2021. net sales for the sugar and alcohol segment decreased $ 63 million for the year ended december 31 , 2019 compared to 2018. the decrease primarily reflected lower volumes and prices of sugar and alcohol sold . operating income for the sugar and alcohol segment decreased $ 25 million for the year ended december 31 , 2019 compared to 2018. the decrease primarily reflected lower margins on alcohol , partially offset by lower selling , general and administrative expenses . power segment replace_table_token_8_th net sales for the power segment decreased $ 53 million for the year ended december 31 , 2020 compared to 2019. the decrease primarily reflected lower spot market rates as a result of lower fuel prices and lower production related to more power generation from lower variable-cost producers . operating income for the power segment decreased $ 24 million for the year ended december 31 , 2020 compared to 2019 primarily due to lower revenues , partially offset by lower fuel costs due to lower prices and fuel consumption . management can not predict fuel costs , the extent that spot market rates will fluctuate compared to fuel costs or other power producers , or the ongoing impacts of the covid-19 pandemic for future periods . based on these conditions , management can not predict if this segment will be profitable in 2021. financial results are expected to be lower during the period of interconnection for the existing barge at a new site .
| pork segment replace_table_token_4_th net sales for the pork segment increased $ 90 million for the year ended december 31 , 2020 compared to 2019. the increase was primarily the result of higher volumes of pork products , market hogs and biodiesel sold and the recognition of more federal blender 's credits than the prior year , partially offset by lower biodiesel prices . operating income for the pork segment increased $ 71 million for the year ended december 31 , 2020 compared to 2019. the increase was primarily due to lower derivative contract losses , higher pork product sales , lower costs for feed and third-party hogs , more income associated with the federal blender 's credits received , and no expense related to the withdrawal liability from a multi-employer pension fund recorded in 2019 as discussed below , partially offset by higher plant processing costs and lower margins on biodiesel sales . seaboard sells pork to international customers located in china , among other countries , and incremental tariffs , the duration of which is uncertain , continue to have a negative impact on earnings . management is unable to predict market prices for pork products , the cost of feed or third-party hogs , the prices of biodiesel or the ongoing impacts of the covid-19 pandemic for future periods . for 2021 , it currently appears that overall costs will be higher than in 2020 because of higher grain prices . based on these conditions , management can not predict if this segment will be profitable in 2021. loss from affiliates has decreased primarily due to the stf plant processing more hogs and utilizing more capacity . stf 's operations began in september 2017 with a second shift commencing in october 2018. net sales for the pork segment increased $ 77 million for the year ended december 31 , 2019 compared to 2018. the increase was primarily the result of higher volumes and prices of market hogs sold ,
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management uses a combination of the market and income approach to derive the fair value of auction rate securities , which includes third party valuation results , investment broker provided market information and available information on the credit quality of the underlying collateral . as a result , the determination of fair value for level 3 instruments requires significant management judgment and subjectivity . our level 3 instruments are classified as long-term marketable securities on our consolidated balance sheets and are entirely made up of auction rate securities that consist of student loan asset-backed notes . such loans are insured by the federal government or guaranteed by the federal family educational loan program ( `` ffelp '' ) . fair value measurement may be sensitive to various unobservable inputs such as the ability of students to repay their loans , or change in the provision of government guarantees policy toward guaranteeing loan repayment . if students are unable to pay back their loans or the government changes its policy , our investments may be further impaired . inventory . inventories are recorded at the lower of actual cost ( approximated by standard cost ) determined on a first-in-first-out basis or market . we establish provisions for inventory if it is obsolete or we hold quantities which are in excess of projected customer demand . the creation of such provisions results in a write-down of inventory to net realizable value and a charge to cost of products sold . asset impairments . long-lived assets , including amortizable intangible assets , are carried on our financial statements based on their cost less accumulated depreciation or amortization . we monitor the carrying value of our long-lived assets for potential impairment and test the recoverability of such assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable . these events or changes in circumstances , including management decisions pertaining to such assets , are referred to as impairment indicators . if an impairment indicator occurs , we perform a test of recoverability by comparing the carrying value of the asset group to its undiscounted expected future cash flows . if the carrying values are in excess of undiscounted expected future cash flows , we measure any impairment by comparing the fair value of the asset group to its carrying value . fair value is generally determined by considering ( i ) internally developed discounted projected cash flow analysis of the asset group ; ( ii ) actual third-party valuations ; and or ( iii ) information available regarding the current market for similar asset groups . if the fair value of the asset group is determined to be less than the carrying amount of the asset group , an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs and is included in our consolidated statement of operations . estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized , which could impact our ability to accurately assess whether an asset has been impaired . no impairment charges were recorded for the fiscal year ended 2013. valuation of goodwill . 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 . we review goodwill for impairment annually during the fourth quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable . when evaluating whether goodwill is impaired , the company makes a qualitative assessment to determine if it is more likely than not that its fair value is less than its carrying amount . if the qualitative assessment determines that it is more likely than not that its fair value is less than its carrying amount , the fair value of the reporting unit is compared with its carrying value ( including goodwill ) . 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 must measure the impairment loss . the impairment loss , if any , is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of the goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar 28 to purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill . fair value of the reporting unit is determined using a discounted cash flow analysis . if the fair value of the reporting unit exceeds its carrying value , no further impairment analysis is needed . for purposes of testing goodwill for impairment , the company operates as a single reporting unit . no goodwill impairment charges were recorded for the fiscal year ended 2013. restructuring charges . expenses associated with exit or disposal activities are recognized when incurred under asc 420 , “ exit or disposal cost obligations. ” however , because we have a history of paying severance benefits , the cost of severance benefits associated with a restructuring charge is recorded when such costs are probable and the amount can be reasonably estimated in accordance with asc 712 , “ compensation - nonretirement postemployment benefits. ” when leased facilities are vacated , an amount equal to the total future lease obligations from the date of vacating the premises through the expiration of the lease , net of estimated sublease income , is recorded as a part of restructuring charges . accounting for income taxes . our provision for income tax is comprised of our current tax liability and changes in deferred tax assets and liabilities . story_separator_special_tag deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse . valuation allowances are provided to reduce deferred tax assets to an amount that in management 's judgment is more-likely-than-not to be recoverable against future taxable income . at december 28 , 2013 , u.s. income taxes were not provided on approximately $ 3.4 million of the undistributed earnings of our chinese subsidiary . we intend to reinvest these earnings indefinitely . if these earnings were distributed to the u.s. in the form of dividends or otherwise , we would be subject to additional u.s. income taxes . our income tax calculations are based on application of the respective u.s. federal , state or foreign tax law . the company 's tax filings , however , are subject to audit by the relevant tax authorities . accordingly , we recognize tax liabilities based upon our estimate of whether , and the extent to which , additional taxes will be due when such estimates are more-likely-than-not to be sustained . an uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained . to the extent the final tax liabilities are different than the amounts originally accrued , the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations . in assessing the realizability of deferred tax assets , we evaluate both positive and negative evidence that may exist and consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . any adjustment to the net deferred tax asset valuation allowance is recorded in the consolidated statements of operations in the period that the adjustment is determined to be required . stock-based compensation . we use the black-scholes option pricing model to estimate the fair value of substantially all share-based awards consistent with the provisions of asc 718 , “ compensation - stock compensation. ” option pricing models , including the black-scholes model , require the use of input assumptions , including expected volatility , expected term , expected dividend rate , and expected risk-free rate of return . the assumptions for expected volatility and expected term most significantly affect the grant date fair value . restricted stock unit grants are part of the company 's equity compensation practices for employees who receive equity grants . the restricted stock units granted to employees generally vest quarterly over a four-year period beginning on the grant date . 29 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > * product categories are modified as appropriate relative to our portfolio of products and the generation within each major product family . new products consist of our latest generation of products , while mainstream and mature are older or based on unique late stage customer-based production needs . generally , product categories are adjusted every two to three years , at which time prior periods are reclassified to conform to the new categorization . in the first fiscal quarter of 2012 we reclassified our new , mainstream and mature product categories to better reflect our current product portfolio . revenue by geography we assign revenue to geographies based on customer ship-to address at the point where revenue is recognized . in the case of sell-in distributors and oem customers , revenue is typically recognized , and geography is assigned , when products are shipped . in the case of sell-through distributors , revenue is recognized when resale to the end customer occurs and geography is assigned based on the end customer location on the resale reports provided by the distributor . both foreign and domestic sales are denominated in u.s. dollars , with the exception of sales in japan , where sales to certain customers are denominated in yen . the composition of our revenue by geography , based on ship-to location , is as follows ( dollars in thousands ) : replace_table_token_9_th revenue increased 29 % in asia in fiscal 2013 , due primarily to strong volume growth of new products in the consumer and communications end markets . in fiscal 2012 , revenue in asia fell 6 % due to relative weakness in the communications end market . we believe the asia pacific region will remain the primary source of our revenue due to relatively more favorable business conditions in asia and a continuing trend towards the migration of manufacturing by north american and european customers to the asia pacific region . revenue declines in europe and americas of 2 % and 5 % , respectively , in fiscal 2013 are due largely to macroeconomic weakness in those regions . revenue from foreign sales as a percentage of total revenue were 91 % , 88 % . and 86 % for fiscal 2013 , 2012 , and 2011 , respectively . revenue by distributors our largest customers are often distributors and sales through distributors have historically made up a significant portion of our total revenue . revenue attributable to resales of products by our primary sell-through distributors are as follows : 32 replace_table_token_10_th revenue from sell-through distributors as a percent of total revenue has declined in 2013 and 2012 due primarily to increased sales directly to end customers .
| the composition of our revenue by end market for fiscal years 2013 , 2012 and 2011 was as follows ( dollars in thousands ) : replace_table_token_7_th our revenue in the communications end market is largely dependent on a small number of large telecommunications equipment providers . for fiscal 2013 , communications end market revenue increased 8 % primarily driven by demand to support the telecommunications infrastructure build out in china . revenue in the communications end market was down 11 % when comparing fiscal 2012 to fiscal 2011 , driven primarily by macroeconomic weakness adversely impacting telecommunications infrastructure investments . consumer end market revenue increased 180 % in fiscal 2013 and 22 % in fiscal 2012. consumer market revenue increased in fiscal 2013 due in large part to the strong volume growth of our ice40 product at a major oem . for 2012 , the increased consumer market revenue was driven primarily by volume increase resulting from proliferation of more consumer products and a concentrated focus by the company to penetrate this market . for fiscal 2013 , the industrial , scientific and medical end market experienced a revenue decline of 14 % when compared to fiscal 2012. this decrease was primarily due to reduced sales volume of end-of-life mature products . for fiscal 2012 , revenue decreased 19 % when compared to fiscal 2011. this decline was primarily due to volume declines in our military business . for each of fiscal 2013 and 2012 revenue for the computing end market declined 21 % . for both years , the declines are primarily due to reduced volume driven by macroeconomic factors . revenue by product classification the composition of our revenue by product classification for fiscal years 2013 , 2012 and 2011 was as follows ( dollars in thousands ) : replace_table_token_8_th revenue for new products increased 145 % in fiscal 2013 . revenue for new products increased 80 % in fiscal 2012 . in both years , new product revenue increased primarily due to strong volume ramping of certain new products , principally to customers in the consumer and
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we have conducted three single-arm phase ii clinical trials in cancer where our dendritic cell vaccine , mcv demonstrated efficacy . the three clinical trials generated data indicating prospects in a larger and different clinical setting . more specifically , this efficacy data needed to be confirmed in a comparative randomized trial with advanced colorectal cancer patients.neither the fda nor or any other comparable governmental agency has reviewed mcv . therefore , any assessment of its safety or efficacy only reflects the opinion of the company . furthermore , it does not indicate that mcv will achieve favorable results in any later stage trials or that the fda or comparable agency will ultimately determine that mcv is safe and effective for purposes of granting marketing approval . as a result , dandrit denmark , with the assistance of key opinion leaders in colorectal cancer treatment , has designed a randomized trial with 174 stage iv colorectal cancer patients after surgical resection and chemotherapy . using an adaptive design clinical study that includes a prospectively planned opportunity for modification of one or more specified aspects of the study design and hypotheses based on analysis of data ( usually interim data ) from subjects in the study ( an “ adaptive design clinical study ” ) , we significantly reduced the cost and duration of a phase iii study and we believe we can complete the study within three years . regulatory authorities in the united states and europe have both published guidance documents on the use and implementation of adaptive design trials . these documents both include description of adaptive trials and include a requirement for prospectively written standard operating procedures and working processes for executing adaptive trials and a recommendation that sponsor companies engage with cros that have the necessary experience in running such trials . 51 to date , our operations have been funded by sales of our securities , loans and , to a lesser extent , by sales of our products . sales of our products alone will not support our current operations and we expect this to be the case until our mcv vaccine is approved for marketing in the united states and european . even if we are successful in having mcv approved for sale in the united states and european , we can not guarantee that a market for the product will develop . we may never be profitable . share exchange on february 12 , 2014 , the company closed the share exchange in accordance with the terms and conditions of the share exchange agreement and as a result became dandrit denmark 's parent company . in connection with the share exchange , each outstanding share of common stock of dandrit denmark was exchanged for 1.498842 shares of dandrit usa 's common stock for an aggregate of 6,000,000 shares , including 185,053 shares of common stock reserved for issuance , in accordance with section 70 of the danish companies act and the articles of association of dandrit denmark , to the dandrit denmark shareholders who did not consent to the share exchange and deemed issued and outstanding for accounting purposes . in addition , in connection with the share exchange ( 1 ) the sole shareholder prior to the share exchange agreed to cancel 4,400,000 shares of outstanding common stock owned by it and ( 2 ) the board of directors and executive management of dandrit denmark was appointed to serve as the board of directors and executive management of dandrit usa effective upon the resignation of the sole officer and director of dandrit usa prior to the closing of the share exchange . trends , events and uncertainties research and development of new technologies is , by its nature , unpredictable . we can not assure you that our technology will be adopted , that we will ever earn revenues sufficient to support our operations , or that we will ever be profitable . furthermore , since we have no committed source of financing , we can not assure you that we will be able to raise money as and when we need it to continue our operations . if we can not raise funds as and when we need them , we may be required to severely curtail , or even to cease , our operations . 52 story_separator_special_tag the principal amount and accrued interest of dkk 20,959 ( $ 3,804 ) was converted into 29,036 shares of dandrit denmark common stock . such shares of common stock were exchanged for 43,520 shares of common stock of the company upon the closing of the share exchange . on april 14 , 2013 , sune olsen holding aps assumed dkk 4,375,932 ( approximately $ 773,000 ) in liabilities owed by the company for past due rent from a vendor in exchange for a note payable . the note accrued interest at 5 % . on december 31 , 2013 , the principal amount and accrued interest of dkk 139,670 ( $ 25,349 ) , was converted into 86,204 shares of dandrit denmark . such shares of common stock were exchanged for 129,206 shares of common stock of the company upon the closing of the share exchange . as of december 31 , 2014 , the outstanding balance of $ 38,235 for professional fees paid by a shareholder and amounts advanced to the company are reported as loan payable - related party . the $ 38,235 loans payable were acquired in the reverse acquisition . the amounts are unsecured , non-interest bearing and have no stipulated repayment terms . story_separator_special_tag a 6 % promissory note payable to nlbdit 2010 enterprises , llc , an entity controlled by a shareholder of the company , was acquired by the company in the reverse acquisition , payable on february 12 , 2014 upon the completion date of the share exchange . as of december 31 , 2014 , the outstanding balance on the note , including accrued interest , was $ 42,753. during the three and twelve months ended december 31 , 2014 the company recorded related party interest on the note of $ 213 and $ 619. we have no committed sources of capital but we believe that our cash together with available funds from other potential sources of funds , such as loans from shareholders , will be sufficient to fund our anticipated working capital needs and capital spending requirements for the next twelve months . however , if we were to incur any unanticipated expenditures , such circumstances could put a substantial burden on our cash resources . we may also need additional funds for possible future strategic acquisitions of businesses , products or technologies complementary to our business . if additional funds are required , we may raise such funds from time to time through public or private sales of equity or debt securities . financing may not be available on acceptable terms , or at all , and our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition and results of operations . cash flows year ended december 31 , 2014 compared to the year ended december 31 , 2013 cash loss from operating activities for the year ended december 31 , 2014 was $ 2,034,175 , representing a decrease in the loss of $ 96,453 compared to the cash loss from operating activities of $ 2,130,628 for the year ended december 31 , 2013 this decrease was primarily due to a decrease in total interest expenses and an increase of in research and development income tax credit . 56 changes in assets and liabilities as of december 31 , 2014 compared to december 31 , 2013 included the following : the total assets of $ 5,239,909 for the year ended december 31 , 2014 increased by $ 4,789,442 or 1,063 % compared to the total assets of $ 450,467 for the year ended december 31 , 2013 and the total liabilities for the year ended december 31 , 2014 of $ 1,757,664 decreased $ 376,973 , or 18 % compared to the total liabilities of $ 2,134,637 for the year ended december 31 , 2013. cash used in investing activities was $ 1,952,034 for the year ended december 31,2014 , as compared to cash used in investing activities of $ 105,015 for the year ended december 31 , 2013. cash used for investing activities increased during the year ended december 31 , 2014 primarily due to an increase in the amount of $ 1,952,034 of cash held in escrow . cash provided by financing activities was $ 6,669,807 for the year ended december 31 , 2014 as compared to cash provided by financing activities of $ 2,439,526 for the year ended december 31 , 2013. the increase of approximately $ 4,200,281 in cash provided by financing activities in the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 , was due to cash received in connection with sale of common stock of the company . off balance sheet arrangements as of december 31 , 2014 , we had no off-balance sheet arrangements . we are not aware of any material transactions which are not disclosed in our consolidated financial statements . significant accounting policies and critical accounting estimates the methods , estimates , and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements . some of our accounting policies require us to make difficult and subjective judgments , often as a result of the need to make estimates regarding matters that are inherently uncertain . in addition , section 107 of the jobs act provides that an emerging growth company can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we are not choosing to “ opt out ” of this provision . section 107 of the jobs act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable . as a result of our election , not to “ opt out ” of section 107 , dandrit 's financial statements may not be comparable to companies that comply with public company effective dates . our most critical accounting estimates include : property and equipment — property and equipment are stated at cost . expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized , upon being placed in service . expenditures for maintenance and repairs are charged to expense as incurred . depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets which range from four to six years . intangible assets — definite life intangible assets include patents . the company accounts for definite life intangible assets in accordance with financial accounting standards board , ( “ fasb ” ) accounting standards codification , ( “ asc ” ) topic 350 , “ goodwill and other intangible assets ” and amortized the patents on a straight line basis over the estimated useful life of twenty years . costs incurred in relation to patent applications are capitalized costs
| general and administrative expense for the year ended december 31 , 2014 was $ 1,644,918 compared to $ 1,233,683 for the year ended december 31 , 2013 , representing an increase of $ 411,235 , or 33.33 % . this increase was due primarily to costs associated with the audit and the costs associated with becoming publically traded in november of 2014. general and administrative expenses include office rental , website management , insurance , and salaries . depreciation and amortization expenses for the year ended december 31 , 2014 and 2013 were $ 18,981 and $ 38,297 , respectively , representing a decrease of 50.44 % . this decrease was due primarily to the decrease in depreciable assets . consulting expenses for the year ended december 31 , 2014 totaled $ 469,666 compared to $ 390,437 for the year ended december 31 , 2013 , representing an increase of $ 79,229 , or 20.92 % . during 2014 , we employed consultants to assist us with the valuation of dandrit denmark in preparation for the share exchange , the preparation of the s-1 registration statement that was effective on august 12 , 2014 , and consultants for our viva phase iii clinical trial . 54 other income ( expense ) net for the year ended december 31 , 2014 and 2913 were $ 119,196 and $ 408,413 , respectively , representing an increase in income of $ 289,217or 70.81 % . this increase was due primarily to decrease in interest expense of $ 568,153 for the year ended december 31 , 2014. net loss net loss for the year ended december 31 , 2014 was $ 2,370,883 compared to $ 2,147,361 for the year ended december 31 , 2013 , representing an increase of $ 223,522 , or 10.4 % . the increase in the net loss for the year ended december 31 , 2014 is primarily due to the increase in the general and administrative expenses of $ 411,235. liquidity and capital resources we have historically satisfied our capital and liquidity requirements through funding from our largest
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for our pivotal , phase 3 present ( p revention of r ecurrence in e arly- s tage , node-positive breast cancer with low to intermediate her2 e xpression with neuvax t reatment ) trial , neuvax is targeting the 30,000-40,000 of the 230,000 female breast cancer patients annually diagnosed in the u.s. who are at a higher risk of their breast cancer recurring , which we refer to as “ disease recurrence , ” after achieving “ no evidence of disease ” ( ned ) status , ( or becoming a “ survivor ” ) with standard-of-care therapy ( surgery , chemotherapy , radiation ) . these high-risk patients have a particular molecular signature and disease status : her2 ihc 1+/2+ ( oncoprotein associated with aggressive tumor growth ) , node positive ( disease present in the axillary lymph nodes prior to surgery ) , and hla a2/a3 ( human leukocyte antigen from a2/a3 patients who have the same loci of genes which represents approximately 65 % of population ) . up to 25 % of resectable , node-positive breast cancer patients , having no radiographic evidence of disease following surgery and adjuvant chemo/radiation therapy , are expected to relapse within three years following diagnosis . the prognosis upon recurrence is very poor . these cancer patients presumably still had isolated , undetected tumor ctcs which led to a recurrence of cancer in the breast ( local recurrence ) or in another location ( metastatic disease ) . we currently have a number of ongoing or planned clinical trials designed to expand the clinical and geographical footprint of neuvax : phase 3 ongoing : our phase 3 present ( p revention of r ecurrence in e arly- s tage , node-positive breast cancer with low to intermediate her2 e xpression with neuvax t reatment ) study is enrolling her2 1+ and 2+ patients under a special protocol assessment ( spa ) granted by the u.s. food and drug administration ( fda ) . the multinational , multicenter , randomized , double-blinded present trial is ongoing in north america , western and eastern europe , and israel . additional information on the study can be found at www.neuvax.com . phase 2b ongoing : a randomized , multicenter , investigator-sponsored , 300 patient phase 2b clinical trial is enrolling her2 1+/2+ node-positive and high-risk node-negative breast cancer patients to study neuvax in combination with herceptin ® ( trastuzumab ; genentech/roche ) in the adjuvant setting . phase 2 ongoing : an investigator-sponsored trial is ongoing to study neuvax in combination with herceptin . the study will enroll 100 patients in neoadjuvant , node positive and negative her2 ihc 3+ patients or her2 gene-amplified breast cancer patients who are hla a2+ or hla a3+ and are determined to be at high-risk for recurrence . partial funding for this trial comes from the department of defense ( dod ) through the congressionally directed medical research program ( cdmrp ) via legislation known as the defense appropriations act . the grant was awarded under a breast cancer research program ( bcrp ) breakthrough award given to the lead investigator for the trial . phase 2 planned : in january 2014 , we partnered with dr. reddy 's laboratories , ltd. in india for the commercialization of neuvax in that region . dr. reddy 's is responsible for running a phase 2 gastric cancer trial of neuvax in india that is expected to initiate in 2016. our second immunotherapy product candidate , gale-301 , targets folate binding protein receptor-alpha , a well-validated therapeutic target , which is highly over-expressed ( 20-80 fold ) in ovarian , endometrial and breast cancers . gale-301 is an immunogenic peptide and can stimulate ctls to recognize and destroy fbp-expressing cancer cells . gale-301 consists of an fbp peptide combined with gm-csf , and is currently in a phase 2a clinical trial for the prevention of recurrence in patients with ovarian and endometrial cancers . current treatments for these diseases are principally with chemotherapeutic agents and patients suffer a high recurrence rate ; and , most patients relapse with an extremely poor prognosis . preliminary promising results from the phase 2a clinical trial of gale-301 were presented in november 2014 at the society for immunotherapy of cancer conference and showed a 38 % reduction in relative risk of recurrence , and that the agent was well-tolerated with primarily grade 1 and 2 toxicities and elicited a strong in vivo immune response . we expect to present top line data from the phase 2a trial mid-year 2015. in january 2014 , we announced the acquisition of the worldwide rights to anagrelide controlled release ( cr ) , which we renamed gale-401 , through our acquisition of mills pharmaceuticals , llc . gale-401 contains the active ingredient anagrelide , an fda-approved product , for the treatment of patients with myeloproliferative neoplasms ( mpns ) to lower abnormally elevated platelet levels . the currently available immediate release ( ir ) version of anagrelide causes adverse events that are believed to be dose and plasma concentration dependent . therefore , reducing the maximum concentration ( c max ) is hypothesized to reduce the side effects , but preserve efficacy . 45 multiple phase 1 studies in 98 healthy subjects have shown gale-401 reduces the c max of anagrelide following oral administration , appears to be well tolerated at the doses administered , and to be capable of reducing platelet levels . the phase 1 program provided the desired pk/pd ( pharmacokinetic/pharmacodynamic ) profile to enable the initiation of the ongoing phase 2 proof-of-concept trial . th phase 2 trial enrolled 18 patients in the united states for the treatment of thrombocytosis , or elevated platelet counts in patients with mpns . phase 2 top-line safety and efficacy data will be presented this year . based on a regulatory meeting with the fda , galena believes a 505 ( b ) ( 2 ) regulatory filing is an acceptable pathway for development and potential approval of gale-401 , with the reference drug agrylin ® ( anagrelide ; shire pharmaceuticals ) . story_separator_special_tag our first commercial product , abstral ® ( fentanyl ) sublingual tablets , is an important treatment option for inadequately controlled breakthrough cancer pain ( btcp ) , which affects more than 50 % of all cancer patients . abstral is approved by the fda , and is a sublingual ( under the tongue ) tablet for the management of breakthrough pain in patients with cancer , 18 years of age and older , who are already receiving , and who are tolerant to , opioid therapy for their persistent baseline cancer pain . the abstral formulation delivers the analgesic power and increased bioavailability of micronized fentanyl in a convenient sublingual tablet which is designed to dissolve under the tongue in seconds and provide relief of breakthrough pain within minutes . abstral is a transmucosal immediate release fentanyl ( tirf ) product with product class oversight by the tirf risk evaluation and mitigation strategy ( rems ) access program . abstral is manufactured for us by contract manufacturers and we distribute and sell abstral in the u.s. through our commercial organization . in july 2014 we expanded our commercial portfolio through the licensing of our second commercial product , zuplenz ® ( ondansetron ) oral soluble film , from monosol rx , llc . zuplenz is approved by the fda in adult patients for the prevention of highly and moderately emetogenic chemotherapy-induced nausea and vomiting ( cinv ) , radiotherapy-induced nausea and vomiting ( rinv ) , and post-operative nausea and vomiting ( ponv ) . zuplenz is also approved in pediatric patients treated with moderately emetogenic cinv . nausea and vomiting are two of the most common side-effects experienced by post-surgery patients and patients receiving chemotherapy or radiation . it is estimated that up to 90 % of chemotherapy and up to 80 % of radiotherapy patients will experience cinv and rinv , respectively . zuplenz utilizes monosol 's proprietary pharmfilm ® technology , an oral soluble film that dissolves on the tongue in less than 30 seconds . zuplenz eliminates the burden of swallowing pills during periods of emesis , may be advantageous for patients with oral irritation , and may increase patient adherence and the patient 's ability to keep the medication down without vomiting . the active pharmaceutical ingredient in zuplenz , ondansetron , belongs to a class of medications called serotonin 5-ht 3 receptor antagonists and works by blocking the action of serotonin , a natural substance that may cause nausea and vomiting . ondansetron is the most widely prescribed drug in this class of anti-emetics , and used broadly across the oncology spectrum . monosol will exclusively manufacture zuplenz for us for sale in the u.s. through our commercial organization . critical accounting policies and estimates use of estimates the preparation of our financial statements requires management to make estimates , allocations and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates , including those related to impairment of goodwill and long-lived assets , accrued liabilities , net revenue , and certain expenses . our estimates about the carrying values of assets and liabilities that are not readily apparent from other sources are based on historical experience and on other assumptions believed to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . additionally , the financial information included here may not necessarily reflect the financial position , operating results , changes in our invested equity and cash flows in the future . our significant accounting policies are summarized in the notes to our consolidated financial statements . we believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our financial statements . 46 net revenue the company recognizes revenue from the sale of abstral . revenue is recognized when ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred and title has passed , ( iii ) the price is fixed or determinable and ( iv ) collectability is reasonably assured . we sell abstral product in the united states to wholesale pharmaceutical distributors and retail pharmacies , or collectively , our `` customers , '' subject to rights of return . during the year ended december 31 , 2013 , we began recognizing abstral product sales at the time title transfers to our customer , and providing for an estimate of future product returns . revenue from product sales is recorded net of provisions for estimated returns , prompt pay discounts , wholesaler discounts , rebates , chargebacks , patient assistance program rebates and other deductions as needed . refer to note 1 of the notes to the consolidated financial statements for a detailed description of these reserves . research and development expenses research and development costs are expensed as incurred . included in research and development costs are wages , benefits and other operating costs , facilities , supplies , external services and overhead related to our research and development departments , and clinical trial expenses . clinical trial expenses include direct costs associated with contract research organizations ( `` cros '' ) , as well as well as patient-related costs at sites at which our trials are being conducted . direct costs associated with our cros are generally payable on a time and materials basis , or when certain enrollment and monitoring milestones are achieved . expense related to a milestone is recognized in the period in which the milestone is achieved or in which we determine that it is more likely than not that it will be achieved . the invoicing from clinical trial sites can lag several months . we accrue these site costs based on our estimate of upfront set-up costs upon the screening of the first patient at each site , and the patient related costs based on our knowledge of patient enrollment status at each site .
| there company did not recognize revenue for any periods prior to the year ended december 31 , 2013. gross revenue , gross to net deductions , and net revenue for the years ended december 31 , 2014 and 2013 were as follows ( in thousands ) : replace_table_token_5_th net revenue for the year ended december 31 , 2014 increased 275 % compared to the year ended december 31 , 2013 . the increase was a result of a 114 % increase in gross revenue combined with a 36 % improvement in the gross to net deductions . the increase in gross revenue is attributable to 2014 being the first full fiscal year for the company recognizing revenue compared to 2013 when the company only recognized revenue in the third and fourth quarters with the launch of our first commercial product . the increase in gross revenue is also attributable to an increase in the number of abstral prescriptions , with the fourth quarter of 2014 being the strongest quarter for our abstral prescriptions since acquiring the product . in march of 2014 we launched the galena patient services ( gps ) program , a full service support program designed to navigate patient access to abstral that is coordinated through a third party vendor . along with the launch of gps , we also made changes to our patient assistance program ( pap ) to reduce the use of free product vouchers and rely more heavily upon an expedited prior authorization process . the success of the gps program has resulted in a significant improvement in our gross to net deductions as a percent of gross revenue . due to these changes , we realized an annual increase of 275 % in net revenue on a 114 % increase in gross revenue . the fourth quarter of 2014 experienced gross to net deductions of 37 % compared to gross to net deductions of 75 % during the fourth quarter of 2013 , for an improvement of 51 % . we expect gross
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and credit agreements and regulatory limitations , and whether the companies ' boards of directors will continue to declare common stock dividends based on the boards of directors ' periodic consideration of factors ordinarily affecting dividend policy , such as current and prospective financial condition , earnings and liquidity , prospective business conditions , regulatory factors , and restrictions in applicable agreements ; changes in tax laws or related regulations or new interpretations of applicable law by the internal revenue service or state and local taxing jurisdictions , and the availability and use by idacorp or idaho power of tax credits ; employee workforce factors , including unionization or the attempt to unionize all or part of the companies ' workforce , and the ability to adjust the labor cost structure to changes in growth within idaho power 's service territory ; the failure of information systems or the failure to secure information system data , security breaches , or the direct or indirect effect on the companies ' business resulting from the occurrence of cyber attacks , terrorist incidents or the threat of terrorist incidents , and acts of war ; adoption of or changes in accounting policies , principles , or estimates , including the potential adoption of all or a portion of international financial accounting standards ; and new accounting or securities and exchange commission or new york stock exchange requirements , or new interpretations of existing requirements . any forward-looking statement speaks only as of the date on which such statement is made . new factors emerge from time to time and it is not possible for management to predict all such factors , nor can it assess the impact of any such factor on the business or the extent to which any factor , or combination of factors , may cause results to differ materially from those contained in any forward-looking statement . idacorp and idaho power disclaim any obligation to update publicly any forward-looking information , whether in response to new information , future events , or otherwise , except as required by applicable law . 32 introduction in management 's discussion and analysis of financial condition and results of operations ( md & a ) , the general financial condition and results of operations for idacorp , inc. and its subsidiaries ( collectively , idacorp ) and idaho power company and its subsidiary ( collectively , idaho power ) are discussed . while reading the md & a , please refer to the accompanying consolidated financial statements of idacorp and idaho power . idacorp is a holding company formed in 1998 whose principal operating subsidiary is idaho power . idacorp 's common stock is listed and trades on the new york stock exchange under the trading symbol “ ida. ” idaho power is an electric utility with a service territory covering approximately 24,000 square miles in southern idaho and eastern oregon . idaho power provided electric service to approximately 496,000 general business customers as of december 31 , 2011 . as a regulated utility , many of idaho power 's fundamental business decisions are subject to the approval of governmental agencies . idaho power is under the retail jurisdiction ( as to rates , service , accounting , and other general matters of utility operation ) of the idaho public utilities commission ( ipuc ) and the oregon public utility commission ( opuc ) , which determine the rates that idaho power charges to its general business customers . also , as a public utility under the federal power act , idaho power has authority to charge market-based rates for wholesale energy sales under its federal energy regulatory commission ( ferc ) tariff and to provide transmission services under its ferc open access transmission tariff ( oatt ) . idaho power uses general rate cases , cost adjustment mechanisms , and subject-specific filings to recover its costs of providing service and the costs of its energy efficiency and demand-side resources programs , and to seek to earn a return on investment . idaho power generates revenues and cash flows primarily from the sale and distribution of electricity to customers in its idaho and oregon service territories , as well as from the wholesale sale and transmission of electricity . idaho power 's revenues and income from operations are subject to fluctuations during the year due to the impacts of seasonal weather conditions on demand for electricity , availability of water for hydroelectric generation , price changes , customer usage patterns ( which are affected in large part by the condition of the local economy ) , and the availability and price of purchased power and fuel . idaho power is a dual peaking utility that typically experiences its highest retail energy sales during the summer irrigation and cooling season , with a lower peak in the winter that generally results from heating demand . idacorp 's and idaho power 's financial condition is also affected by regulatory decisions , through which idaho power seeks to recover its costs on a timely basis , and to earn an authorized return on investment , and by the ability to obtain financing through the issuance of debt and or equity securities . idacorp 's other subsidiaries include idacorp financial services , inc. ( ifs ) , an investor in affordable housing and other real estate investments ; ida-west energy company , an operator of small hydroelectric generation projects that satisfy the requirements of the public utility regulatory policies act of 1978 ( purpa ) ; and idacorp energy , a marketer of energy commodities , which wound down operations in 2003. idaho power is the parent of idaho energy resources co. ( ierco ) , a joint venturer in bridger coal company ( bcc ) , which mines and supplies coal to the jim bridger generating plant owned in part by idaho power . executive overview story_separator_special_tag address the volatility of power supply costs and provide for annual adjustments to the rates charged to retail customers . story_separator_special_tag the idaho pca mechanism compares idaho power 's actual net power supply costs to net power supply costs currently being recovered in retail rates , with most of the variance between these two amounts deferred for future recovery from , or refund to , customers . on may 31 , 2011 , the ipuc approved a $ 40.4 million pca decrease , effective june 1 , 2011. this followed a may 28 , 2010 ipuc order approving a $ 146.9 million pca decrease , effective june 1 , 2010. these pca rate decreases were offset by increases in power supply costs in base rates and deferrals and amortization under the pca mechanism , resulting in a relatively small impact on earnings . idaho fca mechanism - the fca is designed to remove idaho power 's disincentive to invest in energy efficiency programs by separating ( or decoupling ) the recovery of fixed costs from the variable kilowatt-hour charge and linking it instead to a set amount per customer . the fca began as a pilot program in 2007 and expired on december 31 , 2011. on october 19 , 2011 , idaho power filed an application with the ipuc requesting that the fca pilot program become permanent . as of the date of this report , a determination and order from the ipuc as to the future of the fca is pending . oregon 2011 general rate case - on july 29 , 2011 , idaho power filed a general rate case for its oregon jurisdiction with the opuc , requesting a $ 5.8 million increase in annual oregon jurisdictional revenues . on february 1 , 2012 , idaho power , the opuc staff , and other interested parties executed and filed a partial settlement stipulation with the opuc that provides for a return on equity of 9.9 percent and an overall rate of return of 7.757 percent . if the opuc approves the stipulation , idaho power expects that new rates will become effective on march 1 , 2012. economic conditions and customer growth : since 2008 , economic conditions in idaho power 's service territory have been relatively weak . unemployment rates remain high compared to historical levels . after peaking at 10.0 percent in early 2011 , the service area unemployment rate has fallen to 8.4 percent in december 2011 , according to the idaho department of labor . from 2001 through september 2008 , the highest monthly unemployment rate in the service territory was 5.2 percent . the customer growth rate , while still positive , has been low relative to prior years . during 2011 , the customer growth rate in idaho power 's service territory was 0.7 percent . by comparison , for the 20-year period ending 2010 the average annual customer growth rate in idaho power 's service territory was 2.7 percent . economic conditions can impact consumer demand for electricity , collectability of accounts , the volume of off-system sales , and idaho power 's need for purchased power . management can not predict the timing of , and pace at which , economic recovery may occur in idaho power 's service territory . idaho power continues to manage costs while executing its three-part strategy of responsible planning , responsible development and protection of resources , and responsible energy use . weather conditions and associated impacts : weather conditions normally have a significant impact on energy sales and the seasonality of those sales . relatively low and high temperatures result in greater energy usage for heating and cooling , respectively . during the agricultural growing season , which in large part occurs during the second and third quarters of each calendar year , irrigation customers use electricity to operate irrigation pumps . a 1.6 percent increase in energy usage by idaho power customers during 2011 compared to 2010 is largely attributable to below average temperatures in the winter months offset by above average precipitation in the springtime , resulting in increased heating unit load and lower use of irrigation pumps . idaho power 's hydroelectric facilities comprise approximately one-half of idaho power 's nameplate generation capacity . the actual availability of hydroelectric power depends on the amount of snow pack in the mountains upstream of idaho power 's hydroelectric facilities , reservoir storage , springtime snow pack run-off , base flows in the snake river , spring flows , rainfall , water leases and other water rights , and other weather and stream flow considerations . at the date of this report , idaho power expects hydroelectric generation during 2012 in the range of 7.5 to 9.5 million mwh , based on reservoir storage levels and forecasted weather conditions as of february 12 , 2012 , compared to 10.9 million mwh in 2011 and 7.3 million mwh in 2010 . 35 median annual hydroelectric generation is 8.6 million mwh . due largely to favorable hydroelectric generation conditions , hydroelectric generation comprised 69 percent of idaho power 's total system generation during 2011 and 51 percent during 2010. where favorable hydroelectric generating conditions exist for idaho power , they also may be abundant for other pacific northwest hydroelectric facility operators , thus increasing the available supply of lower-cost power and depressing regional wholesale market prices , which impacts the revenue idaho power receives from off-system sales of its excess power . average wholesale power prices per mwh for sales for resale were down 29 percent in 2011 relative to 2010. fuel and purchased power expense : in addition to hydroelectric generation and power it purchases in the wholesale markets , idaho power relies significantly on coal and natural gas to fuel its generation facilities . fuel costs are impacted by electricity sales volumes , the terms of contracts for fuel , idaho power 's power generation capacity , the rate of expansion of alternative energy generation sources such as wind energy , the availability of hydroelectric generation resources , transmission capacity , energy market prices , and idaho power 's hedging program for managing fuel costs .
| examples of idaho power 's achievements during 2011 under its three-part business strategy include : execution of idaho power 's purposeful regulatory strategy , which resulted in settlement of idaho power 's 2011 idaho general rate case with the ipuc ( including a base rate increase effective january 1 , 2012 ) , a june 1 , 2011 base rate 33 increase for recovery of the idaho-allocated portion of idaho power 's cash contributions to its defined benefit pension plan , and several other positive regulatory decisions ; execution of a settlement agreement with the ipuc extending through 2014 idaho power 's ability to amortize additional accumulated deferred investment tax credits ( aditc ) to help achieve a minimum annual return on year-end equity in the idaho jurisdiction ( idaho roe ) of 9.5 percent ; significant progress toward cost-sharing agreements with other parties for the permitting of the boardman-to-hemingway and gateway west 500-kv transmission projects , which were ultimately executed in january 2012 ; completion of deployment of smart meters to substantially all customers ; continued progress on the construction of the langley gulch power plant ; approval by the u.s. congress joint committee on taxation ( joint committee ) of a tax method change for uniform capitalization , resulting in a significant increase in net income relative to 2010 ; and ranking in the top quartile of the 120 largest utilities in the country for customer satisfaction in the j.d . power and associates 2011 electric utility residential customer satisfaction study . during 2012 , idacorp 's and idaho power 's management will continue to focus on and implement the companies ' three-part strategy . notable matters that the companies expect will require management 's focus and attention in 2012 include : completion of construction and commencement of commercial operations of the langley gulch power plant , and timely and adequate rate recovery of costs for the plant ; continued efforts toward permitting of the boardman-to-hemingway and gateway west transmission projects ; seeking a positive outcome in proceedings at the ipuc relating to the pricing models and other terms of purpa power purchase agreements ; seeking methods for the integration of intermittent power sources and anticipated increases in intermittent wind generation , which idaho power believes could have an adverse impact on system reliability and functionality and on customer rates ; obtaining ipuc authorization to include idaho power 's fca as a permanent component of rates ; implementation of a new customer and billing system ; and continued work toward resolution of issues relating to relicensing of idaho power 's hydroelectric projects , including the hells canyon complex . overview of general factors and trends affecting results of operations and financial condition idacorp 's and idaho power 's results of operations and financial
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we anticipate focusing on the following key areas , among others , in response to this competitive environment : build on our market leadership and drive adoption of led lighting . we are focused on developing innovative new led lighting systems to drive adoption , and new led components that enable our customers to deliver a more competitive payback versus traditional lighting . we recognize that our leadership in lighting systems can sometimes raise questions with our component customers , but we believe this product line has helped the company set new standards in the market and disrupt the status quo in the lighting industry . we plan to continue to invest in these product lines to increase performance , enable lower lighting system costs with shorter paybacks ( like our cr series downlights and troffers ) , and find new ways to drive the market and obsolete old , energy-wasting lighting technology . accelerate cost reductions and drive operational improvements to increase the profitability of our business . we target lower led costs from the conversion to 150mm wafers , higher factory utilization , as well as yield and productivity improvements . we plan to lower led lighting system costs with new product designs that are under development and we target improved operating leverage from higher revenues across our led lighting systems and component product lines . expand the power and rf product line beyond niche applications . sic power devices can deliver better performance and increased payback against silicon ( si ) based power devices in applications where efficiency is an important criteria . we target continued investment in r & d for new diode and switch products focused on more mainstream and higher volume power switching applications . we are managing the product line through a slowdown in solar inverter demand , which we believe is a temporary market correction . we target the combination of new products , improved market demand and expanded sales coverage to drive growth in the product line . subsequent event on august 17 , 2011 , we entered into a stock purchase agreement with all of the shareholders of ruud lighting , inc. ( ruud ) . pursuant to the terms of the stock purchase agreement and concurrently with the execution of the stock purchase agreement , we acquired all of the outstanding share capital of ruud in exchange for consideration consisting of 6,074,833 shares of our common stock and $ 372.2 million cash , subject to certain post-closing adjustments . in connection with the stock purchase transaction with ruud , we paid off ruud 's outstanding debt in the aggregate amount of approximately $ 85 million . story_separator_special_tag sales , general and administrative expenses are composed primarily of costs associated with our sales and marketing personnel and our executive and administrative personnel ( for example , legal , finance , information technology and human resources personnel ) and consist of 1 ) salaries and related compensation costs , 2 ) consulting and other professional services ( such as litigation and other outside legal counsel fees , audit and other compliance costs ) , 3 ) facilities and insurance costs , and 4 ) travel and other costs . the following table sets forth our sales , general and administrative expenses in dollars and as a percentage of revenues ( in thousands , except percentages ) : replace_table_token_9_th sales , general and administrative expenses in fiscal 2011 increased 21 % to $ 139.3 million from $ 115.6 million in fiscal 2010. the increase in fiscal 2011 is primarily due to an increase in spending on sales and marketing as we expand our direct sales resources and channels and invest in building the cree brand . additionally , costs increased due to higher patent litigation expenses . sales , general and administrative expenses increased 33 % in fiscal 2010 to $ 115.6 million compared to $ 86.9 million in fiscal 2009. the increase in costs in fiscal 2010 is primarily due to increased spending on sales and marketing as we expanded our sales channels and invested in building the cree brand as well as one-time costs related to the settlement of the neumark litigation . additionally , costs increased due to the general expansion of our business and increased employee compensation costs . amortization of acquisition related intangibles as a result of our acquisitions , we have recorded various intangible assets , including customer relationships and developed technologies . during fiscal 2007 , we acquired intrinsic semiconductor corporation and cotco , resulting in $ 63.7 million of amortizable intangible assets principally composed of customer relationships and developed technology . in fiscal 2008 , we acquired llf , resulting in an additional $ 41.2 million of amortizable intangible assets . these intangible assets are principally composed of developed technology that specifically relates to technologies underlying the development of led lighting products for the general illumination market . amortization of intangible assets related to our acquisitions is as follows ( in thousands , except percentages ) : replace_table_token_10_th loss on disposal or impairment of long-lived assets we operate a capital intensive business . as such , we dispose of a certain level of our equipment in the normal course of business as our production processes change due to production improvement initiatives or product mix changes . due to the risk of technological obsolescence or changes in our production process , we regularly review our equipment 28 for possible impairments in value . the following table sets forth our loss on disposal or impairment of long-lived assets ( in thousands , except percentages ) : replace_table_token_11_th we recorded a net loss of $ 2.0 million on the disposal of long-lived assets in fiscal 2011 compared to a net loss of $ 4.1 million in fiscal 2010. the causes of the fiscal 2011 and fiscal 2010 net losses include the disposal of equipment due to manufacturing process changes and the impairment of certain capitalized patent costs . story_separator_special_tag we recorded a loss of $ 4.1 million on the disposal of long-lived assets in fiscal 2010 compared to a loss of $ 6.8 million in fiscal 2009. the fiscal 2009 loss is composed of losses due to the impairment of certain equipment due to manufacturing process changes , the impairment of capitalized patent costs and losses on the disposal of equipment . non-operating income the following table sets forth our non-operating income ( in thousands , except percentages ) : replace_table_token_12_th we have no debt or lines of credit and we are in a net interest income position . we have historically invested portions of our available cash in fixed interest rate securities such as high-grade corporate debt , commercial paper , government securities , municipal bonds , and other fixed interest rate investments . the primary objective of our investment policy is preservation of principal . for fiscal 2011 , 2010 , and 2009 , we did not have any significant gains or losses realized from the sale of our investments . net interest income was $ 8.5 million in fiscal 2011 compared to $ 7.4 million and $ 8.8 million in fiscal 2010 and 2009 , respectively . year over year changes in interest income are due to a combination of fluctuations in interest rates on our cash and investments and differences between the periods in our average cash and investment balances . other non-operating income , net , is comprised primarily of foreign exchange gains and losses . 29 income tax expense the following table sets forth our income tax expense in dollars and our effective tax rate from continuing operations ( in thousands , except percentages ) : replace_table_token_13_th we recorded income tax expense of $ 31.7 million from continuing operations in fiscal 2011 as compared to income tax expense of $ 53.2 million in fiscal 2010. the decrease in the effective tax rate from 26 % in fiscal 2010 to 18 % in fiscal 2011 is primarily due to a change in the mix of pre-tax income from various tax jurisdictions , primarily mainland china and hong kong , and the new tax holiday in malaysia with respect to our subcontract manufacturing and distribution operations . the increase in the effective tax rate from 23 % in fiscal 2009 to 26 % in fiscal 2010 was primarily due to the mix of pre-tax income from various tax jurisdictions . for further discussion of changes in our effective tax rate , please refer to note 12 , income taxes , in our consolidated financial statements included in item 8 of this annual report . the variation between our effective tax rate and the u.s. statutory rate of 35 % is primarily due to the consolidation of our foreign operations , which are generally subject to income taxes at lower statutory rates . a change in the mix of pretax income from these various tax jurisdictions can have a significant impact on our periodic effective tax rate . in addition , our effective tax rate may be negatively impacted by the lack of sufficient excess tax benefits ( credits ) that accumulate in our equity as additional paid-in-capital ( apic ) and referred to as the apic pool of credits . in situations where our realized tax deductions for certain stock based compensation awards , such as non-qualified stock options and restricted stock , are less than those originally anticipated , which accumulate in the apic pool , u.s. gaap requires that we record the difference as an increase to income tax expense . liquidity and capital resources overview we require cash to fund our operating expenses and working capital requirements , including outlays for research and development , capital expenditures , strategic acquisitions and investments . our principal sources of liquidity are cash on hand , marketable investments and cash generated from operations . our ability to generate cash from operations has been one of our fundamental strengths and has provided us with substantial flexibility in meeting our operating , financing and investing needs . we have no debt or lines of credit and have minimal lease commitments . based on past performance and current expectations , we believe our cash and cash equivalents , investments , cash generated from operations and our ability to access capital markets will satisfy our working capital needs , capital expenditures , investment requirements , stock repurchases , contractual obligations , commitments and other liquidity requirements associated with our operations through at least the next 12 months . from time to time , we evaluate strategic opportunities , including potential acquisitions , divestitures or investments in complementary businesses and we anticipate continuing to make such evaluations . we may also access 30 capital markets through the issuance of new debt or additional shares of common stock in connection with the acquisition of complementary businesses or other significant assets or for other strategic opportunities . contractual obligations at june 26 , 2011 , payments to be made pursuant to significant contractual obligations are as follows ( in thousands ) : replace_table_token_14_th operating leases include rental amounts due on leases of certain office and manufacturing space under the terms of non-cancelable operating leases . these leases expire at various times through november 2015. all of the lease agreements provide for rental adjustments for increases in base rent , property taxes and general property maintenance that would be recorded as rent expense , if applicable . purchase obligations generally relate to the purchase of goods and services in the ordinary course of business such as raw materials , supplies and capital equipment . our purchase obligations represent authorizations to purchase rather than binding agreements . other long-term liabilities represents liabilities related to uncertain tax positions . financial condition the following table sets forth our cash , cash equivalents and investments ( in thousands ) : replace_table_token_15_th our liquidity and capital resources depend on our cash flows from operations and our working capital . our working capital increased to $ 1,316.6 million as of june 26 , 2011 from $ 1,235.1
| the blended asp for our led products increased approximately 13 % in fiscal 2010 as compared to fiscal 2009. this increase was due to a shift in product mix to a higher proportion of revenues generated from sales of our led components and led lighting products . power and rf products 26 revenues from our power and rf products comprised approximately 10 % , 9 % , and 8 % of our total revenues for fiscal 2011 , 2010 , and 2009 , respectively . revenues from our power and rf products were $ 97.6 , $ 77.3 , and $ 42.9 million for fiscal 2011 , 2010 , and 2009 , respectively . revenue from power and rf increased approximately 26 % to $ 97.6 million in fiscal 2011 from $ 77.3 million in fiscal 2010. the increase in our power and rf products revenue was primarily due to increased orders for sic schottky diodes and gan mmics . revenue from our power and rf products increased $ 34.4 million or 80 % in fiscal 2010 as compared to fiscal 2009. the increase in our power and rf business was primarily due to an increase in orders for sic schottky diodes and gan mmics . gross profit cost of revenue includes materials , labor and overhead costs incurred internally or paid to contract manufacturers to produce our products . gross profit in dollars and gross margin were as follows ( in thousands , except percentages ) : replace_table_token_7_th total gross margin was 44 % , 47 % , and 37 % for fiscal 2011 , 2010 and 2009 , respectively and gross profit totaled $ 435.8 million , $ 411.1 million and $ 211.9 million for fiscal 2011 , 2010 and 2009 , respectively . gross profit increased approximately 6 % to $ 435.8 million in fiscal 2011 from $ 411.1 million in fiscal 2010. the increase in gross profit is primarily due to our higher revenue in fiscal 2011. for fiscal 2011 our gross margin decreased to 44 % from 47 % in fiscal 2010. factors contributing to the decrease in gross margin were a more aggressive pricing environment and lower factory utilization . gross profit increased $ 199.2 million or 94 % in fiscal 2010 as compared to
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we intend to complete this share repurchase program during 2013 through open market purchases , negotiated transactions or other means . business we are a leading producer of private label tissue and premium bleached paperboard products . our products are primarily wood pulp-based and predominately manufactured in the u.s. our business is organized into two reporting segments : our consumer products segment manufactures and sells a complete line of at-home tissue products in each tissue category , including bathroom tissue , paper towels , napkins and facial tissue . we also manufacture away-from-home tissue , or afh , machine-glazed tissue and parent rolls for external sales . our integrated manufacturing and converting operations and geographic footprint enable us to deliver a broad range of cost-competitive products with brand equivalent quality to our consumer products customers . in 2012 , our consumer products segment had net sales of $ 1.1 billion , representing approximately 61 % of our total net sales . our pulp and paperboard segment manufactures and markets bleached paperboard for the high-end segment of the packaging industry and is a leading producer of solid bleach sulfate paperboard . this segment also produces hardwood and softwood pulp , which is primarily used as the basis for our paperboard products , and slush pulp , which it supplies to our consumer products segment . in 2012 , our pulp and paperboard segment had net sales of $ 739.7 million , representing approximately 39 % of our total net sales . developments and trends in our business net sales prices for our consumer tissue products are affected by competitive conditions and the prices of branded tissue products . tissue has historically been one of the strongest segments of the paper and forest products industry due to its steady demand growth and the absence of severe supply imbalances that occur in a number of other paper segments . our consumer products segment competes based on product quality , customer service and price . we deliver customer-focused business solutions by assisting in managing product assortment , category management , and pricing and promotion optimization . demand and pricing for our pulp and paperboard products are largely determined by macro-economic conditions around the world . paperboard prices softened modestly in 2012 compared to 2011. our pulp and paperboard business experiences cyclical market conditions and , as a result , historical prices for our products and sales volumes have been volatile . product pricing is significantly affected by the relationship between supply and demand for our products . product supply in the industry is influenced primarily by fluctuations in available manufacturing production , which tends to increase during periods when prices remain strong . in addition , currency exchange rates affect u.s. supplies of paperboard , as non-u.s. manufacturers are attracted to the u.s. market when the dollar is relatively strong . our paperboard business , through exports denominated in u.s. dollars , has benefited significantly from general weakness in the u.s. dollar over the past few years . the markets for our products are highly competitive and companies that have substantially greater financial resources than we do compete with us in each of our markets . in addition , our businesses are capital intensive , which leads to high fixed costs , large capital outlays and generally results in continued production as long as prices are sufficient to cover variable costs . these conditions have contributed to substantial price competition , particularly during periods of reduced demand . some of our competitors have lower production costs and greater buying power and , as a result , may be less adversely affected than we are by price decreases . net sales consist of sales of consumer tissue and pulp and paperboard , net of discounts , returns and allowances and any sales taxes collected . 22 operating costs prices for our principal operating cost items are variable and directly affect our results of operations . for example , as economic conditions improve , we normally would expect at least some upward pressure on these operating costs . competitive market conditions can limit our ability to pass cost increases through to our customers . replace_table_token_4_th 1 includes internal and external transportation costs . 2 excluding related labor costs . purchased pulp . we purchase a significant amount of the pulp from external suppliers to supply our consumer products , and , to a lesser extent , our pulp and paperboard manufacturing facilities . for 2012 , total purchased pulp costs were 15.1 % of our cost of sales , representing a decrease of 2.0 percentage points compared to 2011. this decrease in purchased pulp costs was primarily due to lower average external pulp prices in 2012 , which were at record highs in 2011 , and our continued focus on using our internally produced pulp at our consumer products facilities . in 2013 we expect to continue using our lower cost internally produced pulp at our consumer products facilities to help defray our pulp costs . chemicals . we consume a substantial amount of chemicals in the production of pulp and paperboard . the chemicals we generally use include polyethylene , caustic , starch , sodium chlorate , latex and specialty paper process chemicals . a large portion of the chemicals used in our manufacturing processes , particularly in the pulp-making process , are petroleum-based and are impacted by petroleum prices . chemical costs for 2012 increased $ 8.9 million , or 1.2 percentage points , over 2011 costs , primarily as a result of increased production volumes and , to a lesser degree , higher starch and caustic pricing . transportation . fuel prices significantly impact transportation costs for delivery of raw materials to our manufacturing facilities , internal inventory transfers and delivery of our finished products to customers . changing fuel prices particularly affect our margins for consumer products because we supply customers throughout the u.s. and transport significant numbers of unconverted parent rolls from our tissue mills to our geographically dispersed tissue converting facilities . story_separator_special_tag our transportation costs for 2012 , compared to 2011 , decreased as less fuel was needed because of continuing optimization of shipping to and from our expanded converting facilities resulting from the cellu tissue acquisition . because of our expanded size , we were also able to continue negotiating better fuel rates and surcharges . in addition , as a result of the sale of our lewiston , idaho sawmill in november 2011 , overall transportation costs were lower for 2012 compared to 2011. chips , sawdust and logs . we purchase chips , sawdust and logs used to manufacture pulp . overall costs for chips , sawdust and logs for 2012 decreased compared to 2011 , both in dollars and as a percentage of cost of sales , primarily due to the sale of our lewiston , idaho sawmill in november 2011. excluding the effects of our former sawmill , the cost of chips , sawdust and logs decreased slightly when compared to the prior year period primarily due to lower hardwood usage , which was attributable to the use of a higher proportion of lower-priced sawdust , and lower overall pricing at our lewiston , idaho , pulp and paperboard mill . in 2013 , as a result of our acquisition of a wood chipping facility at the end of 2012 , we expect to be less exposed to market costs for chips , sawdust and logs . 23 energy . we use energy in the form of electricity , hog fuel , steam and natural gas to operate our mills . energy prices have fluctuated widely over the past decade . we have taken steps , and intend to continue to take steps , to reduce our exposure to volatile energy prices through conservation . in addition , cogeneration facilities that produce steam and electricity at our east hartford , connecticut , lewiston , idaho and menominee , michigan manufacturing sites help to lower our energy costs . however , tad tissue production involves greater natural gas usage than conventional tissue manufacturing and , as a result , we expect our natural gas requirements will increase due to the start up of our north carolina tad paper machine . to help mitigate our exposure to changes in natural gas prices , from time to time we have used firm-price contracts to supply a portion of our natural gas requirements . as of december 31 , 2012 , these contracts covered approximately 4 % of our expected natural gas requirements for our manufacturing facilities for 2013. energy costs for 2012 were lower than those in 2011 due to lower usage as a result of the sale of our lewiston , idaho , sawmill and lower natural gas and electricity prices . our energy costs in future periods will continue to depend principally on our ability to produce a substantial portion of our electricity needs internally , on changes in market prices for natural gas and on our ability to reduce our energy usage . maintenance and repairs . we incur significant costs to maintain our manufacturing equipment . we perform routine maintenance on our machines and periodically replace a variety of parts such as motors , pumps , pipes and electrical parts . maintenance and repair costs , including major maintenance and repairs , are expensed as incurred . major equipment maintenance and repairs in our pulp and paperboard segment also require maintenance shutdowns annually at our idaho facility , historically , and approximately every 18 months at our arkansas facility , which increases costs and may reduce net sales in the quarters in which the major maintenance shutdowns occur . we have optimized the major maintenance process at our idaho facility and expect that facility to also be on an 18 month schedule going forward . in the first quarter of 2012 , we had 17 combined days of scheduled machine downtime for the two paperboard machines at our idaho pulp and paperboard mill and incurred approximately $ 15.5 million in major maintenance costs , excluding labor , compared to major maintenance costs of $ 11.4 million and $ 3.1 million , respectively , at the same mill in the first and third quarters of 2011. there was no major maintenance in the second and third quarters of 2012. as a result of a decision to defer a portion of our expected major maintenance costs at our arkansas facility of $ 4.3 million originally planned for the fourth quarter of 2012 we spent $ 2.0 million in the fourth quarter of 2012 , and expect to incur the remainder in the first quarter of 2013. in 2013 , we expect to spend a total of approximately $ 14 million for planned major maintenance , which consists of an estimated $ 3 million at our arkansas facility during the first quarter and an estimated $ 11 million at our idaho facility , which is largely expected to be incurred during the third quarter . in addition to ongoing maintenance and repair costs , we make capital expenditures to increase our operating capacity and efficiency , to improve safety at our facilities and to comply with environmental laws . excluding $ 144.5 million of expenditures for our tad project , we spent $ 50.0 million on capital expenditures during 2012 , compared to $ 47.3 million in 2011. capital expenditures for 2013 are expected to be approximately $ 91 million , which includes an estimated $ 16 million associated with the completion of our tad project . packaging supplies . as a significant producer of private label consumer tissue products , we package to order for retail chains , wholesalers and cooperative buying organizations . in connection with sales to these customers , we incur expenses related to the unique packaging of our products for direct retail sale to consumers . for the year ended december 31 , 2012 , packaging costs were lower than those in 2011 primarily due to procurement synergies resulting from the cellu tissue acquisition . depreciation and amortization .
| this was partially offset by an increase of $ 88.0 million in capital expenditures in 2011 , primarily related to the cash outlays associated with our new converting and manufacturing facilities in north carolina and capital improvement projects at cellu tissue facilities . financing activities —net cash used for financing activities was $ 17.5 million in 2012 , compared with $ 29.1 million in 2011. cash used for financing activities in 2012 consisted of payments totaling $ 13.2 million for minimum tax withholdings associated with settlement and distribution of equity-based awards and $ 18.7 million for treasury stock purchases , partially offset by an excess tax benefit of $ 15.8 million associated with the equity-based awards settled and distributed in 2012. net cash used for financing activities was $ 29.1 million for 2011 , compared to cash provided by financing activities of $ 58.5 million in 2010. the use of cash in 2011 primarily consisted of $ 11.3 million used to repurchase shares of our common stock pursuant to our $ 30 million stock repurchase program and $ 15.6 million used in the redemption of the remaining principal amount on our outstanding irbs and associated costs . the cash provided by financing activities in 2010 was primarily attributable to financing related to the cellu tissue acquisition , as discussed below . capital resources due to the competitive and cyclical nature of the markets in which we operate , as well as an uncertain economic environment , there is uncertainty regarding the amount of cash flows we will generate during the next twelve months . however , we believe that our cash flows from operations , cash on hand , short-term investments and available borrowing capacity under our credit facility will be adequate to fund debt service requirements and provide cash required to support our ongoing operations , capital expenditures , and working capital needs for the next twelve months .
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, $ 136.2 million , and $ 14.4 million , for fiscal year 2020 , fiscal year 2019 , and fiscal year 2018 , respectively . ( 2 ) adjusted ebitda , adjusted ebitda margin and free cash flow are non-gaap financial measures . see “ non-gaap financial measures ” below . we define net margin as net loss divided by net sales and adjusted ebitda margin as adjusted ebitda divided by net sales . non-gaap financial measures adjusted ebitda and adjusted ebitda margin to provide investors with additional information regarding our financial results , we have disclosed here and elsewhere in this 10-k report adjusted ebitda , a non-gaap financial measure that we calculate as net loss excluding depreciation and amortization ; share-based compensation expense and related taxes ; income tax provision ; interest income ( expense ) , net ; management fee expense ; transaction related costs ; and litigation matters and other items that we do not consider representative of our underlying operations . we have provided a reconciliation below of adjusted ebitda to net loss , the most directly comparable gaap financial measure . we have included adjusted ebitda in this 10-k report because it is a key measure used by our management and board of directors to evaluate our operating performance , generate future operating plans and make strategic decisions regarding the allocation of capital . in particular , the exclusion of certain expenses in calculating adjusted ebitda facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and certain variable charges . accordingly , we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . we believe it is useful to exclude non-cash charges , such as depreciation and amortization , share-based compensation expense and management fee expense from our adjusted ebitda because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations . we believe it is useful to exclude income tax provision ; interest income ( expense ) , net ; transaction related costs ; and litigation matters and other items which are not components of our core business operations . adjusted ebitda has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . some of these limitations are : 38 although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future and adjusted ebitda does not reflect capital expenditure requirements for such replacements or for new capital expenditures ; adjusted ebitda does not reflect share-based compensation and related taxes . share-based compensation has been , and will continue to be for the foreseeable future , a recurring expense in our business and an important part of our compensation strategy ; adjusted ebitda does not reflect interest income ( expense ) , net ; or changes in , or cash requirements for , our working capital ; adjusted ebitda does not reflect transaction related costs ( e.g . ipo costs ) and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction and include litigation matters , integration consulting fees , internal salaries and wages ( to the extent the individuals are assigned full-time to integration and transformation activities ) and certain costs related to integrating and converging it systems ; and other companies , including companies in our industry , may calculate adjusted ebitda differently , which reduces its usefulness as a comparative measure . because of these limitations , you should consider adjusted ebitda and adjusted ebitda margin alongside other financial performance measures , including various cash flow metrics , net loss , net margin , and our other gaap results . the following table presents a reconciliation of net loss to adjusted ebitda for each of the periods indicated . ( $ in thousands , except percentages ) fiscal year reconciliation of net loss to adjusted ebitda 2020 2019 2018 net loss $ ( 92,486 ) $ ( 252,370 ) $ ( 267,890 ) add ( deduct ) : depreciation and amortization 35,664 30,645 23,210 share-based compensation expense and related taxes 129,208 136,237 14,351 interest expense ( income ) , net 2,022 ( 356 ) 124 management fee expense ( 1 ) 1,300 1,300 1,300 transaction related costs 2,369 1,396 — other 7,080 2,123 — adjusted ebitda $ 85,157 $ ( 81,025 ) $ ( 228,905 ) net sales $ 7,146,264 $ 4,846,743 $ 3,532,837 net margin ( 1.3 ) % ( 5.2 ) % ( 7.6 ) % adjusted ebitda margin 1.2 % ( 1.7 ) % ( 6.5 ) % ( 1 ) management fee expense allocated to us by petsmart for organizational oversight and certain limited corporate functions provided by its sponsors . although we are not a party to the agreement governing the management fee , this management fee is reflected as an expense in our consolidated financial statements . free cash flow to provide investors with additional information regarding our financial results , we have also disclosed here and elsewhere in this 10-k report free cash flow , a non-gaap financial measure that we calculate as net cash provided by ( used in ) operating activities less capital expenditures ( which consist of purchases of property and equipment , including servers and networking equipment , capitalization of labor related to our website , mobile applications , and software development , and leasehold improvements ) . we have provided a reconciliation below of free cash flow to net cash provided by ( used in ) operating activities , the most directly comparable gaap financial measure . we have included free cash flow in this 10-k report because it is an important indicator of our liquidity as it measures the amount of cash we generate . story_separator_special_tag accordingly , we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . 39 free cash flow has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . there are limitations to using non-gaap financial measures , including that other companies , including companies in our industry , may calculate free cash flow differently . because of these limitations , you should consider free cash flow alongside other financial performance measures , including net cash provided by ( used in ) operating activities , capital expenditures and our other gaap results . the following table presents a reconciliation of net cash provided by ( used in ) operating activities to free cash flow for each of the periods indicated . replace_table_token_2_th free cash flow may be affected in the near to medium term by the timing of capital investments ( such as the launch of new fulfillment centers , customer service centers , and corporate offices and purchases of it and other equipment ) , fluctuations in our growth and the effect of such fluctuations on working capital , and changes in our cash conversion cycle due to increases or decreases of vendor payment terms as well as inventory turnover . key operating metrics active customers as of the last date of each reporting period , we determine our number of active customers by counting the total number of individual customers who have ordered , and for whom an order has shipped , at least once during the preceding 364-day period . the change in active customers in a reporting period captures both the inflow of new customers as well as the outflow of customers who have not made a purchase in the last 364 days . we view the number of active customers as a key indicator of our growth—acquisition and retention of customers—as a result of our marketing efforts and the value we provide to our customers . the number of active customers has grown over time as we acquired new customers and retained previously acquired customers . net sales per active customer we define net sales per active customer as the aggregate net sales for the preceding four fiscal quarters , divided by the total number of active customers at the end of that period . we view net sales per active customer as a key indicator of our customers ' purchasing patterns , including their initial and repeat purchase behavior . autoship and autoship customer sales we define autoship customers as customers in a given fiscal quarter for whom an order has shipped through our autoship subscription program during the preceding 364-day period . we define autoship as our subscription program , which provides automatic ordering , payment , and delivery of products to our customers . we view our autoship subscription program as a key driver of recurring net sales and customer retention . for a given fiscal quarter , autoship customer sales consist of sales and shipping revenues from all autoship subscription program purchases and purchases outside of the autoship subscription program by autoship customers , excluding taxes collected from customers , excluding any refund allowance , and net of any promotional offers ( such as percentage discounts off current purchases and other similar offers ) , for that quarter . for a given fiscal year , autoship customer sales equal the sum of the autoship customer sales for each of the fiscal quarters in that fiscal year . 40 autoship customer sales as a percentage of net sales we define autoship customer sales as a percentage of net sales as the autoship customer sales in a given reporting period divided by the net sales from all orders in that period . we view autoship customer sales as a percentage of net sales as a key indicator of our recurring sales and customer retention . components of results of consolidated operations net sales we derive net sales primarily from sales of both third-party brand and proprietary brand pet food , pet products , pet medications and other pet health products , and related shipping fees . sales of third-party brand and proprietary brand pet food , pet products and shipping revenues are recorded when products are shipped , net of promotional discounts and refund allowances . taxes collected from customers are excluded from net sales . net sales is primarily driven by growth of new customers and active customers , and the frequency with which customers purchase and subscribe to our autoship subscription program . we also periodically provide promotional offers , including discount offers , such as percentage discounts off current purchases and other similar offers . these offers are treated as a reduction to the purchase price of the related transaction and are reflected as a net amount in net sales . cost of goods sold cost of goods sold consists of the cost of third-party brand and proprietary brand products sold to customers , inventory freight , shipping supply costs , inventory shrinkage costs , and inventory valuation adjustments , offset by reductions for promotions and percentage or volume rebates offered by our vendors , which may depend on reaching minimum purchase thresholds . generally , amounts received from vendors are considered a reduction of the carrying value of inventory and are ultimately reflected as a reduction of cost of goods sold . selling , general and administrative selling , general and administrative expenses consist of payroll and related expenses for employees involved in general corporate functions , including accounting , finance , tax , legal and human resources ; costs associated with use by these functions , such as depreciation expense and rent relating to facilities and equipment ; professional fees and other general corporate costs ; share-based compensation ; and fulfillment costs .
| gross profit as a percentage of net sales for fiscal year 2020 increased by approximately 190 basis points compared to fiscal year 2019 , primarily due to margin expansion across all verticals including continued growth in our proprietary brands , hardgoods , and healthcare businesses . selling , general and administrative selling , general and administrative expenses for fiscal year 2020 increased by $ 428.1 million , or 44.1 % , to $ 1.4 billion compared to $ 969.9 million in fiscal year 2019. this increase was primarily due to an increase of $ 324.8 million in fulfillment costs largely attributable to increased investments to support overall growth of our business including the opening of new fulfillment centers in archbald , pennsylvania , salisbury , north carolina , a limited catalog fulfillment center in kansas city , missouri , a customer service center in dallas , texas , annualization of the dayton , ohio facility we launched during the thirteen weeks ended august 4 , 2019 , growth of fulfillment and customer service headcount , and temporary incentive wages and bonuses as well as incremental cleaning and sanitation costs attributable to covid-19 . facilities expenses and other general administrative expenses increased by $ 132.9 million , primarily due to expanding our corporate offices and increased headcount as a result of business growth as well as an increase in expenses incurred due to it initiatives and operating as a public company . partially offsetting these increases , we recognized a reduction in non-income tax based reserves of $ 15.9 million and a decrease of $ 13.7 million in non-cash share-based compensation expense due to the continued vesting of share-based awards . advertising and marketing advertising and marketing expenses for fiscal year 2020 increased by $ 86.4 million , or 20.2 % , to $ 513.3 million compared to $ 426.9 million in fiscal year 2019. the increase was primarily due to an increase in advertising and marketing spend through existing channels which contributed to an increase in the number of active customers of
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we generally pay higher commissions to our independent sales representatives for quick-turn work , which generally has a higher gross profit component than standard lead-time work . general and administrative costs primarily include the salaries for executive , finance , accounting , information technology , facilities and human resources personnel , as well as insurance expenses , expenses for accounting and legal assistance , incentive compensation expense , stock-based compensation expense , bad debt expense , gains or losses on the sale or disposal of property , plant and equipment , and acquisition-related expenses . 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 management 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 management 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 , would have a material effect on our financial condition or results of operations . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the 38 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 asset valuation related to bad debts and inventory ; sales returns and allowances ; impairment of long-lived assets , including goodwill and intangible assets ; derivative instruments and hedging activities ; realizability of deferred tax assets ; and determining self-insurance reserves . allowance for doubtful accounts we provide customary credit terms to our customers and generally do not require collateral . we perform ongoing credit evaluations of the financial condition of our customers and maintain an allowance for doubtful accounts based upon historical collections experience and judgments as to expected collectibility of accounts . our actual bad debts may differ from our estimates . inventories in assessing the realizability of inventories , we are required to make judgments as to future demand requirements and compare these with current and committed inventory levels . when the market value of inventory is less than the carrying value , the inventory cost is written down to its estimated net realizable value , thereby establishing a new cost basis . our inventory requirements may change based on our projected customer demand , market conditions , technological and product life cycle changes , longer or shorter than expected usage periods , and other factors that could affect the valuation of our inventories . we maintain certain finished goods inventories near certain key customer locations in accordance with agreements with those customers . although this inventory is typically supported by valid purchase orders , should these customers ultimately not purchase these inventories , our results of operations and financial condition would be adversely affected . sales returns and allowances we derive revenues primarily from the sale of printed circuit boards and backplane assemblies using customer-supplied engineering and design plans . we recognize revenue when persuasive evidence of a sales arrangement exists , the sales terms are fixed or determinable , title and risk of loss have transferred , and collectibility is reasonably assured generally when products are shipped to the customer . we provide our customers a limited right of return for defective printed circuit boards and backplane assemblies . we accrue an estimated amount for sales returns and allowances at the time of sale using our judgment based on historical information and anticipated returns as a result of current period sales . to the extent actual experience varies from our historical experience , revisions to these allowances may be required . long-lived assets we have significant long-lived tangible and intangible assets consisting of property , plant and equipment , definite-lived intangibles , and goodwill . 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 . during the fourth quarter of each year , and when events and circumstances warrant an evaluation , we perform our annual impairment assessment of goodwill , which requires the use of a fair-value based analysis . we determine the fair value of our reporting units based on discounted cash flows and market approach analyses as considered necessary . we consider factors such as the state of the economy and reduced expectations for future cash flows coupled with a decline in our market capitalization for a sustained period as indicators for potential goodwill impairment . if the reporting unit 's carrying amount exceeds its estimated fair value , a second step must be performed to measure the amount of the goodwill impairment loss , if any . the second step compares the implied fair value of the reporting unit 's goodwill , determined in the same manner as the amount of goodwill recognized in a business combination , with the carrying amount of such goodwill . story_separator_special_tag if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of that goodwill , an impairment loss is recognized in an amount equal to that excess . for the years ended december 31 , 2012 and 2011 , our assessment of goodwill 39 impairment indicated that the carrying values of goodwill for our asia pacific reporting unit , in our asia pacific operating segment , and our shanghai backplane assembly reporting unit , in our north america operating segment , were in excess of fair value , and therefore goodwill was impaired . see note 5 to our consolidated financial statements . we also assess other long-lived assets , specifically definite-lived intangibles and property , plant and equipment , for potential impairment given similar impairment indicators . when indicators of impairment exist related to our long-lived tangible assets and definite-lived intangible assets , we use an estimate of the undiscounted net 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 . during the years ended december 31 , 2012 and 2011 , we recorded impairment charges to reduce the carrying value of certain long-lived assets in the asia pacific operating segment . see notes 5 and 6 to our consolidated financial statements . derivative instruments and hedging activities as a matter of policy , we use derivatives for risk management purposes , and we do not use derivatives for speculative purposes . derivatives are typically entered into as hedges of changes in interest rates , currency exchange rates , and other risks . when we determine to designate a derivative instrument as a cash flow hedge , we formally document the hedging relationship and its risk management objective and strategy for undertaking the hedge , the hedging instrument , the hedged item , the nature of the risk being hedged , how the hedging instrument 's effectiveness in offsetting the hedged risk will be assessed , and a description of the method of measuring ineffectiveness . we also formally assess , both at the hedge 's inception and on an ongoing basis , whether the derivative that is used in hedging transactions is highly effective in offsetting changes in cash flows of hedged items . derivative financial instruments are recognized as either assets or liabilities on the consolidated balance sheet with measurement at fair value . fair value of the derivative instruments is determined using pricing models developed based on the underlying swap interest rate , foreign currency exchange rates , and other observable market data as appropriate . the values are also adjusted to reflect nonperformance risk of the counterparty and the company , as necessary . for derivatives that are designated as a cash flow hedge , changes in the fair value of the derivative are recognized in accumulated other comprehensive income , to the extent the derivative is effective at offsetting the changes in cash flow being hedged until the hedged item affects earnings . to the extent there is any hedge ineffectiveness , changes in fair value relating to the ineffective portion are immediately recognized in earnings . changes in the fair value of derivatives that are not designated as hedges are recorded in earnings each period . 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 . should our expectations of taxable income change in future periods , it may be necessary to establish a valuation allowance , which could affect our results of operations in the period such a determination is made . we record income tax provision or benefit during interim periods at a rate that is based on expected results for the full year . if future changes in market conditions cause actual results for the year to be more or less favorable than those expected , adjustments to the effective income tax rate could be required . in addition , 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 . 40 self insurance we are primarily self-insured in north america for group health insurance and worker 's compensation benefits provided to our u.s. employees , and we purchase insurance to protect against annual claims at the individual and aggregate level . we estimate our exposure for claims incurred but not reported at the end of each reporting period . we use our judgment using our historical claim data and information and analysis provided by actuarial and claim advisors , our insurance carriers and brokers on an annual basis to estimate our liability for these claims . this liability is subject to individual insured stop-loss coverage for both programs , which is $ 250,000 per individual . our actual claims experience may differ from our estimates . story_separator_special_tag ended december 31 , 2010 to $ 450.0 million for the year ended december 31 , 2011. this decrease was primarily due to lower sales volume and lower labor costs at several pcb manufacturing plants .
| this reduction in demand , which resulted in a 14 % decline in pcb shipments from the year ended december 31 , 2011 , was primarily due to global macroeconomic weakness as well as lower infrastructure spending by telecommunications companies . the average pcb selling price increased by 13 % , which was driven primarily by the product mix shift from conventional pcbs and standard hdi pcbs toward higher priced advanced hdi pcbs . net sales for the north america operating segment decreased by $ 56.5 million , or 10.0 % , from $ 565.9 million for the year ended december 31 , 2011 to $ 509.4 million for the year ended december 31 , 2012 primarily due to lower demand in our networking/communications and aerospace/defense end markets . this decrease in demand , which resulted in a 15 % decline in pcb shipments from december 31 , 2011 , was primarily due to global macroeconomic weakness , uncertainty around potential u.s. defense spending cuts and lower telecommunications infrastructure spending . the decline was partially offset by a 7 % increase in the average pcb selling price due to greater advanced technology product mix . in addition , demand for backplane assemblies , largely from networking/communications customers , decreased by 11 % from the year ended december 31 , 2011. total net sales increased by $ 248.9 million , or 21.1 % , from $ 1,179.7 million for the year ended december 31 , 2010 to $ 1,428.6 million for the year ended december 31 , 2011. net sales for the asia pacific operating segment , excluding inter-segment sales , increased by $ 264.9 million from $ 597.8 million for the year ended december 31 , 2010 to $ 862.7 million for the year ended december 31 , 2011. this increase was mainly due to the inclusion of a full year of asia pacific net sales in 2011 compared to 9 months in 2010 due to our acquisition of the pcb subsidiaries in april 2010. in addition , we experienced an increase in pcb prices of approximately 22 % resulting from a product mix shift from
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revenues our total revenues increased by $ 203.2 million , or 26.3 % , to $ 976.7 million for fiscal year 2016 , compared with $ 773.6 million for fiscal year 2015. this increase was primarily due to ( 1 ) an increase in our customers ' demand for both optical and non-optical communications manufacturing services during fiscal year 2016 and ( 2 ) our inability to recognize $ 16.5 million of consignment revenues during fiscal year 2015 because of certain consignment revenue recognition issues previously disclosed that resulted in lower revenue in fiscal year 2015. we refer to finished goods held in our warehouse on behalf of our customers as consignment goods or consignment inventory , and when the finished goods are sold , we refer to the related revenue as consignment revenue . we believe our ability to expand our relationships with existing customers and attract new customers is due to a number of factors , including our broad range of complex engineering and manufacturing service offerings , flexible low-cost manufacturing platform , process optimization capabilities , advanced supply chain management , 37 excellent customer service and experienced management team . although we expect the prices we charge for our manufactured products to decrease over time ( partly as a result of competitive market forces ) , we still believe we will be able to maintain favorable pricing for our services because of our ability to reduce cycle time , adjust our product mix by focusing on more complicated products , improve product quality and yields , and reduce material costs for the products we manufacture . we believe these capabilities will enable us to help our oem customers reduce their manufacturing costs while maintaining or improving the design , quality , reliability and delivery times of their products . revenues , by percentage , from individual customers representing 10 % or more of our total revenues in the respective periods were as follows : replace_table_token_6_th ( 1 ) less than 10 % of total revenue . during fiscal year 2016 , we had one customer that contributed 10 % or more of our total revenues and such customer accounted for 20 % of our total revenues during the period . during fiscal year 2015 and fiscal year 2014 , we had two customers that each contributed 10 % or more of our total revenues , and such customers together accounted for 30 % and 46 % , respectively , of our total revenues during the respective periods . because we depend upon a small number of customers for a significant percentage of our total revenues , a reduction in orders from , a loss of , or any other adverse actions by , any one of these customers would reduce our revenues and could have a material adverse effect on our business , operating results and share price . moreover , our customer concentration increases the concentration of our accounts receivable and payment default by any of our key customers will negatively impact our exposure . many of our existing and potential customers have substantial debt burdens , have experienced financial distress or have static or declining revenues , all of which may be exacerbated by the continued uncertainty in the global economies . certain customers have gone out of business or have been acquired or announced their withdrawal from segments of the optics market . we generate significant accounts payable and inventory for the services that we provide to our customers , which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers . therefore , any financial difficulties that our key customers experience could materially and adversely affect our operating results and financial condition by generating charges for inventory write-offs , provisions for doubtful accounts , and increases in working capital requirements due to increased days inventory and in accounts receivable . furthermore , reliance on a small number of customers gives those customers substantial purchasing power and leverage in negotiating contracts with us . in addition , although we enter into master supply agreements with our customers , the level of business to be transacted under those agreements is not guaranteed . instead , we are awarded business under those agreements on a project-by-project basis . some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us . if we are unable to maintain our relationships with our existing significant customers , our business , financial condition and operating results could be harmed . revenues by geography we generate revenues from three geographic regions : north america , asia-pacific , and europe . revenues are attributed to a particular geographic area based on the bill-to-location of our customers , notwithstanding that our customers may ultimately ship their products to end customers in a different geographic region . our revenues are mostly derived from our manufacturing facilities in asia-pacific . 38 the percentage of our revenues generated from a bill-to-location outside of north america , consisting of asia-pacific and europe , decreased from 52.1 % in fiscal year 2015 to 46.2 % in fiscal year 2016 , primarily because of a decrease in sales volumes of our customers in those regions . we expect that the portion of our future revenues attributable to customers in regions outside of north america will decrease as compared with fiscal year 2016. the following table presents percentages of total revenues by geographic regions : replace_table_token_7_th our contracts we enter into supply agreements with our customers which generally have an initial term of up to three years , subject to automatic renewals for subsequent one-year terms unless expressly terminated . although there are no minimum purchase requirements in our supply agreements , our customers do provide us with rolling forecasts of their demand requirements . our supply agreements generally include provisions for pricing and periodic review of pricing , consignment of our customer 's unique production equipment to us , and the sharing of benefits from cost-savings derived from our efforts . story_separator_special_tag we are generally required to purchase materials , which may include long lead-time materials and materials that are subject to minimum order quantities and or non-cancelable or non-returnable terms , to meet the stated demands of our customers . after procuring materials , we manufacture products for our customers based on purchase orders that contain terms regarding product quantities , delivery locations and delivery dates . our customers are generally obligated to purchase finished goods that we have manufactured according to their demand requirements . materials that are not consumed by our customers within a specified period of time , or are no longer required due to a product 's cancellation or end-of-life , are typically designated as excess or obsolete inventory under our contracts . once materials are designated as either excess or obsolete inventory , our customers are typically required to purchase such inventory from us even if they have chosen to cancel production of the related products . cost of revenues the key components of our cost of revenues are material costs , employee costs and infrastructure-related costs . material costs generally represent the majority of our cost of revenues . several of the materials we require to manufacture products for our customers are customized for their products and often sourced from a single supplier or in some cases , our own subsidiaries . shortages from sole-source suppliers due to yield loss , quality concerns and capacity constraints , among other factors , may increase our expenses and negatively impact our gross profit margin or total revenues in a given quarter . material costs include scrap material . historically , scrap rate diminishes during a product 's life cycle due to process , fixturing and test improvement and optimization . a second significant element of cost of revenues is employee costs , including indirect employee costs related to design , configuration and optimization of manufacturing processes for our customers , quality testing , materials testing and other engineering services ; and direct costs related to our manufacturing employees . direct employee costs include employee salaries , insurance and benefits , merit-based bonuses , recruitment , training and retention . historically , our employee costs have increased primarily due to increases in the number of employees necessary to support our growth and , to a lesser extent , costs for recruitment , training and retention of employees . our cost of revenues are significantly impacted by salary levels in thailand and the prc , the fluctuation of the thai baht and chinese renminbi ( rmb ) against our functional currency , the u.s. dollar , and our ability to 39 retain our employees . we expect our employee costs to increase as wages continue to increase in thailand and the prc . wage increases may impact our ability to sustain our competitive advantage and may reduce our profit margin . we seek to mitigate these cost increases through improvements in employee productivity , employee retention and asset utilization . our infrastructure costs are comprised of depreciation , utilities , facilities management and overhead costs . most of our facility leases are long-term agreements . our depreciation costs include buildings and fixed assets , primarily at our pinehurst campus in thailand , and capital equipment located at each of our manufacturing locations . during fiscal year 2016 , fiscal year 2015 and fiscal year 2014 , discretionary merit-based bonus awards were provided to our non-executive employees . charges included in cost of revenues for bonus distributions to such employees were $ 2.8 million , $ 2.4 million and $ 1.9 million for fiscal year 2016 , fiscal year 2015 and fiscal year 2014 , respectively . share-based compensation expense included in cost of revenues was $ 2.0 million , $ 1.5 million and $ 1.2 million for fiscal year 2016 , fiscal year 2015 and fiscal year 2014 , respectively . we expect to incur incremental costs of revenue as a result of our planned expansion into new geographic markets , though we are not able to determine the amount of these incremental expenses . selling , general and administrative expenses our sg & a expenses primarily consist of corporate employee costs for sales and marketing , general and administrative and other support personnel , including research and development expenses related to the design of customized optics and glass , travel expenses , legal and other professional fees , share-based compensation expense and other general expenses not related to cost of revenues . in fiscal year 2017 , we expect our sg & a expenses will increase on an absolute dollar basis and decrease as a percentage of revenue compared with fiscal year 2016. the compensation committee of our board of directors approved a fiscal year 2016 executive incentive plan with quantitative objectives , based on achieving certain revenue and non-gaap earnings per share targets for our fiscal year ended june 24 , 2016 , as well as qualitative objectives , based on achieving individual performance goals . bonuses under our fiscal year 2016 executive incentive plan are payable at the end of fiscal year 2016. in fiscal year 2015 , the compensation committee approved a fiscal year 2015 executive incentive plan with quantitative objectives , based on achieving certain revenue and gross margin percentage targets for our fiscal year ended june 26 , 2015 , as well as qualitative objectives , based on achieving individual performance goals . in the three months ended september 25 , 2015 , the compensation committee awarded bonuses to our executive employees for company and individual achievements of performance under our fiscal year 2015 executive incentive plan . discretionary merit-based bonus awards were also available to our non-executive employees and were payable as of june 24 , 2016. charges included in sg & a expenses for bonus distributions to non-executive and executive employees were $ 4.7 million , $ 3.6 million and $ 3.1 million for fiscal year 2016 , fiscal year 2015 and fiscal year 2014 , respectively . share-based compensation expense included in sg & a expenses was $ 7.9 million , $ 6.6
| our cost of revenues increased by $ 171.4 million , or 25.0 % , to $ 857.2 million , or 87.8 % of total revenues , for fiscal year 2016 , compared with $ 685.8 million , or 88.6 % of total revenues , for fiscal year 2015. the increase in cost of revenues on an absolute dollar basis was primarily due to an increase in sales volume , which was partially offset by a more favorable product mix . cost of revenues also included non-cash share-based compensation expense of $ 2.0 million for fiscal year 2016 , compared with $ 1.5 million for fiscal year 2015 . 47 gross profit . our gross profit increased by $ 31.8 million , or 36.2 % , to $ 119.5 million , or 12.2 % of total revenues , for fiscal year 2016 , compared with $ 87.8 million , or 11.4 % of total revenues , for fiscal year 2015. the increase in gross profit margin during fiscal year 2016 , compared with fiscal year 2015 , was primarily related to an increase in sales volume and more favorable product mix during fiscal year 2016. sg & a expenses . our sg & a expenses increased by $ 10.3 million , or 26.1 % , to $ 49.8 million , or 5.1 % of total revenues , for fiscal year 2016 , compared with $ 39.5 million , or 5.1 % of total revenues , for fiscal year 2015. our sg & a expenses increased in absolute dollars during fiscal year 2016 , compared with fiscal year 2015 , mainly due to ( 1 ) an increase of $ 4.6 million in expenses relating to our new manufacturing facility in the united states which commenced operations during the third quarter of fiscal year 2015 ; ( 2 ) the recognition of $ 1.4 million in severance and related benefit costs to executives who left the company during fiscal year 2016 ; ( 3 ) an increase of $ 1.3 million in sales and marketing expenses ; and ( 4 ) an increase of $ 1.0 million in executive and management bonuses , salaries , and other benefits . other income related to flooding . in fiscal year 2016 , we recognized other income related to flooding of $ 0.04 million , which consisted of a $ 0.90 million final payment from an insurer against our claim for flood damage , offset by expenses in relation to flood of $ 0.86
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our large installed base of products provides a recurring revenue stream through our aftermarket parts , consumables and services offerings . as a result , our aftermarket revenue is significant , representing 38 % of total company revenue and approximately 42 % of our combined industrials and energy segments ' revenue in 2019 . 27 index our segments we report our results of operations through three reportable segments : industrials , energy and medical . industrials in the industrials segment , we design , manufacture , market and service a broad range of air compression , vacuum and blower products across a wide array of technologies and applications . almost every manufacturing and industrial facility , and many service and process industries , use air compression and vacuum products in a variety of applications such as operation of pneumatic air tools , vacuum packaging of food products and aeration of waste water . we maintain a leading position in our markets and serve customers globally . we offer comprehensive aftermarket parts and an experienced direct and distributor-based service network world-wide to complement all of our products . in 2019 , the industrials segment generated segment revenue of $ 1,301.3 million and segment adjusted ebitda of $ 296.6 million , reflecting a segment adjusted ebitda margin of 22.8 % . energy in the energy segment , we design , manufacture , market and service a diverse range of positive displacement pumps , liquid ring vacuum pumps and compressors , and engineered loading systems and fluid transfer equipment , consumables , and associated aftermarket parts and services . we serve customers in the upstream , midstream , and downstream oil and gas markets , and various other markets including petrochemical processing , power generation , transportation , and general industrial . we are one of the largest suppliers in these markets and have long-standing customer relationships . our positive displacement pumps are used in the oilfield for drilling , hydraulic fracturing , completion and well servicing . our liquid ring vacuum pumps and compressors are used in many power generation , mining , oil and gas refining and processing , chemical processing and general industrial applications including flare gas and vapor recovery , geothermal gas removal , vacuum de-aeration , enhanced oil recovery , water extraction in mining and paper and chlorine compression in petrochemical operations . our engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil , liquefied natural gas , compressed natural gas , chemicals , and bulk materials . in 2019 , the energy segment generated segment revenue of $ 870.2 million and segment adjusted ebitda of $ 225.1 million , reflecting a segment adjusted ebitda margin of 25.9 % . medical in the medical segment , we design , manufacture and market a broad range of highly specialized gas , liquid and precision syringe pumps and compressors primarily for use in the medical , laboratory and biotechnology end markets . our customers are mainly medium and large durable medical equipment suppliers that integrate our products into their final equipment for use in applications such as oxygen therapy , blood dialysis , patient monitoring , wound treatment , and others . further , with recent acquisitions , we expanded into liquid handling components and systems used in biotechnology applications including clinical analysis instrumentation . we also have a broad range of end use deep vacuum products for laboratory science applications . in 2019 , the medical segment generated segment revenue of $ 280.4 million and segment adjusted ebitda of $ 84.4 million , reflecting a segment adjusted ebitda margin of 30.1 % . components of our revenue and expenses revenues we generate revenue from sales of our highly engineered , application-critical products and by providing associated aftermarket parts , consumables and services . we sell our products and deliver aftermarket services both directly to end-users and through independent distribution channels , depending on the product line and geography . below is a description of our revenues by segment and factors impacting total revenues . industrials revenue our industrials segment revenues are generated primarily through sales of air compression , vacuum and blower products to customers in multiple industries and geographies . a significant portion of our sales in the industrials segment are made to independent distributors . the majority of industrials segment revenues are derived from short duration contracts and revenue is recognized at a single point in time when control is transferred to the customer , generally at shipment or when delivery has occurred or services have been rendered . certain contracts may involve significant design engineering to customer specifications , and depending on the contractual terms , revenue is recognized either over the duration of the contract or at contract completion when equipment is delivered to the customer . our large installed base of products in our industrials segment drives demand for recurring aftermarket support services primarily composed of replacement part sales to our distribution partners and , to a lesser extent , by directly providing replacement parts and repair and maintenance services to end customers . revenue for services is recognized when services are performed . 28 index energy revenue our energy segment revenues are generated primarily through sales of positive displacement pumps , liquid ring vacuum pumps , compressors and integrated systems and engineered fluid loading and transfer equipment and associated aftermarket parts , consumables and services for use primarily in upstream , midstream , downstream and petrochemical end-markets across multiple geographies . the majority of energy segment revenues are derived from short duration contracts and revenue is recognized at a single point in time when control is transferred to the customer , generally at shipment or when delivery has occurred or services have been rendered . certain contracts with customers in the mid- and downstream and petrochemical markets are higher sales value and often have longer lead times and involve more application specific engineering . story_separator_special_tag depending on the contractual terms , revenue is recognized either over the duration of the contract or at contract completion when equipment is delivered to the customer . provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined to be probable . as a result , the timing of these contracts can result in significant variation in reported revenue from quarter to quarter . our large installed base of products in our energy segment drives demand for recurring aftermarket support services to customers , including replacement parts , consumables and repair and maintenance services . the mix of aftermarket to original equipment revenue within the energy segment is impacted by trends in upstream energy activity in north america . revenue for services is recognized when services are performed . in response to customer demand for faster access to aftermarket parts and repair services , we expanded our direct aftermarket service locations in our energy segment , particularly in north american markets driven by upstream energy activity . energy segment products and aftermarket parts , consumables and services are sold both directly to end customers and through independent distributors , depending on the product category and geography . medical revenue our medical segment revenues are generated primarily through sales of highly specialized gas , liquid and precision syringe pumps that are specified by medical and laboratory equipment suppliers for use in medical and laboratory applications . our products are often subject to extensive collaborative design and specification requirements , as they are generally components specifically designed for , and integrated into , our customers ' products . revenue is recognized when control is transferred to the customer , generally at shipment or when delivery has occurred . our medical segment also has limited aftermarket revenues related to certain products . expenses cost of sales cost of sales includes the costs we incur , including purchased materials , labor and overhead related to manufactured products and aftermarket parts sold during a period . depreciation related to manufacturing equipment and facilities is included in cost of sales . purchased materials represent the majority of costs of sales , with steel , aluminum , copper and partially finished castings representing our most significant materials inputs . stock-based compensation expense for employees associated with the manufacture of products or delivery of services to customers is included in cost of sales . we have instituted a global sourcing strategy to take advantage of coordinated purchasing opportunities of key materials across our manufacturing plant locations . cost of sales for services includes the direct costs we incur , including direct labor , parts and other overhead costs including depreciation of equipment and facilities , to deliver repair , maintenance and other field services to our customers . selling and administrative expenses selling and administrative expenses consist of ( i ) salaries and other employee-related expenses for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers ; ( ii ) facility operating expenses for selling and administrative activities , including office rent , maintenance , depreciation and insurance ; ( iii ) marketing and direct costs of selling products and services to customers including internal and external sales commissions ; ( iv ) research and development expenditures ; ( v ) professional and consultant fees ; ( vi ) kkr fees and expenses ; ( vii ) expenses related to our public stock offerings and to establish public company reporting compliance ; ( viii ) employee related stock-based compensation for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers ; and ( ix ) other miscellaneous expenses . certain corporate expenses , including those related to our shared service centers in the united states and europe , that directly benefit our businesses are allocated to our business segments . certain corporate administrative expenses , including corporate executive compensation , treasury , certain information technology , internal audit and tax compliance , are not allocated to the business segments . 29 index amortization of intangible assets amortization of intangible assets includes the periodic amortization of intangible assets recognized when an affiliate of kkr acquired us on july 30 , 2013 , intangible assets recognized in connection with businesses we acquired since july 30 , 2013 , including customer relationships and trademarks , and internally developed software . impairment of other intangible assets impairment of other intangible assets includes non-cash charges we recognized for the impairment of intangible assets other than goodwill . other operating expense , net other operating expense , net includes foreign currency gains and losses , restructuring charges , certain litigation and contract settlement losses , environmental remediation and other miscellaneous operating expenses . provision ( benefit ) for income taxes the provision or benefit for income taxes includes u.s. federal , state and local income taxes and all non-u.s. income taxes . we are subject to income tax in approximately 35 jurisdictions outside of the united states . because we conduct operations on a global basis , our effective tax rate depends , and will continue to depend , on the geographic distribution of our pre-tax earnings among several different taxing jurisdictions . our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions , the availability of tax credits and non-deductible items . items affecting our reported results general economic conditions and capital spending in the industries we serve our financial results closely follow changes in the industries and end-markets we serve . demand for most of our products depends on the level of new capital investment and planned and unplanned maintenance expenditures by our customers . the level of capital expenditures depends , in turn , on the general economic conditions as well as access to capital at reasonable cost . in particular , demand for our industrials products generally correlates with the rate of total industrial capacity utilization and the rate of change of industrial production .
| segment results for years ended december 31 , 2019 and 2018 the following tables display segment revenues , segment adjusted ebitda and segment adjusted ebitda margin ( segment adjusted ebitda as a percentage of segment revenues ) for each of our segments and illustrates , on a percentage basis , the impact of foreign currency fluctuations on segment revenues and segment adjusted ebitda growth . industrials segment result s replace_table_token_7_th 36 index 2019 vs. 2018 segment revenues for 2019 were $ 1,301.3 million , a decrease of $ 2.0 million , or 0.2 % , compared to $ 1,303.3 million in 2018. the decrease in segment revenues was primarily due to unfavorable impact of foreign currencies ( 3.3 % or $ 42.4 million ) , partially offset by improved pricing ( 2.3 % or $ 29.8 million ) and higher volume including acquisitions ( 0.8 % or $ 10.6 million ) . the percentage of segment revenues derived from aftermarket parts and service was 31.4 % in 2019 compared to 31.5 % in 2018. segment adjusted ebitda in 2019 was $ 296.6 million , an increase of $ 8.4 million , or 2.9 % , from $ 288.2 million in 2018. segment adjusted ebitda margin increased 70 bps to 22.8 % from 22.1 % in 2018. the increase in segment adjusted ebitda was due primarily to improved pricing of $ 29.8 million and lower selling and administrative expenses of $ 5.1 million , partially offset by the unfavorable impact of foreign currencies of $ 9.6 million , higher material and other manufacturing costs of $ 9.5 million , and higher volume including acquisitions offset by the dilutive impact of acquisitions $ 7.4 million . energy segment results replace_table_token_8_th 2019 vs. 2018 segment revenues for 2019 were $ 870.2 million , a decrease of $ 250.9 million , or 22.4 % , compared to $ 1,121.1 million in 2018. the decrease in segment revenues was primarily due to lower revenues from upstream energy exposed markets ( 21.0 % or $ 235.6 million ) , the unfavorable impact of foreign currencies ( 1.3 % or $ 14.9 million ) and lower volume in other markets in our energy segment ( 0.3 %
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early adoption is permitted . the company has elected to adopt this asu effective with the december 31 , 2014 annual report on form 10-k and its adoption resulted in the removal of previously required development stage financial information . f-10 asu 2014-15 – “ presentation of financial statements—going concern—disclosure of uncertainties about an entity 's ability to continue as a going concern ( “ asu 2014-15 ” ) . ” in august 2014 , the fasb issued asu 2014-15 requiring management to assess an entity 's ability to continue as a going concern , and to provide related footnote disclosures in certain circumstances . asu 2014-15 is effective for annual periods , and interim periods story_separator_special_tag the following management 's discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report . in addition to historical information , the following discussion contains certain forward-looking information . see “ special note regarding forward looking statements ” above for certain information concerning those forward looking statements . 13 story_separator_special_tag have no debt or credit lines and we have financed our operations to date through the sale of our common stock and shareholder loans . in september 2014 and october 2014 we raised $ 22,170 in our registered offering . this registered offering was closed on november 7 , 2014. we also obtained a total of $ 13,378 of advances from our principal shareholder during the year ended december 31 , 2014. results of operations for years ended december 31 , 201 4 and december 31 , 201 3 revenues we generated revenues of $ 13,985 for the year ended december 31 , 2014 and $ 15,743 for the year ended december 31 , 2013. this decrease in revenue in 2013 is due to a decrease in the volume of items sold through our website . our ability to generate a significant level of revenues , however , is very uncertain . we received a going concern opinion from our audit firm as we continue to devote substantially all of our efforts to rebranding our company under the name maple tree kids to sell more personalized children products to the market and creating related marketing and sales collateral , a new logo and new website among other things . cost of sales our cost of sales was $ 9,421 for the year ended december 31 , 2014 and $ 11,368 for the year ended december 31 , 2013. the decrease in the cost of sales for 2014 was due to our decrease in revenue in 2014 as we sold our merchandise to fewer retail customers in 2014. gross profit we generated gross profit of $ 4,564 for the year ended december 31 , 2014 and $ 4,375 for the year ended december 31 , 2013. the increase in the gross profit percentage from 28 % in 2013 to 33 % in 2014 was due a small increase in our selling prices to retail customers . operating expenses our operating expenses were $ 18,039 for the year ended december 31 , 2014 and $ 13,524 for the year ended december 31 , 2013. the increase in our operating expenses in 2014 was due to an increase in professional fees related to being a public reporting company and blue sky state filing fees related to our registered stock offering in 2014. net loss our net loss for the year ended december 31 , 2014 was $ 13,475 and was $ 9,149 for the year ended december 31 , 2013. the increase in net loss in 2014 was due to the reasons stated above . impact of potential loss of our major customer on our liquidity currently sales to our major customer constitute approximately 80 % of our total revenue . any substantial decrease in selling our products to them will substantially affect our operating results and liquidity . although we currently have a satisfactory relationship with our major customer , if they were to terminate their relationship or stop ordering products from us , these events would currently result in a loss of substantially all of our revenue which would have a material impact on the liquidity of our company . it is uncertain how long our major customer will continue to order products from us as we do not have any assurances from them as to how long they will continue ordering products from us . we do not have an exclusive agreement with them for selling our type of products to them . in the event that the company is not able to retain our major customer or obtain new customers , we will incur increased operating losses and we will need to raise additional capital to maintain our current operations . we presently are seeking to increase our web-based sales by attracting new customers to our websites . we are not presently negotiating any agreements with any new major customers . liquidity and capital resources as of december 31 , 2014 , we had cash of $ 26,693 , total assets of $ 26,693 and working capital of $ 11,596 compared to $ 4,484 in cash , $ 4,484 in total assets and $ 2,901 in working capital as of december 31 , 2013 . 15 the following table provides detailed information about our net cash flow for all financial statement periods presented in this report : cash flow replace_table_token_1_th operating activities cash used in operating activities in the year ended december 31 , 2014 consisted of net loss as well as the effect of changes in working capital . story_separator_special_tag cash used in operating activities in the year ended december 31 , 2014 was $ 9,961 , which consisted of a net loss of $ 13,475 , non-cash charge of inventory acquired from our principal shareholder through shareholder advances of $ 3,378 and cash provided by working capital of $ 136. the cash provided by working capital was due to an increase in accrued liabilities of $ 136. cash used in operating activities in the year ended december 31 , 2013 consisted of net loss as well as the effect of changes in working capital . cash used in operating activities in the year ended december 31 , 2013 was $ 7,791 , which consisted of a net loss of $ 9,149 and cash provided by working capital of $ 1,358. the cash provided by working capital was due to an increase in accrued liabilities of $ 1,358. investing activities during the years ended december 31 , 2014 and 2013 we had no investing activities . we had no investing activities from august 12 , 2005 ( inception ) to december 31 , 2014. financing activities during the year ended december 31 , 2014 , we had net cash provided by financing activities of $ 32,170 as compared to net cash flows provided by financing activities of $ 9,262 for the year ended december 31 , 2013 an increase of $ 26,286. this increase in cash provided by financing activities is due to proceeds from the sale of our 1,108,500 shares of our registered common stock offering in 2014 of $ 22,170 and the increase from our principal shareholder 's short term cash advances of $ 10,000. see note 5 of the notes to our financial statements included in this annual report on form 10-k for information regarding our stockholders ' equity . during the year ended december 31 , 2014 , our total cash requirements may exceed our cash balances . currently , we do not have sufficient cash in our bank accounts to cover our estimated expenses for the next 12 months . our projected average monthly negative cash flow is approximately $ 3,000 per month . based on our current cash position at december 31 , 2014 and projected spending , we have approximately 6 to 9 months of cash on hand to fund our current operations . we anticipate meeting our future cash requirements through a combination of equity financing from the proceeds of this offering and debt financing from our principal shareholder to fund the costs of developing the business and being a public reporting company . although we anticipate meeting our future cash requirements though , among other things , debt financing from our principal shareholder , we do not currently have any agreements with our principal shareholder to provide such financing , written or unwritten . we estimate that our operating expenses , based on us being able to raise the necessary equity capital , will be approximately $ 100,000 as described in the table below . these estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources . replace_table_token_2_th we intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing . we have an effective registration statement on file with the securities and exchange commission but currently do not have any arrangements in place for the completion of any financings and there is no assurance that we will be successful in completing any further financings or raising any capital . there is no assurance that any financing will be available or if available , on terms that will be acceptable to us . we may not raise sufficient funds to fully carry out any business plan . 16 off-balance sheet arrangements as of the date of this report , we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to our stockholders . inflation the effect of inflation on our revenues and operating results has not been significant . critical accounting policies our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete listing of these policies is included in note 2 of the notes to our financial statements for the years ended december 31 , 2014 and 2013. we have identified below the accounting policies that are of particular importance in the presentation of our financial position , results of operations and cash flows , and which require the application of significant judgment by management . revenue recognition sales to consumers are recorded when goods are shipped and are reported net of allowances for estimated returns and allowances in the accompanying statements of operations . the customer authorizes us to charge their credit card at the time of purchase with the understanding their credit card will be charged upon shipment . we recognize revenue based on the below three criteria . our policy is to allow the return of any unused merchandise purchased from us for any reason for a 15-day period after the date of sale . delivery has occurred . we have our vendors drop ship inventory to our customers and we recognize revenue when we are notified that shipment has occurred . fee is fixed or determinable . the price is deemed to be fixed and determinable based on our successful collection history and our arrangement with our customers . collectability is reasonably assured . we determine for all of our customers whether collectability is reasonably assured pursuant to our credit review policy . all credit card payments are approved and processed through our website . we evaluate the criteria outlined in fasb
| · our ability to achieve and maintain profitability and positive cash flow is dependent upon : · our ability to develop and continually update our websites ; · our ability to procure and maintain on commercially reasonable terms relationships with third parties from whom we acquire inventory ; · our ability to identify and pursue mediums through which we will be able to market our products ; · our ability to attract new customers to our websites who are interested in purchasing our products ; and · our ability to manage our costs and maintain low overhead . · based upon current plans , we expect to incur operating losses in future periods because we will continue to be developing our maple tree kids website to sell personalized children products that will be located at www.mapletreekids.com and will be incurring expenses and not generating significant revenues . · we are dependent upon our relationship with our major customer . this customer accounted for approximately 80 % of our total revenues for the year ended december 31 , 2014 and the year ended december 31 , 2013 , respectively . this major customer is not contractually obligated to purchase any minimum amount of products from us and can discontinue buying products from us at any time . if we fail to maintain this relationship , our sales will be significantly diminished . any change in the terms of our sales to our major customer could have a material impact on our financial position and results of operations . · our sales are dependent on our ability to attract retail customers to our website on cost-effective terms . our strategy to attract customers to our website includes viral marketing , the practice of placing advertisements and offering giveaways on various highly rated baby weblogs or `` blogs '' , online journals that are updated frequently and available to the public , postings on online communities such as facebook , myspace , yahoo ! ( r ) groups and amateur websites such as youtube.com , and other methods of getting internet users to refer others to our website by e-mail or word of mouth ; search engine optimization , marketing our website via search engines by purchasing sponsored placement in search results ; and entering into affiliate marketing relationships with website
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if we judge that an income tax position meets this recognition threshold , then we must measure the amount of the tax benefit to be recognized by estimating the largest amount of tax benefit that has a greater than 50 % cumulative probability of being realized upon effective settlement with a taxing authority that has full knowledge of all of the relevant facts . it is inherently difficult and subjective to estimate such amounts , as this requires us to determine the probability of various possible settlement outcomes . to determine when a tax position is effectively settled , we must estimate the likelihood that a taxing authority would re-review a tax position after a tax examination has otherwise been completed . we must also determine when it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease in the 12 months after each fiscal year-end . these judgments are difficult because a taxing authority may change its behavior as a result of our disclosures in our financial statements or for other reasons . in addition , we are required by the irs to disclose uncertain tax positions taken on our federal tax returns . we must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances , changes in tax law , effectively settled issues under audit , and new audit activity . such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision . for the year ended december 29 , 2012 , we made the judgment that we had effectively settled certain tax positions related to the state of california franchise tax board , or the ftb , examination of our california tax returns for the 2001 through 2003 tax years that resulted in the recognition of a tax benefit . for additional descriptions of our effective settlements , see note 6 in the notes to consolidated financial statements . revenue recognition we begin to recognize revenue when all of the following criteria are met : we have persuasive evidence of an arrangement with a customer ; delivery has occurred ; the fee for the arrangement is considered to be fixed or determinable at the outset of the arrangement ; and collectibility of the fee is probable . significant judgment is involved in the determination of whether the facts and circumstances of an arrangement support that the fee for the arrangement is considered to be fixed or determinable and that collectibility of the fee is probable , and these judgments can affect the amount of revenue that we recognize in a particular reporting period . we must also make these judgments when assessing whether a contract amendment to a term arrangement ( primarily in the context of a license extension or renewal ) constitutes a concession . our experience has been that we are able to determine whether a fee is fixed or determinable , and we have established a history of collecting under contracts for which the fee has been assessed as fixed or determinable without providing concessions on payments , products or services . for installment contracts that do not include a substantial up-front payment , we consider that a fee is fixed or determinable only if the arrangement has payment periods that are equal to or less than the term of the licenses and the payments are collected in equal or nearly equal installments , when evaluated over the entire term of the arrangement . while we do not expect our experience to change , if we no longer were to have a history of collecting under the original contract without providing concessions on term licenses , revenue from term licenses would be required to be recognized when payments under the installment contract become due and payable . such a change could have a material adverse effect on our results of operations . generally , we are able to estimate whether collection is probable , but significant judgment is applied as we assess the creditworthiness of our customers to make this determination . if our experience were to change , it could have a material adverse effect on our results of operations . if , in our judgment , collection of a fee is not probable , we do not record revenue until the uncertainty is removed , which is generally upon receipt of cash payment . in general , revenue for product and maintenance associated with term and subscription licenses is recognized ratably over the term of the license , commencing upon the later of the effective date of the arrangement or delivery of the first software product . the allocation of revenue to maintenance is based on a percentage of the total contract value , as determined by the length of the contract . in general , product revenue associated with term and perpetual licenses where vendor specific objective evidence , or vsoe , exists for the undelivered maintenance is recognized up-front , upon the later of the effective date of the arrangement or delivery of the software product , provided all other conditions for revenue recognition have been met , and maintenance revenue is recognized ratably over the maintenance term . a relatively small percentage of our revenue from software licenses is recognized on an up-front basis . sale of our hardware products generally involves the following deliverables : the hardware product and its related essential software , and maintenance for the hardware and the software . consideration allocated to the hardware product and the essential 28 software is recognized as revenue at the time of delivery , provided all other conditions for revenue recognition have been met . consideration allocated to the maintenance is recognized ratably over the maintenance term . revenue from services contracts is recognized either on the time and materials method , as work is performed , or on the percentage-of-completion method . story_separator_special_tag if a service contract is considered to be part of a multiple element arrangement , or mea , that includes a software contract , revenue is generally recognized ratably over the duration of the software contract . for contracts with fixed or not-to-exceed fees , we estimate on a monthly basis the percentage of completion based on the completion of milestones relating to the arrangement . we have a history of accurately estimating project status and the costs necessary to complete projects . a number of internal and external factors can affect our estimates , including labor rates , utilization and efficiency variances , and specification and testing requirement changes . if different conditions were to prevail such that accurate estimates could not be made , then the use of the completed contract method would be required and the recognition of all revenue and costs would be deferred until the project was completed . such a change could have a material impact on our results of operations . if a group of contracts is so closely related that they are , in effect , part of a single arrangement , such arrangements are deemed to be an mea . we exercise significant judgment to evaluate the relevant facts and circumstances in determining whether the separate contracts should be accounted for individually as distinct arrangements or whether the separate contracts are , in substance , an mea . our judgments about whether a group of contracts is an mea can affect the timing of revenue recognition under those contracts , which could have an effect on our results of operations for the periods involved . for example , a term or perpetual license agreement that would otherwise result in up-front revenue upon delivery may be deemed part of an mea when it is executed within close proximity , or in contemplation of , other license agreements that require ratable revenue recognition with the same customer , in which event all the revenue is recognized over the longest term of any component of the mea instead of up-front . for an mea that includes software and nonsoftware elements , we allocate consideration to all software elements as a group and all nonsoftware elements based on their relative standalone selling prices . revenue allocated to each deliverable is then recognized when all four criteria are met . in these circumstances , there is a hierarchy to determine the standalone selling price to be used for allocating consideration to the deliverables as follows : vendor-specific objective evidence of fair value , or vsoe ; third-party evidence of selling price , or tpe ; and best estimate of the selling price , or besp . we calculate the besp of our hardware products based on our pricing practices , including the historical average prices charged for comparable hardware products , because vsoe or tpe can not be established . our process for determining besp for our software deliverables without vsoe or tpe takes into account multiple factors that vary depending upon the unique facts and circumstances related to each deliverable . key external and internal factors considered in developing the besps include prices charged by us for similar arrangements , historical pricing practices and the nature of the product . in addition , when developing besps , we may consider other factors as appropriate , including the pricing of competitive alternatives if they exist , and product-specific business objectives . we exercise significant judgment to evaluate the relevant facts and circumstances in calculating the besp of the deliverables in our arrangements . allowance for doubtful accounts we make judgments as to our ability to collect outstanding receivables and provide allowances for a portion of receivables when collection becomes doubtful . this allowance is based on our assessment of the creditworthiness of our customers , historical experience and the overall economic climate of the industries that we serve . while we believe that our allowance for doubtful accounts is adequate , we continue to monitor customer liquidity and other economic conditions , which may result in changes to our estimates regarding our ability to collect from our customers . changes in circumstances , such as an unexpected change in a customer 's ability to meet its financial obligation to us or a customer 's payment trends , or a downward trend in the volume of business in the semiconductor sector , are hard to predict and may require us to adjust our estimates of the recoverability of amounts due to us . these changes could have a material adverse effect on our business , financial condition and operating results . 29 business combinations when we acquire businesses , we allocate the purchase price to acquired tangible assets and liabilities , including deferred revenue , liabilities associated with the fair value of contingent consideration and acquired identifiable intangible assets . any residual purchase price is recorded as goodwill . the allocation of the purchase price requires us to make significant estimates in determining the fair values of these acquired assets and assumed liabilities , especially with respect to intangible assets and goodwill . these estimates are based on information obtained from management of the acquired companies , our assessment of this information , and historical experience . these estimates can include , but are not limited to , the cash flows that an acquired business is expected to generate in the future , the cash flows that specific assets acquired with that business are expected to generate in the future , the appropriate weighted-average cost of capital , and the cost savings expected to be derived from acquiring an asset . these estimates are inherently uncertain and unpredictable , and if different estimates were used , the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made to the acquired assets and liabilities .
| the tax years 2000 through 2002 and the release of valuation allowance for our united states deferred tax assets that resulted from the increase in deferred tax liabilities from the intangible assets acquired with denali during fiscal 2010. revenue we primarily generate revenue from licensing our eda software and ip , selling or leasing our hardware technology , providing maintenance for our software , ip and hardware and providing engineering services . the timing of our product revenue is significantly affected by the mix of hardware and software products in the bookings executed in any given period and whether the revenue for such bookings is recognized over multiple periods or up-front , upon completion of delivery . 31 we seek to achieve a consistent mix of bookings with approximately 90 % of the aggregate value of our bookings of a type for which the revenue is recurring , or ratable , in nature , and the remainder of the resulting revenue recognized up-front , upon completion of delivery . our ability to achieve this bookings mix in any single fiscal quarter may be impacted by an increase in hardware sales beyond our current expectations , because product revenue for hardware sales is generally recognized up-front in the quarter in which delivery is completed . approximately 90 % of the aggregate value of our bookings during fiscal 2012 , 2011 and 2010 was of a type for which the revenue is recurring , or ratable , in nature . we believe our reported revenue and the amount of revenue recognized in future periods will depend on , among other things , the : competitiveness of our new technology ; and size , duration , timing , terms and type of : contract renewals with existing customers ; additional sales to existing customers ; and sales to new customers . revenue mix we analyze our software , vip and design ip and hardware businesses by product group , combining revenues for both
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evidence of an arrangement generally consists of signed agreements . when sales arrangements contain multiple elements ( e.g. , license and services ) , we review each element to determine the separate units of accounting that exist within the agreement . if more than one unit of accounting exists , the consideration payable to us under the agreement is allocated to each unit of accounting using either the relative fair value method or the residual fair value method . revenue is recognized for each unit of accounting when the revenue recognition criteria have been met for that unit of accounting . licensing licensing revenue consists of fees earned from license agreements , development services and support and maintenance . for stand-alone license agreements or license deliverables in multi-element arrangements that do not require significant development , modification or customization , revenues are 32 recognized when all revenue recognition criteria have been met . delivery of the licensed technology is typically the final revenue recognition criterion met , at which time revenue is recognized . if any of these criteria are not met , revenue recognition is deferred until such time as all criteria have been met . for license agreements that include deliverables requiring significant production , modification or customization , and where we have significant experience in meeting the design specifications involved in the contract and the direct labor hours related to services under the contract can be reasonably estimated , we recognize revenue over the period in which the contract services are performed . for these arrangements , we recognize revenue using the percentage of completion method . revenue recognized in any period is dependent on our progress toward completion of projects in progress . significant management judgment and discretion are used to estimate total direct labor hours . these judgmental elements include determining that we have the experience to meet the design specifications and estimating the total direct labor hours . we follow this method because we can obtain reasonably dependable estimates of the direct labor hours to perform the contract services . the direct labor hours for the development of the licensee 's design are estimated at the beginning of the contract . as these direct labor hours are incurred , they are used as a measure of progress towards completion . we have the ability to reasonably estimate the direct labor hours on a contract-by-contract basis based on our experience in developing prior licensees ' designs . during the contract performance period , we review estimates of direct labor hours to complete the contracts as the contract progresses to completion and will revise our estimates of revenue and gross profit under the contract if we revise the estimations of the direct labor hours to complete . our policy is to reflect any revision in the contract gross profit estimate in reported income or loss in the period in which the facts giving rise to the revision become known . under the percentage of completion method , provisions for estimated losses on uncompleted contracts are recorded in the period in which such losses are determined to be likely . if the amount of revenue recognized under the percentage of completion accounting method exceeds the amount of billings to a customer , then the excess amount is recorded as an unbilled contracts receivable . we provide support and maintenance under many of our license agreements . under these arrangements , we provide unspecified upgrades , design rule changes and technical support . no other upgrades , products or other post-contract support are provided . support and maintenance revenue is recognized at its fair value established by objective evidence , ratably over the period during which the obligation exists , typically 12 months . these arrangements are generally renewable annually by the customer . under limited circumstances , we also recognize prepaid pre-production royalties as license revenues . these are lump sum payments made when we enter into licensing agreements that cover future shipments of a product that is not commercially available from the licensee . we characterize such payments as license revenues because they are paid as part of the initial license fee and not with respect to products being produced by the licensee . these payments are non-cancelable and non-refundable . royalty our licensing contracts typically also provide for royalties based on licensees ' use of our memory technology in their currently shipping commercial products . we generally recognize royalties in the quarter in which we receive the licensee 's report . under limited circumstances , we may also recognize prepaid post-production royalties as revenue upon execution of the contract , which are paid in a lump sum after the licensee commences production of the royalty- bearing product and applied against future unit shipments regardless of the actual level of shipments by the licensee . the criteria for revenue recognition of prepaid royalties are that a formal agreement with the licensee is executed , no deliverables , development or support services related to prepaid royalties are required , the fees are non-refundable and not contingent upon future product shipments by the licensee , and the fees are 33 payable by the licensee in a time period consistent with our normal billing terms . if any of these criteria are not met , we defer revenue recognition until such time as all criteria have been met . fair value measurements of financial instruments we measure the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels , as follows : level 1inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date . level 2pricing is provided by third party sources of market information obtained from investment advisors rather than models . we do not adjust for or apply any additional assumptions or estimates to the pricing information we receive from advisors . story_separator_special_tag our level 2 securities include cash equivalents and available-for-sale securities , which consisted primarily of certificates of deposit , corporate debt , and government agency and municipal debt securities from issuers with high quality credit ratings . our investment advisors obtain pricing data from independent sources , such as standard & poor 's , bloomberg and interactive data corporation , and rely on comparable pricing of other securities because the level 2 securities we hold are not actively traded and have fewer observable transactions . we consider this the most reliable information available for the valuation of the securities . level 3unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value . these values are generally determined using pricing models for which the assumptions utilize management 's estimates of market participant assumptions . the determination of fair value for level 3 investments and other financial instruments involves the most management judgment and subjectivity . valuation of long-lived assets we evaluate our long-lived assets for impairment at least annually , or more frequently when a triggering event is deemed to have occurred . this assessment is subjective in nature and requires significant management judgment to forecast future operating results , projected cash flows and current period market capitalization levels . if our estimates and assumptions change in the future , it could result in a material write-down of long-lived assets . we amortize our finite-lived intangible assets , such as developed technology , patents and workforce , on a straight-line basis over their estimated useful lives of one to five years . we recognize an impairment charge as the difference between the net book value of such assets and the fair value of the assets on the measurement date . goodwill we review goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable . we use a two-step impairment test . in the first step , we compare the fair value of the reporting unit to its carrying value . the fair value of the reporting unit is determined using the market approach . if the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit , goodwill is not impaired , and we are not required to perform further testing . if the carrying value of the net assets of the reporting unit exceeds the fair value of the reporting unit , then we must perform the second step in order to determine the implied fair value of the reporting unit 's goodwill and compare it to the carrying value of the reporting unit 's goodwill . if the carrying value of a reporting unit 's goodwill exceeds its implied fair value , then we must record an impairment charge equal to the difference . we have determined that we have a single reporting unit for purposes of performing our goodwill impairment test . as we use the market approach to assess impairment , the price of our common stock price is an important component of the fair value calculation . if our stock price continues to experience 34 significant price and volume fluctuations , this will impact the fair value of the reporting unit , which can lead to potential impairment in future periods . as of december 31 , 2010 , we had not identified any factors to indicate there was an impairment of our goodwill and determined that no additional impairment analysis was required . deferred tax valuation allowance when we prepare our consolidated financial statements , we estimate our income tax liability for each of the various jurisdictions where we conduct business . this requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for tax and accounting purposes . these differences result in deferred tax assets , which we show on our consolidated balance sheet under the category of other current assets . the net deferred tax assets are reduced by a valuation allowance if , based upon weighted available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . we must make significant judgments to determine our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset . stock-based compensation we recognize stock-based compensation for equity awards on a straight-line basis over the requisite service period , usually the vesting period , based on the grant-date fair value . we estimate the value of employee stock options on the date of grant using the black-scholes model . the determination of fair value of share-based payment awards on the date of grant using an option- pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables . these variables include , but are not limited to , the expected stock price volatility over the term of the awards , and actual and projected employee stock option exercise behaviors . the expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior . the expected volatility is based on the historical volatility of our stock price . story_separator_special_tag software tools ; partially offset by $ 0.9 million decrease in costs related to the analog/mixed-signal product lines resulting from the exit of these product lines in early 2009 ; and $ 0.9 million decrease in other individually minor items .
| royalty revenue decreased $ 2.9 million in 2009 primarily due to a decrease in royalties earned from a major foundry licensee as a result of a decrease in its shipments of ics incorporating 1t-sram technology and from an idm licensee that provides ics for the nintendo wii® game console , which transitioned its manufacturing of those ics to a more advanced processing node during the first half of 2009. our license agreement with the idm at the advanced processing node provides for royalty reporting in the quarter following the product shipments in contrast to the previous license agreement , which had been amended in 2006 to provide for reporting in the shipment quarter . the combination of these two factors resulted in a larger decline than would have occurred solely from the decline in game console shipments . the decrease was partially offset by royalties received from a major oem customer , which commenced reporting and paying royalties in the third quarter of 2008. cost of net revenue and gross profit . replace_table_token_7_th replace_table_token_8_th cost of net revenue consists of personnel costs for engineers assigned to revenue-generating licensing arrangements and related overhead allocation costs . direct labor hours are tracked for each licensing arrangements and are used to measure the progress of completion . the increase in cost of net revenue for 2010 resulted primarily from an increase in the number of licensing contracts requiring customization . cost of net revenue in 2010 included stock-based compensation expense of $ 0.3 million , which was consistent with the prior year . total gross profit increased to $ 12.7 million in 2010 primarily due to an increase in license and royalty revenues . we expect that the cost of licensing revenue will grow in absolute dollars in the future because we anticipate entering into more license agreements on smaller process geometries , such as the 40nm and 28nm processes , which require more development effort . we expect cost as a percentage of total net revenue to increase , as well , from levels in 2010 and 2009 . 36 cost of net revenue declined in 2009 primarily because we had fewer 1t-sram license agreements requiring significant engineering services . cost of net revenue in 2009 included stock-based compensation expense of $ 0.3 million , a decrease of $ 0.2
| 14,399 |
if we obtain regulatory approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . accordingly , until such time as we can generate substantial product revenues to support our cost structure , if ever , we expect to finance our cash needs through equity offerings , debt financings or other capital sources , including potential collaborations , licenses and other similar arrangements . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies . if we are unable to raise additional capital when needed , we could be forced to delay , limit , reduce or terminate our product candidate development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves . assignment and license agreement with shire in november 2018 , we entered into an assignment and license agreement ( “ shire license agreement ” ) with shire international gmbh ( “ shire ” ) , in which we were granted an exclusive , royalty bearing worldwide license to develop and commercialize our two product candidates , maralixibat and volixibat . as part of the shire license agreement , we were assigned license agreements held by shire with satiogen pharmaceuticals , inc. ( “ satiogen ” and altogether , the “ satiogen license ” ) , pfizer inc. ( “ pfizer ” ) , and sanofi-aventis deutschland gmbh ( “ sanofi ” ) . in partial consideration for the rights granted to us under the shire license agreement , we made an upfront payment to shire of $ 7.5 million and issued shire 1,859,151 shares of our common stock with an estimated fair value of $ 7.0 million . in january 2019 , we entered into a transition services agreement with shire ( “ tsa ” ) , which covered services to be provided by shire to transfer certain research and development activities and the related know-how from shire to us , including continuation of work on any existing trials and manufacturing activities until fully transferred to us . we completed the activities under the tsa and finalized amounts due to shire for services and pass-through expenses on existing trials and manufacturing activities in the second quarter of 2019. in july 2019 , we achieved a development milestone under the shire license agreement related to the initiation of the phase 3 march clinical trial , and made a $ 2.5 million payment to shire and a $ 0.5 million payment to satiogen accordingly . see note 6 to our consolidated financial statements included elsewhere in this annual report . components of results of operations operating expenses research and development expenses research and development expenses primarily relate to non-clinical and clinical development of our product candidates . our research and development expenses include or could include : salaries and related expenses for employee personnel , including benefits , travel and expenses related to stock-based compensation granted to personnel in development functions ; external expenses paid to clinical trial sites , contract research organizations and consultants that conduct our clinical trials ; 101 expenses related to drug formulation development and the production of non-clinical and clinical trial supplies , including fees paid to contract manufacturers ; licensing milestone payments related to development , regulatory or commercialization events ; expenses related to non-clinical studies ; expenses related to compliance with drug development regulatory requirements ; and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of equipment , and other supplies . we expense research and development costs as incurred . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses . the prepaid amounts are expensed as the related goods are delivered or the services are performed . we expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we continue to further our clinical development pipeline . 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 our research and development expenses to be significant over the next several years as we increase personnel and compensation costs , further our development programs and prepare to seek regulatory approval for our product candidates . it is difficult to determine with certainty the duration and completion costs of any clinical trial we may conduct . because our product candidates are still in clinical and non-clinical development and the outcome of these efforts is uncertain , we can not estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether , or when , we may achieve profitability . due to the early stage nature of our programs , we do not track costs on a project by project basis . as our programs become more advanced , we intend to track the external and internal cost of each program . in process research and development in process research and development ( “ ipr & d ” ) expenses include in-process research and development acquired as part of an asset acquisition or in-license for which there is no alternative future use , and are expensed as incurred . ipr & d expenses consist of our upfront cash payment and issuance of our common stock made to shire in connection with the acquisition to the rights of maralixibat and volixibat . story_separator_special_tag general and administrative expense general and administrative expenses consist primarily of salaries and employee-related costs , including stock-based compensation , for personnel in executive , finance and other administrative functions . other significant costs include facility-related costs , legal fees relating to intellectual property and corporate matters , professional fees for accounting and consulting services and insurance costs . we expect that our general and administrative expenses will increase in the future as we expand our operating activities , including commercial preparation activities , increase headcount , as well as incur additional costs associated with being a publicly traded company , such as increased personnel expenses , legal fees , accounting fees and directors ' and officers ' liability insurance premiums and maintaining compliance with exchange listing and sec requirements . interest income interest income consists of interest earned on our cash equivalents and investments . 102 other income ( expense ) , net other income ( expense ) , net consists of ( i ) transactional currency exchange gain or loss and ( ii ) interest expense related to a convertible promissory note issued in august 2018 which converted into shares of our series a convertible preferred stock in november 2018. critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements . we base our estimates on historical experience , known trends and events , and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report , we believe the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses as of each balance sheet date . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . we accrue and expense clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the life of the individual study and patient enrollment rates in accordance with agreements established with clinical research organizations and clinical trial sites . we determine the estimates by reviewing contracts , vendor agreements and purchase orders and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services . we make estimates of accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments , if necessary . if the actual timing of the performance of services or the level of effort varies from the estimate , we will adjust the accrual accordingly . nonrefundable advance payments for goods and services , including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities , are deferred and recognized as expense in the period that the related goods are consumed or services are performed . although we do not expect our estimates to be materially different from amounts actually incurred , if our estimates of the status and timing of services performed differ from the actual status and timing of services performed , it could result in us reporting amounts that are too high or too low in any particular period . to date , there have been no material differences between our estimates of such expenses and the amounts actually incurred . stock-based compensation we recognize compensation costs related to stock-based awards granted to employees and directors , including stock options , based on the estimated fair value of the awards on the date of grant . we estimate the grant date fair value , and the resulting stock-based compensation , using the black-scholes option-pricing model . the grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period , which is generally the vesting period of the respective awards . 103 the black-scholes option-pricing model requires the use of subjective assumptions to determine the fair value of stock-based awards . these assumptions include : fair value of common stock —for grants prior to our ipo in july 2019 , the fair value of our common stock underlying share-based awards was estimated on each grant date by our board of directors . in order to determine the fair value of our common stock underlying option grants , our board of directors considered , among other things , valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the american institute of certified public accountants practice guide , valuation of privately-held-company equity securities issued as compensation .
| there were no ipr & d expenses incurred for the year ended december 31 , 2019. general and administrative expenses general and administrative expenses were $ 11.8 million for the year ended december 31 , 2019 , an increase of $ 11.2 million compared to the period from may 2 , 2018 to december 31 , 2018. the increase was primarily due to $ 7.3 million of personnel and other compensation related expenses reflecting an increase in our number of employees , including stock-based compensation of $ 3.7 million , $ 1.1 million of professional and consulting services , $ 1.1 million of expenses associated with being a public company primarily related to costs for insurance , $ 0.8 million of general legal and patent expenses , $ 0.7 million of expenses related to other general expenses and $ 0.2 million of expenses associated with commercial preparation activities . interest income interest income was $ 2.2 million for the year ended december 31 , 2019 , an increase of $ 2.2 million compared to the period from may 2 , 2018 to december 31 , 2018. the increase was primarily due to interest earned on investments following an increase in our cash , cash equivalents and investment balances in 2019 due to the proceeds related to completion of our ipo in july 2019 and the sale of our series a convertible preferred stock in april 2019 . 105 liquidity and capital resources overview we had $ 140.0 million of cash , cash equivalents and investments as of december 31 , 2019 compared to $ 52.0 million as of december 31 , 2018. to date , we have incurred operating losses and negative cash flows from operations . as of december 31 , 2019 , we had an accumulated deficit of $ 69.9 million . in november 2018 , we completed the initial closing of our series a convertible preferred stock financing and sold an aggregate of 59,908,284 shares at a purchase price of $ 1.00259507 per share . in addition , at the request of our board of directors , in april 2019 , certain purchasers in the initial closing purchased an aggregate of 59,844,699 additional shares of our series a convertible preferred stock at the same purchase price per share in a
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( 4 ) interest income on loans includes loan fees of $ 4.4 million and $ 0.8 million for the years ended december 31 , 2020 and 2019 , respectively . 41 the following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates . for purposes of this table , changes attributable to both rate and volume that can not be segregated have been proportionately allocated to both volume and rate . replace_table_token_5_th net interest income increased by $ 32.0 million to $ 60.1 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. our total interest income was impacted by an increase in interest earning assets , primarily due to the mbi business combination , our participation in the sba 's ppp , with some of these loans match funded with ppplf advances of $ 101.4 million , and new organic growth . average total interest earning assets were $ 1.7 billion for the year ended december 31 , 2020 compared with $ 0.8 billion for the year ended december 31 , 2019. the annualized yield on those interest earning assets decreased 64 basis points from 4.67 % for the year ended december 31 , 2019 to 4.03 % for the year ended december 31 , 2020 due to the reductions in the federal funds target interest rates by the federal reserve as well as loans repricing , coupled with higher yielding loan payoffs . our yield on interest earning assets declined during the year ended december 31 , 2020 , which was partially offset by lower interest expense on our interest-bearing deposits and earnings credits accumulated during the year of $ 26.5 thousand . the increase in the average balance of interest earning assets was driven primarily by growth in our loan portfolio of $ 0.9 billion , representing an increase of 109.5 % , to $ 1.6 billion for the year ended december 31 , 2020 compared to $ 0.7 billion for the year ended december 31 , 2019. average interest-bearing liabilities increased by $ 0.6 billion , or 90.0 % , from $ 0.6 billion for the year ended december 31 , 2019 to $ 1.2 billion for the year ended december 31 , 2020. the increase was primarily due to a $ 0.4 billion , or 70.4 % , increase in the average balance of interest-bearing deposits . the increase in the average balance of interest-bearing deposits was primarily due to increases in certificates of deposit and money market accounts for the year ended december 31 , 2020 compared to for the year ended december 31 , 2019 , and , to a lesser extent , negotiable order of withdrawal accounts , or now accounts . the annualized average interest rate paid on average interest-bearing liabilities decreased to 0.76 % for the year ended december 31 , 2020 compared to 1.78 % for the year ended december 31 , 2019 , while the annualized average interest rate paid on interest-bearing deposits decreased 105 basis points to 0.68 % and the annualized average interest rate paid on borrowed funds increased by 120 basis points to 1.11 % . the decreases in annualized average interest rates primarily reflected a decrease in market interest rates due to decreases in the federal funds target interest rate during the year ended december 31 , 2020. for year ended december 31 , 2020 , our average other noninterest-bearing liabilities increased $ 1.2 million , or 6.8 % , to $ 17.7 million from $ 16.5 million during the year ended december 31 , 2019. average noninterest-bearing deposits also increased $ 245.4 million , or 148.8 % , from $ 165.0 million to $ 410.4 million for the same periods . for the year ended december 31 , 2020 , our annual net interest margin was 3.50 % and net interest spread was 3.27 % . for the year ended december 31 , 2019 , annual net interest margin was 3.34 % and net interest spread was 2.90 % . our net interest margin was adversely affected by 0.16 % during the year ended december 31 , 2020 , compared to the same period in 2019 , as a result of the recent reductions in the federal funds target interest rates as well as continued declines in the 10-year treasury yield , average rates earned on 42 interest earning assets and average rates paid on our interest-bearing deposits generally declined during the year ended december 31 , 2020. correspondingly new loans were priced at lower yields in comparison to previously held loans which led to numerous loan payoffs at the beginning of 2020 compared to 2019. provision for loan losses the provision for loan losses is a charge to income in order to bring our allowance for loan losses to a level deemed appropriate by management . for a description of the factors taken into account by our management in determining the allowance for loan losses see “ management 's discussion and analysis of financial condition and results of operations - allowance for loan losses. ” our provision for loan losses amounted to $ 10.0 million for 2020 and $ 0.9 million for 2019. the increase from 2019 to 2020 was primarily due to a specific reserve of $ 7.6 million recorded to address the impairment of the coex loan , the growth of our loan portfolio and the anticipated decline in worldwide economic activity due the actual and projected effects of covid-19 . our allowance for loan losses as a percentage of total loans , net of overdrafts and excluding ppp loans was 1.10 % and 0.83 % for the years ended december 31 , 2020 and 2019 , respectively ( non-gaap , see explanation of certain unaudited non-gaap financial measures ) . story_separator_special_tag the increase was primarily due to the company addressing the impairment of the coex loan in the third quarter of 2020. see “ management 's discussion and analysis of financial condition and results of operations - coex coffee international inc. ” we recorded three net charge-offs for $ 0.3 million for the year ended december 31 , 2020. we did not record any net charge-offs for the year ended december 31 , 2019. as of december 31 , 2020 , mbi purchase accounting loan marks were $ 18.8 million . noninterest income our primary sources of recurring noninterest income are service charges on deposit accounts , income from bank owned life insurance , origination fees for small business administration , or sba loans , swap referral fees and other fees and charges . noninterest income does not include loan origination fees to the extent they exceed the direct loan origination costs , which are generally recognized over the life of the related loan as an adjustment to yield using the interest method . the following table presents the major categories of noninterest income for the periods indicated . replace_table_token_6_th noninterest income for 2020 was $ 4.3 million , a $ 1.5 million or 53.3 % increase compared to noninterest income of $ 2.8 million for 2019. the increase was primarily due an increase in deposit accounts service charges , of $ 0.9 million , or 338.1 % , during the year ended december 31 , 2020 compared to 2019 due to deposit growth . we also experienced an increase in revenue from loans held for sale of $ 0.5 million , or 166.7 % during the year ended december 31 , 2020 compared to 2019. noninterest expense generally , noninterest expense is composed of all employee expenses and costs associated with operating our facilities , obtaining and retaining client relationships and providing banking services . the largest component of noninterest expense is salaries and employee benefits . noninterest expense also includes operational expenses , such as occupancy and equipment expenses , professional fees , acquisition expenses , data processing expenses , advertising 43 expenses , loan processing expenses and other general and administrative expenses , including fdic assessments , communications , travel , meals , training , supplies and postage . the following table presents the major categories of noninterest expense for the periods indicated . replace_table_token_7_th noninterest expense amounted to $ 43.6 million in 2020 , an increase of $ 16.6 million , or 61.6 % , compared to $ 27.0 million for the year ended december 31 , 2019. the increase was primarily due to the mbi business combination expenses as well as an increase in salaries and benefits from increased employee headcount , increases in occupancy and equipment expense due to the opening of two new bank branches and the digital innovation center , increases in professional services expense due to costs related to building the organizational infrastructure of a publicly traded company and a charitable contribution of $ 0.3 million to the aaa scholarship foundation . income tax expense the amount of income tax expense we incur is influenced by the amounts of our pre-tax income , and other nondeductible expenses . deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled . as changes in tax laws or rates are enacted , such as the tax act , deferred tax assets and liabilities are adjusted through the provision for income taxes . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . income tax expense was $ 2.4 million for 2020 and $ 0.7 million for 2019. our effective tax rates for 2020 and 2019 were 22.5 % and 21.9 % , respectively . financial condition our total assets grew to $ 2.1 billion at december 31 , 2020 , an increase of $ 1.0 billion , or 95.3 % , compared to december 31 , 2019 as a result of the mbi acquisition , our participation in the sba 's ppp , with some of these loans match funded with ppplf advances of $ 101.4 million , and new organic growth . at december 31 , 2020 , the company had a gross ppp loan balance of $ 190.0 million . net loans grew across all loan types due to new organic originations ( including ppp ) of $ 0.6 billion , acquisitions of $ 0.5 billion , offset by net paybacks and advances of approximately $ 0.3 billion , resulting in total net loan gowth of $ 0.9 billion , or 109.5 % , for the year ended december 31 , 2020. interest-bearing deposits increased $ 0.5 billion , or 67.1 % , during the year ended december 31 , 2020 , due to the acquisition as well as organic growth which provided us with additional capital to fund our growing loan pipeline . shareholders ' equity increased $ 136.3 million , or 171.8 % , to $ 215.6 million at december 31 , 2020 compared to december 31 , 2019 , primarily due to the acquisition of mbi and the closing of our ipo . net income resulted in an increase to retained earnings of $ 8.3 million as of december 31 , 2020 . 44 interest-bearing deposits at other financial institutions cash that is not immediately needed to fund loans by the bank is invested in liquid assets that also earn interest , including deposits with other financial institutions . for the year ended december 31 , 2020 , interest-bearing deposits at other financial institutions decreased $ 21.3 million , or 14.1 % , to $ 129.3 million from $ 150.6 million at december 31 , 2019. the decrease was primarily due to our desire to increase our investment portfolio by purchasing securities with higher returns .
| the company continues to work within the covid-19 pandemic response plans which were originally established in the spring of 2020. the company continues to update these plans to ensure that they comply with the latest governmental guidelines and health conditions . as conditions permit , these plans facilitate our staff judiciously and safely returning to the office . on december 31 , 2020 , approximately 35 % of our staff was working in the office while approximately 65 % was working by remote access . this compares to july 10 , 2020 , when 20 % of our staff was working in the office and 80 % was working by remote access . in response to the covid-19 pandemic we have : ● the company participated in the ppp and processed/closed/funded 1,506 small business loans representing $ 226.2 million in relief proceeds throughout 2020. the majority of these loans were initially pledged to the federal reserve as part of the ppplf . the ppplf pledged loans are non-recourse to the company . in addition , we paid off approximately $ 123.6 million in ppplf advances during the year ended december 31 , 2020 and had a balance of $ 101.4 million remaining as of december 31 , 2020 . ● the company added an online ppp application form and automated the ppp loan closing documentation process . 38 ● as of december 31 , 2020 , we have reviewed and processed numerous debt service relief requests in accordance with section 4013 of the cares act and interagency guidelines published by federal banking regulators on march 13 , 2020. as currently interpreted by the agencies , the guidelines assert that short-term modifications made on good faith for reasons related to the covid-19 pandemic to borrowers who were current prior to such relief are not considered troubled debt restructurings ( tdrs ) . these modifications include deferrals of principal and interest , modification to interest only , and deferrals to escrow requirements . the modifications have varying terms up
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the a-note loan was underwritten to generate a levered irr of approximately 25 % . see “ — investments ” above for a discussion of how irr is calculated . during november 2014 , the company closed a $ 58,000 floating rate first mortgage loan secured by a 330-unit , eight building apartment community and 36 single-family rental homes located in williston , north dakota . williston is located at the epicenter of oil drilling activity for the bakken formation and the property is part of a master-developed residential community . the first mortgage loan has a three-year term with two one-year extension options and an appraised ltv of 73 % . the first mortgage has been underwritten to generate a levered irr of approximately 13 % . see “ — investments ” above for a discussion of how irr is calculated . during november 2014 , the company closed a $ 50,000 participating first mortgage loan secured by a portfolio of 24 condominiums located in new york city and maui , hawaii owned by a luxury destination club . earlier in the year , the company provided a $ 210,000 first mortgage loan to the same borrower , secured by an additional portfolio of single-family and condominium destination homes located throughout north america , central america , england and the caribbean . the fixed-rate , participating first mortgage loan has a five-year term with two one-year extension options and an appraised ltv of 75 % . the first mortgage loan was underwritten to generate an irr of approximately 8 % on an unlevered basis . the company anticipates financing the loan , and on a levered basis , the loan was underwritten to generate an irr of approximately 15 % . see “ — investments ” above for a discussion of how irr is calculated . subordinate loans . during april 2014 , the company closed a $ 53,954 ( £32,100 ) fixed-rate , nine-month mezzanine loan in connection with the purchase of an existing commercial building that is expected to be re-developed into a 173,000 salable square foot residential condominium in central london . the mezzanine loan is part of a $ 126,060 ( £75,000 ) pre-development loan comprised of a $ 72,106 ( £42,900 ) first mortgage and the company 's $ 53,954 ( £32,100 ) mezzanine loan . the company will have the option , but not the obligation , to participate in the development financing . the company 's loan basis represents a 78 % appraised ltv and the mezzanine loan has been underwritten to generate an irr of approximately 12 % . see “ — investments ” above for a discussion of how irr is calculated . during june 2014 , the company closed a $ 28,250 fixed-rate mezzanine loan secured by the equity interest in a 795-key full-service hotel and 226,000 square foot office and retail condominium in the times square neighborhood of new york city . the mezzanine loan has a remaining six month term and an underwritten ltv of approximately 67 % . the mezzanine loan was underwritten to generate an irr of approximately 8 % . see “ — investments ” above for a discussion of how irr is calculated . during june 2014 , the company closed a $ 50,000 floating-rate mezzanine loan secured by the equity interest in a portfolio of 167 wholly owned skilled nursing facilities located across 19 states . the mezzanine loan was issued in connection with the refinancing of the portfolio and paid off the existing $ 47,000 mezzanine loan acquired in 2013. the new mezzanine loan has a two-year initial term with three one-year extension options and an underwritten ltv of approximately 62 % . the mezzanine loan was underwritten to generate an irr of approximately 12 % . see “ — investments ” above for a discussion of how irr is calculated . during july 2014 , the company closed a $ 20,000 floating-rate mezzanine loan secured by the equity interest in a 280-key hotel in the nomad neighborhood of new york city . the mezzanine loan has a two-year initial term and three one-year extension options and an appraised ltv of approximately 61 % . the mezzanine loan was underwritten to generate an irr of approximately 12 % . see “ — investments ” above for a discussion of how irr is calculated . during august 2014 , the company closed a $ 15,000 fixed-rate subordinate loan secured by a top-tier ski resort located in montana . the company 's loan has a six-year term , an appraised ltv of approximately 59 % and has been underwritten to generate an irr of approximately 15 % . see “ — investments ” above for a discussion of how irr is calculated . during december 2014 , the company closed an $ 82,500 mezzanine loan ( $ 48,950 of which was funded at closing ) for the development of a mixed-use property on the upper west side neighborhood of new york city . the property will include 247 for-sale condominiums , 116 affordable multifamily units and approximately 90,000 square feet of commercial space and is being financed with $ 582,500 of debt , which includes a $ 500,000 first mortgage loan and the company 's $ 82,500 mezzanine loan . the floating-rate , mezzanine loan has a three-year initial term with two one-year extension options and an appraised loan-to-net-sellout of 58 % . the first mortgage loan was underwritten to generate an irr of approximately 13 % . see “ — investments ” above for a discussion of how irr is calculated . joint ventures . on september 30 , 2014 , the company , through a wholly owned subsidiary , acquired a 59 % ownership interest in champ lp , following which a wholly-owned subsidiary of champ lp then acquired a 35 % ownership interest in 36 kbc bank , the german subsidiary of belgian kbc group nv . the company acquired its ownership interest in champ lp for an initial purchase price paid at closing of approximately 30,724 ( $ 39,477 ) . story_separator_special_tag the company committed to invest up to approximately 38,000 ( $ 50,000 ) . through its interest in champ lp , the company holds an indirect ownership interest in kbc bank of approximately 21 % . the company together with other affiliated investors , in aggregate , own 100 % of champ lp . champ lp together with certain unaffiliated third party investors , in aggregate , own 100 % of kbc bank . securities . during 2014 , the company deployed $ 75,001 of equity to acquire legacy cmbs with an aggregate purchase price of $ 375,006. the company financed the cmbs utilizing $ 300,005 of borrowings under the db facility . the cmbs had a weighted average life of 2.8 years and have been underwritten to generate an irr of approximately 17 % . see “ — investments ” above for a discussion of how irr is calculated . repayments . during january 2014 , the company received a $ 15,000 principal repayment from a subordinate loan secured by a pledge of the equity interests in the owner of a new york city hotel . . during june 2014 , the company received a $ 47,000 principal repayment from a mezzanine loan secured by a pledge of the equity interests in a portfolio of skilled nursing facilities . during august 2014 , the company received the final repayment from a $ 50,000 mezzanine loan secured by a pledge of the equity interests in a borrower that owns a portfolio of seven office parks throughout florida . during the fourth quarter of 2014 , the company received the full repayment from a whole loan secured by an office condominium in new york city as well as a hotel in new york city . during december 2014 , the company received the final repayment from a $ 28,250 mezzanine loan secured by a pledge of the equity interests in a borrower that owns the leasehold interest in a hotel in new york city . investment activity – 2013 commercial mortgage loans . in august 2013 , the company provided a $ 62,400 whole loan , which is split into a $ 33,000 first mortgage loan and a $ 29,400 mezzanine loan secured by a pledge of the equity interests in a borrower that owns an eight-story commercial building in the greenwich village section of new york city . the whole loan will fund the conversion of the existing building into an expected 12-story luxury residential condominium consisting of approximately 37,000 square feet comprising eight residential units and approximately 3,600 square feet of ground-floor retail space . the whole loan has a two year term , including one 12-month extension option , at the borrower 's option , subject to certain conditions . on a fully funded basis , the whole loan represents an expected appraised loan-to-net-sellout of 55 % . the whole loan has been underwritten to generate an irr of approximately 14 % . see “ — investments ” above for a discussion of how irr is calculated . subordinate loans . in january 2013 , the company provided a $ 60,000 mezzanine loan commitment secured by a pledge of preferred equity interests in the owner of a to-be-developed 352,624 net saleable square foot , 57-story , 146-unit condominium tower located in the tribeca neighborhood of new york city . based upon current presales of units , the company 's loan basis is expected to represent an underwritten loan-to-net sellout of approximately 48 % . the mezzanine loan has a term of 54 months with one extension option of 12-months at the borrower 's option , subject to certain conditions and has been underwritten to generate an irr of approximately 16 % . see “ — investments ” above for a discussion of how irr is calculated . in february 2013 , the company provided an $ 18,000 mezzanine loan secured by a pledge of the equity interests in the owner of two buildings in midtown manhattan . the buildings , containing a total of 181,637 rentable square feet , are expected to be converted into 215 multifamily rental units . the mezzanine loan is part of a $ 90,000 , three-year ( two-year initial term with one one-year extension option ) interest-only , floating rate financing comprised of the mezzanine loan and a $ 72,000 first mortgage loan . when the first mortgage loan is fully funded , the company expects that the mezzanine loan will have a ltv of approximately 60 % and the mezzanine loan has been underwritten to generate an irr of approximately 13 % . see “ — investments ” above for a discussion of how irr is calculated . in february 2013 , the company provided a $ 25,000 mezzanine loan secured by a pledge of the equity interests in the owner of a portfolio of four hotels totaling 1,231 rooms located in rochester , minnesota . the hotels are within walking distance of the mayo clinic , an internationally renowned health care facility that treats over one million patients annually from around the world . the mezzanine loan is part of a $ 145,000 five-year , fixed rate loan , comprised of a $ 120,000 first mortgage loan and the mezzanine loan , which was provided in connection with the acquisition of the portfolio . the mezzanine loan has an appraised ltv of approximately 69 % and has been underwritten to generate an irr of approximately 12 % . see “ — investments ” above for a discussion of how irr is calculated . 37 in february 2013 , the company received principal repayment on two mezzanine loans totaling $ 50,000 secured by a portfolio of retail shopping centers located throughout the united states . in connection with the repayment , the company received a yield maintenance payment totaling $ 2,500. with the yield maintenance payment , the company realized a 15 % irr on its mezzanine loan investment . see “ — investments ” above for a discussion of how irr is calculated .
| there can be no assurance that the actual irrs will equal the underwritten irrs shown in the table . see “ risk factors — the company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be significantly lower than 34 anticipated ” for a discussion of some of the factors that could adversely impact the returns received by the company from the investments shown in the table over time . ( 4 ) the company 's ability to achieve its underwritten levered weighted average irr with regard to its portfolio of first mortgage loans is dependent upon the company borrowing an additional $ 6,753 under the jpmorgan facility or any replacement facility . without such reborrowing , the levered weighted average underwritten irrs will be as indicated in the current weighted average underwritten irr column above . ( 5 ) cmbs ( held-to-maturity ) are net of a participation sold during june 2014. at december 31 , 2014 , the company presented the participation sold as an asset of $ 154,283 and non-recourse liabilities of $ 89,584 because the participation does not qualify as a sale according to gaap . investment activity – 2014 commercial mortgage loans . during february 2014 , the company provided a $ 80,000 , floating rate first mortgage loan ( $ 25,000 of which was funded at closing ) for the development of a 50-unit luxury residential condominium in montgomery county , maryland . the company 's loan is expected to fund the first phase of a two-phase development and has a 30-month term with a 6-month extension option . on a fully funded basis , the company expects that the first mortgage loan will represent an underwritten loan-to-net sellout of approximately 68 % and has been underwritten to generate an irr of approximately 15 % . see “ — investments ” above for a discussion of how irr is calculated . during april 2014 , the company closed a $ 210,000
| 14,402 |
the collectability of receivables is affected by numerous factors including current economic conditions , bankruptcies , and the ability of the tenant to perform under the terms of their lease agreement . while we make estimates of potentially uncollectible amounts and provide an allowance for them through bad debt expense , actual collectability could differ from those estimates which could affect our net income . with respect to the allowance for current uncollectible tenant receivables , we assess the collectability of outstanding receivables by evaluating such factors as nature and age of the receivable , past history and current financial condition of the specific tenant including our assessment of the tenant 's ability to meet its contractual lease obligations , and the status of any pending disputes or lease negotiations with the tenant . at december 31 , 2017 and 2016 , our allowance for doubtful accounts was $ 11.8 million and $ 11.9 million , respectively . historically , we have recognized bad debt expense between 0.3 % and 1.3 % of rental income and it was 0.3 % in 2017 . a change in the estimate of collectability of a receivable would result in a change to our allowance for doubtful accounts and correspondingly bad debt expense and net income . for example , in the event our estimates were not accurate and we were required to increase our allowance by 1 % of rental income , our bad debt expense would have increased and our net income would have decreased by $ 8.4 million . due to the nature of the accounts receivable from straight-line rents , the collection period of these amounts typically extends beyond one year . our experience relative to unbilled straight-line rents is that a portion of the amounts otherwise recognizable as revenue is never billed to or collected from tenants due to early lease terminations , lease modifications , bankruptcies and other factors . accordingly , the extended collection period for straight-line rents along with our evaluation of tenant credit risk may result in the nonrecognition of a portion of straight-line rental income until the collection of such income is reasonably assured . if our evaluation of tenant credit risk changes indicating more straight-line revenue is reasonably collectible than previously estimated and realized , the additional straight-line rental income is recognized as revenue . if our evaluation of tenant credit risk changes indicating a portion of realized straight-line rental income is no longer collectible , a reserve and bad debt expense is recorded . at december 31 , 2017 and 2016 , accounts receivable includes approximately $ 93.1 million and $ 80.6 million , respectively , related to straight-line rents . correspondingly , these estimates of collectability have a direct impact on our net income . we are currently under construction on 221 condominium units at our assembly row and pike & rose properties . gains or losses on the sale of these condominium units are recognized in accordance with the provisions of asc topic 360-20 , “ property , plant and equipment – real estate sales. ” we account for contracted condominium sales under the percentage-of completion method , based on an evaluation of the criteria specified in asc topic 360-20 including : the legal commitment of the purchaser in the real estate contract , whether the construction of the project is beyond a preliminary phase , whether sufficient units have been contracted to ensure the project will not revert to a rental project , the ability to reasonably estimate the aggregate project sale proceeds and aggregate project costs , and the determination that the buyer has made an adequate initial and continuing cash investment under the contract . when the percentage-of-completion criteria have not been met , no profit is recognized . the application of these criteria can be complex and requires us to make assumptions . the timing of revenue recognition related to these condominium sales will be impacted by the january 1 , 2018 adoption of asu 2014-09 `` revenue from contracts with customers . '' see `` recent accounting pronouncements , '' in note 2 to the consolidated financial statements for further discussion regarding the changes . 31 real estate the nature of our business as an owner , redeveloper and operator of retail shopping centers and mixed-use properties means that we invest significant amounts of capital . depreciation and maintenance costs relating to our properties constitute substantial costs for us as well as the industry as a whole . we capitalize real estate investments and depreciate them on a straight-line basis in accordance with gaap and consistent with industry standards based on our best estimates of the assets ' physical and economic useful lives . we periodically review the estimated lives of our assets and implement changes , as necessary , to these estimates and , therefore , to our depreciation rates . these reviews may take into account such factors as the historical retirement and replacement of our assets , expected redevelopments , and general economic and real estate factors . certain events , such as unforeseen competition or changes in customer shopping habits , could substantially alter our assumptions regarding our ability to realize the expected return on investment in the property and therefore reduce the economic life of the asset and affect the amount of depreciation expense to be charged against both the current and future revenues . these assessments have a direct impact on our net income . the longer the economic useful life , the lower the depreciation expense will be for that asset in a fiscal period , which in turn will increase our net income . similarly , having a shorter economic useful life would increase the depreciation for a fiscal period and decrease our net income . land , buildings and real estate under development are recorded at cost . we calculate depreciation using the straight-line method with useful lives ranging generally from 35 years to a maximum of 50 years on buildings and major improvements . story_separator_special_tag maintenance and repair costs are charged to operations as incurred . tenant work and other major improvements , which improve or extend the life of the asset , are capitalized and depreciated over the life of the lease or the estimated useful life of the improvements , whichever is shorter . minor improvements , furniture and equipment are capitalized and depreciated over useful lives ranging from 2 to 20 years . capitalized costs associated with leases are depreciated or amortized over the base term of the lease . unamortized leasing costs are charged to expense if the applicable tenant vacates before the expiration of its lease . undepreciated tenant work is written-off if the applicable tenant vacates and the tenant work is replaced or has no future value . additionally , we make estimates as to the probability of certain development and redevelopment projects being completed . if we determine the redevelopment is no longer probable of completion , we immediately expense all capitalized costs which are not recoverable . interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet placed in service . capitalization of interest commences when development activities and expenditures begin and end upon completion , which is when the asset is ready for its intended use . generally , rental property is considered substantially complete and ready for its intended use upon completion of tenant improvements , but no later than one year from completion of major construction activity . we make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income . if the time period for capitalizing interest is extended , more interest is capitalized , thereby decreasing interest expense and increasing net income during that period . certain external and internal costs directly related to the development , redevelopment and leasing of real estate , including pre-construction costs , real estate taxes , insurance , construction costs and salaries and related costs of personnel directly involved , are capitalized . we capitalized external and internal costs related to both development and redevelopment activities of $ 410 million and $ 8 million , respectively , for 2017 and $ 420 million and $ 9 million , respectively , for 2016 . we capitalized external and internal costs related to other property improvements of $ 74 million and $ 3 million , respectively , for 2017 and $ 61 million and $ 3 million , respectively , for 2016 . we capitalized external and internal costs related to leasing activities of $ 11 million and $ 6 million , respectively , for 2017 and $ 13 million and $ 6 million , respectively , for 2016 . the amount of capitalized internal costs for salaries and related benefits for development and redevelopment activities , other property improvements , and leasing activities were $ 7 million , $ 3 million , and $ 6 million , for 2017 and $ 8 million , $ 2 million , and $ 6 million for 2016 . total capitalized costs were $ 512 million and $ 511 million for 2017 and 2016 , respectively . when applicable , as lessee , we classify our leases of land and building as operating or capital leases . we are required to use judgment and make estimates in determining the lease term , the estimated economic life of the property and the interest rate to be used in determining whether or not the lease meets the qualification of a capital lease and is recorded as an asset . real estate acquisitions upon acquisition of operating real estate properties , we estimate the fair value of assets and liabilities acquired including land , building , improvements , leasing costs , intangibles such as in-place leases , assumed debt , and current assets and liabilities , if any . based on these estimates , we allocate the purchase price to the applicable assets and liabilities . we utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities . the value allocated to in-place leases is amortized over the related lease term and reflected as rental income in the statement of operations . we consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and 32 include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options . if the value of below market lease intangibles includes renewal option periods , we include such renewal periods in the amortization period utilized . if a tenant vacates its space prior to contractual termination of its lease , the unamortized balance of any in-place lease value is written off to rental income . long-lived assets and impairment there are estimates and assumptions made by management in preparing the consolidated financial statements for which the actual results will be determined over long periods of time . this includes the recoverability of long-lived assets , including our properties that have been acquired or redeveloped and our investment in certain joint ventures . management 's evaluation of impairment includes review for possible indicators of impairment as well as , in certain circumstances , undiscounted and discounted cash flow analysis . since most of our investments in real estate are wholly-owned or controlled assets which are held for use , a property with impairment indicators is first tested for impairment by comparing the undiscounted cash flows , including residual value , to the current net book value of the property . if the undiscounted cash flows are less than the net book value , the property is written down to expected fair value .
| million in net proceeds from the september 29 , 2017 issuance of 6,000 series c preferred shares , $ 41.0 million of borrowings on our revolving credit facility in 2017 as compared to $ 56.9 million of repayments in 2016 , a $ 12.8 million increase in contributions from noncontrolling interests primarily due to contributions to fund the $ 50.0 million partial repayment of the plaza el segundo mortgage loan , and an $ 8.9 million decrease in distributions to and redemptions of noncontrolling interests primarily due to the 2016 acquisition of the 10 % noncontrolling interest of a partnership which owns a project in southern california , partially offset by a $ 210.5 million decrease in net proceeds from the issuance of common shares primarily due to our march 2016 issuance of 1.0 million common shares at $ 149.43 per share in an underwritten public offering , and 1.2 million common shares under our atm equity program at a weighted average price of $ 152.92 during 2016 , compared to 0.8 million common shares under our atm equity program at a weighted average price of $ 132.56 during 2017 , the december 2017 redemption of $ 150.0 million of senior notes with a make-whole premium of $ 11.9 million , and a $ 15.3 million increase in dividends paid to shareholders due to an increase in the dividend rate and a higher number of shares outstanding . 45 contractual commitments the following table provides a summary of our fixed , noncancelable obligations as of december 31 , 2017 : replace_table_token_19_th _ ( 1 ) fixed rate debt includes our $ 275.0 million term loan as the rate is effectively fixed by two interest rate swap agreements . ( 2 ) variable rate debt includes our revolving credit facility , which currently has $ 41.0 million outstanding and bears interest at libor plus 0.825 % . in addition to the amounts
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the most significant impacts of this allocation resulted in the increased valuation of property and equipment , goodwill and intangible assets , and the adjustment of capital lease obligation amounts . the revaluation of property and equipment and definite-lived intangible assets resulted in an increase in depreciation and amortization expense for fiscal 2014 and the fiscal 2013 successor period of $ 2.5 million and $ 0.2 million , respectively , compared to what otherwise would have been recognized . this increased level of depreciation and amortization is expected to continue into fiscal 2015 and beyond absent other changes in depreciation and amortization expense . also as part of the management purchase , we incurred $ 1.0 million and $ 14.8 million of transaction costs during the fiscal 2013 successor and predecessor periods , respectively , of which $ 0.6 million had been paid as of december 28 , 2013 , with the remaining amount paid during fiscal 2014. results of operations fiscal 2014 compared with fiscal 2013 summary the results of operations during fiscal 2014 compared to fiscal 2013 were impacted by the six acquired supermarkets and three new supermarkets opened since january 2013. our fiscal 2013 results reflect $ 15.8 million of transaction costs associated with the management purchase , $ 6.8 million of bonuses paid to stock option holders following the may 2013 dividend , and incremental stock-based compensation expense of $ 3.7 million associated with stock option modifications . additionally , fiscal 2014 operating income was negatively impacted by an increase in utility costs of $ 3.6 million as compared to fiscal 2013. . - 15 - net sales the following table includes the components of our net sales for fiscal 2014 , the fiscal 2013 successor period and the fiscal 2013 predecessor period . ( dollars in thousands ) replace_table_token_3_th inside sales increased $ 22.1 million , or 1.0 % , during fiscal 2014 compared with fiscal 2013 due to the $ 25.4 million incremental contribution of six acquired supermarkets and three new supermarkets opened since january 2013. this increase was partially offset by a 0.3 % decrease in same store sales . same store sales is the change in period-over-period inside sales , excluding franchise revenue , for same stores , which are supermarkets that have been operating for at least 13 full four-week periods . fuel sales increased during fiscal 2014 compared with fiscal 2013 due to a 5.4 % increase in the number of gallons sold due to the addition of eight new fuel stations since may 2013. this increase was partially offset by a 2.8 % decrease in the average retail price per gallon , net of applicable discounts . gross profit the following table includes a comparison of cost of goods sold , distribution costs and gross profit for fiscal 2014 , the fiscal 2013 successor period and the fiscal 2013 predecessor period . ( dollars in thousands ) replace_table_token_4_th as a percentage of net sales , cost of goods sold increased during fiscal 2014 compared with fiscal 2013 due to a change in lifo inventory valuation adjustments from income of $ 0.7 million during fiscal 2013 to expense of $ 2.7 million during fiscal 2014. excluding the impact of non-cash lifo adjustments , cost of goods sold as a percentage of net sales was 69.7 % during both fiscal 2014 and fiscal 2013. as a percentage of net sales , distribution costs remained consistent during fiscal 2014 compared with fiscal 2013 . - 16 - operating expenses the following table includes a comparison of operating expenses for fiscal 2014 , the fiscal 2013 successor period and the fiscal 2013 predecessor period . ( dollars in thousands ) replace_table_token_5_th wages , salaries and benefits wages , salaries and benefits remained relatively consistent during fiscal 2014 compared with fiscal 2013. selling and general expenses the increase in selling and general expenses during fiscal 2014 compared with fiscal 2013 is largely the result of a $ 3.6 million increase in utility costs attributable to higher electricity commodity costs during the first quarter of fiscal 2014 , as well as greater usage given colder than normal winter temperatures . elevated utility costs are not expected to continue beyond fiscal 2014 as commodity costs have returned to more normalized levels . administrative expenses administrative expenses decreased $ 28.6 million during fiscal 2014 compared with fiscal 2013. the decrease reflects $ 1.0 million and $ 14.8 million of transaction costs related to the management purchase during the fiscal 2013 successor and predecessor periods , respectively . additionally , we paid bonuses of $ 6.8 million to stock option holders following the may 2013 dividend , and incurred incremental stock-based compensation expense of $ 3.7 million associated with stock option modifications during the fiscal 2013 predecessor period . rent expense , net rent expense reflects our rental expense for our supermarkets under operating leases , net of income we receive from various entities that rent space in our supermarkets under subleases . rent expense remained relatively consistent during fiscal 2014 compared to fiscal 2013. depreciation and amortization depreciation and amortization increased $ 3.2 million during fiscal 2014 compared with fiscal 2013. the increase is primarily attributable to $ 2.3 million of incremental depreciation and amortization expense during fiscal 2014 due to the increase in the fair values of property and equipment and definite-lived intangible assets resulting from acquisition accounting for the management purchase . this increased level of depreciation and amortization is expected to continue into fiscal 2015 and beyond absent other changes in depreciation and amortization expense . - 17 - advertising advertising remained relatively consistent during fiscal 2014 compared with fiscal 2013. impairment during august 2013 , we made the determination to abandon the use of software procured for use in our point-of-sale system . accordingly , we wrote off software assets with an aggregate net carrying value of $ 1.6 million as an impairment in the consolidated statement of comprehensive loss during the fiscal 2013 predecessor period . story_separator_special_tag no impairments were recognized during fiscal 2014 or the fiscal 2013 successor period . interest expense , net the $ 12.5 million increase in interest expense during fiscal 2014 compared to fiscal 2013 is attributable to a $ 6.3 million increase in interest related to higher long-term debt levels , primarily the result of our may 2013 financing activities . also , there was a $ 6.1 million increase in interest related to capital lease obligations due to acquisition accounting for the management purchase that resulted in the reset of repayment amortization schedules . income tax benefit ( expense ) the income tax benefit of $ 7.5 million during fiscal 2014 reflects of our loss before income taxes . this benefit was partially offset by the establishment of additional valuation allowance against net deferred tax assets , excluding our deferred tax liability for the indefinite-lived tradename , during fiscal 2014 and the impact of non-deductible expenses . see note 11 to our consolidated financial statements in item 8 of this 10-k for additional details . the income tax expense of $ 0.4 million during fiscal 2013 reflects our combined loss before income taxes . this impact was more than offset by the establishment of additional valuation allowance against net deferred tax assets during the fiscal 2013 predecessor period , the reversal of a deferred tax asset related to stock-based compensation expense , and the impact of non-deductible expenses . see note 11 to our consolidated financial statements in item 8 of this 10-k for additional details . net loss our net loss decreased $ 13.8 million during fiscal 2014 compared with fiscal 2013 for the reasons described above . fiscal 2013 compared with fiscal 2012 story_separator_special_tag obligations under our $ 350.0 million senior secured notes and amended and restated our asset-based revolving credit facility . in connection with these financing activities , we recorded a $ 31.2 million loss on debt extinguishment during fiscal 2012. see note 9 to our consolidated financial statements in item 8 of this 10-k for additional details . interest expense , net interest expense during fiscal 2013 totaled $ 70.9 million , a $ 12.0 million increase from $ 58.9 million during fiscal 2012. the increase was attributable to a $ 14.5 million increase in interest related to higher long-term debt levels as a result of our december 2012 and may 2013 financing activities . this was partially offset by a $ 1.7 million reduction in capital lease interest expense due to the decrease in outstanding principal balances . income tax benefit ( expense ) the income tax expense of $ 0.4 million during fiscal 2013 reflects our combined loss before income taxes . this impact was more than offset by the establishment of additional valuation allowance against net deferred tax assets during the fiscal 2013 predecessor period , the reversal of a deferred tax asset related to stock-based compensation expense , and the impact of non-deductible expenses . see note 11 to our consolidated financial statements in item 8 of this 10-k for additional details . income tax expense during fiscal 2012 reflects our loss before income taxes , the impact of which was more than offset by the establishment of additional valuation allowance against net deferred tax assets . see note 11 to our consolidated financial statements in item 8 of this 10-k for additional details . net loss our net loss increased $ 5.5 million during fiscal 2013 compared with fiscal 2012 for the reasons described above . liquidity and capital resources our primary sources of cash are cash flows generated from our operations and borrowings under our 2017 abl facility . our 2017 abl facility allows a maximum borrowing capacity of $ 125.0 million , subject to a borrowing base calculation , with an option for future upsizing with up to $ 50.0 million of incremental commitments if certain conditions are met . as of december 27 , 2014 , the unused availability under our 2017 abl facility was $ 35.7 million , after giving effect to the borrowing base calculation , $ 20.7 million of letters of credit outstanding and $ 52.0 million of borrowings outstanding . we expect that cash generated from operations and availability under our 2017 abl facility will permit us to fund our debt service requirements , investments in working capital , capital expenditures , acquisitions and other cash requirements for at least the next twelve months . we do not expect to make dividends of significant size in the near future ; however , we may pay dividends to our stockholders from time to time . our financial flexibility will depend upon our future operating performance , which will be affected by prevailing economic conditions in the grocery industry and financial , business , and other factors , some of which are beyond our control . although unforeseen , if faced with the need to increase liquidity , we could readily respond through the control of variable operating expenses ( for example , by adjusting employment levels ) and through the scale back of planned capital expenditure and acquisition activities . during january 2015 , the company sold pharmacy scripts and inventory related to 27 of its in-store pharmacies for cash proceeds of $ 14.9 million . these pharmacies were then closed . see note 18 to our consolidated financial statements in item 8 of this 10-k on december 1 , 2013 , the management purchase was consummated . of the total cash consideration of $ 20.9 million , $ 4.3 million was funded through the use of available company cash . additionally , we incurred $ 15.8 million of transaction costs , of which $ 0.6 million had been paid as of december 28 , 2013 , with the remaining amount paid during fiscal 2014. on may 15 , 2013 , tops holding ii corporation issued the notes due 2018 ( also referred to as the holding ii notes ) .
| gross profit the following table includes a comparison of cost of goods sold , distribution costs and gross profit for the fiscal 2013 successor period , the fiscal 2013 predecessor period and fiscal 2012 . ( dollars in thousands ) replace_table_token_7_th at 69.7 % of net sales , the decrease in cost of goods sold during fiscal 2013 compared with fiscal 2012 was due to a $ 2.4 million increase in gross margin on relatively consistent fuel sales . the increase in this percentage during the fiscal 2013 successor period was attributable to seasonality , including promotional activity and sales mix changes during the december holiday season . as a percentage of net sales , distribution costs remained relatively consistent during fiscal 2013 compared with fiscal 2012 . - 19 - operating expenses the following table includes a comparison of operating expenses for the fiscal 2013 successor period , the fiscal 2013 predecessor period and fiscal 2012 . ( dollars in thousands ) replace_table_token_8_th wages , salaries and benefits wages , salaries and benefits were 13.8 % of net sales during fiscal 2013. the increase compared with fiscal 2012 was due to general wage and benefits increases to union associates , as well as investments in labor during the rebannering and grand re-openings of the acquired grand union supermarkets during the fiscal 2013 predecessor period . selling and general expenses the increase in selling and general expenses as a percentage of net sales during fiscal 2013 compared with fiscal 2012 was largely the result of a combined $ 7.1 million increase in utility costs , primarily attributable to higher commodity costs for electricity . also , during fiscal 2012 , we recorded a $ 1.2 million reversal of a liability attributable to the transition services agreement entered into by the company following the acquisition of the penn traffic supermarkets in 2010. administrative expenses administrative expenses of $ 97.3 million during fiscal 2013 represented a $ 14.9 million increase compared with fiscal 2012. the increase reflects $ 1.0 million and $ 14.8 million of transaction costs related
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% as compared to 30.8 % in fiscal 2014. the overall margin increase primarily reflects the effect of catch up adjustments of $ 117,000 on edc contracts for fiscal 2015 in contrast to edc margins in fiscal 2014 that were negatively impacted by net cumulative catch-up adjustments of $ 1.5 million . the improvement in edc sales gross margin was partially offset by lower product gross margin primarily the result of reduced coverage of fixed costs due to lower sales volume . research and development ( r & d ) . r & d expense was $ 2.7 million for fiscal 2015 and $ 2.6 million for fiscal 2014. r & d expense increased to 13.5 % of net sales in fiscal 2015 compared to 5.9 % in fiscal 2014 , reflecting the decrease in fiscal 2015 net sales and a higher proportion of engineering hours incurred on internal r & d projects as the edc programs are nearing completion . selling , general , and administrative . selling , general and administrative expenses decreased $ 3.3 million , or 29.4 % , to $ 7.8 million or 39.1 % of net sales for fiscal 2015 from $ 11.1 million or 25.2 % of net sales , for fiscal 2014. the decrease in selling , general and administrative expenses for the year ended september 30 , 2015 primarily reflects bad debt expense of $ 1.3 million as compared to $ 3.7 million of bad debt expense in the year ended september 30 , 2014 , lower personnel costs and lower professional fees partially offset by higher legal fees primarily related to the delta matter . the bad debt expense of $ 1.3 million in fiscal 2015 is due to an impairment of an unbilled receivable . the company has renegotiated and executed a new agreement in january 2016 with a customer to provide products and services with current technology . therefore , the unbilled amount is impaired . we expect that this agreement will result in approximately $ 1.2 million positive impact from a reversal of a total liability of $ 1.2 million comprising of deferred revenue and contract loss accrual to the statement of operations in q2 2016 due to the extinguishment of our obligation to deliver certain products under the original contract . the bad debt expense of $ 3.7 million in fiscal 2014 related to the delta contract , ( see item 3. legal proceedings. ) . 26 interest income , net . net interest income increased by $ 3,000 to $ 25,000 for fiscal 2015 from $ 22,000 for fiscal 2014. the increase in interest was primarily the result of higher cash balances throughout the year ended september 30 , 2015 as compared to the year ended september 30 , 2014. other income . other income for fiscal 2015 and fiscal 2014 were $ 33,000 and $ 38,000 , respectively . the decrease in fiscal 2015 was primarily the result of lower royalties earned compared to fiscal 2014. income taxes . the income tax expense for fiscal year ended september 30 , 2015 was $ 2.3 million compared to an income tax benefit of $ 0.3million or for the fiscal year ended september 30 , 2014. the tax benefit for the fiscal year ended september 30 , 2014 resulted from a pretax loss of $ 0.1 million and the favorable impact of the federal research and development tax credits . the effective tax rate for the year ended september 30 , 2015 was ( 64.7 % ) as a result of an increase in the company 's net operating loss valuation allowance due to the uncertainty on the company 's ability to generate sufficient future taxable income to realize the majority of such deferred tax assets . the effective tax rate differs from the statutory rate for the year ended september 30 , 2015 primarily because of a valuation allowance recorded on the majority of the federal and state tax assets , net of liabilities . net income . as a result of the factors described above , the company 's net loss for fiscal 2015 was $ 5.9 million compared to net income of $ 0.2 million for fiscal 2014. on a fully diluted basis , the net loss per share was $ 0.35 for fiscal 2015 , compared to net income of $ 0.01 for fiscal 2014. liquidity and capital resources the following table highlights key financial measurements of the company : replace_table_token_8_th replace_table_token_9_th ( 1 ) excludes deferred revenue ( 2 ) calculated as : the sum of cash and cash equivalents plus accounts receivable , net , divided by current liabilities ( 3 ) calculated as : current assets divided by current liabilities the company 's principal source of liquidity has been cash flows from current year operations and cash accumulated from prior years ' operations . cash is used principally to finance inventory , accounts receivable , unbilled receivables , and payroll . 27 operating activities the company generated $ 3.6 million of cash from operations during fiscal 2016 as compared to $ 1.4 million during fiscal 2015. the cash provided by operating activities for the year ended september 30 , 2016 was primarily comprised of net income of $ 2.0 million , the decrease in net unbilled receivables of $ 2.3 million , the reduction to inventory of $ 1.0 million a reduction to deferred taxes of $ 0.5 million and depreciation of $ 0.5 million , partially offset by the increase of accounts receivable of $ 2.1 million and the decrease in accrued expenses of $ 0.7 million . unbilled receivables represent principally sales recorded under the percentage-of-completion method of accounting that have not been billed to customers in accordance with applicable contract terms on engineering development projects . story_separator_special_tag the decrease in unbilled receivables reflects the billing of milestones achieved in the engineering development contract as they near completion in fiscal 2016. the company generated $ 1.4 million of cash during fiscal 2015 as compared to a use of $ 0.7 million of cash in operating activities during fiscal 2014. the cash provided by operating activities for the year ended september 30 , 2015 resulted primarily from a decrease in accounts receivable and net unbilled receivables of $ 2.0 million and $ 2.3 million respectively , partially offset by the decrease in accounts payable , accrued expenses and taxes payable of $ 1.0 million , $ 1.3 million and $ 0.4 million , respectively . investing activities cash used in investing activities was $ 0.4 million and $ 0.1 million for fiscal years 2016 and 2015 , respectively , and consisted of spending for production equipment and laboratory test equipment . the company plans to continue investing in capital equipment to support engineering development efforts and operations . financing activities cash used by financing activities was $ 0.7 million and $ 0.2 million for fiscal years 2016 and 2015 , respectively , and consisted primarily from the purchase of treasury stock . summary future capital requirements depend upon numerous factors , including market acceptance of the company 's products , the timing and rate of expansion of business , acquisitions , joint ventures , and other factors . is & s has experienced increases in expenditures since its inception and anticipates that expenditures will remain relatively constant with the levels experienced in fiscal 2016 and fiscal 2015 in the foreseeable future . the company believes that its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months . further , is & s may need to develop and introduce new or enhanced products , to respond to competitive pressures , to invest in or acquire businesses or technologies , or to respond to unanticipated requirements or developments . if insufficient funds are available , the company may not be able to introduce new products or to compete effectively . contractual obligations the company 's contractual obligations as of september 30 , 2016 mature as follows : replace_table_token_10_th ( 1 ) a purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms , including fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . these amounts are primarily comprised of open purchase order commitments entered in the ordinary course of business with vendors and subcontractors pertaining to fulfillment of the company 's current order backlog . 28 off-balance sheet arrangements the company has no off-balance sheet arrangements . inflation is & s does not believe inflation had a material effect on its financial position or results of operations during the past three years ; however , it can not predict future effects of inflation . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period . the company 's most critical accounting policies are revenue recognition , income taxes , inventory valuation , share based compensation and warranty reserves . revenue recognition the company enters into sales arrangements with customers that , in general , provide for the company to design , develop , manufacture and deliver air data equipment , large flat-panel display systems , and advanced monitoring systems that measure and display critical flight information , including data relative to aircraft separation , airspeed , altitude , and engine and fuel data measurements . the company 's sales arrangements may include multiple deliverables as defined in fasb asc topic 605-25 multiple-element arrangements ( asc topic 605-25 ) , which typically include design and engineering services and the production and delivery of the flat panel display and related components . the company includes any design and engineering services elements in edc sales and any functional upgrade and product elements in product sales on the accompanying consolidated statements of income . to the extent that an arrangement contains software elements that are essential to the functionality of tangible products sold in the arrangement , the company recognizes revenue for the deliverables in accordance with the guidance included in fasb accounting update 2009-14 , revenue arrangements that include software elements ( asu 2009-14 ) ; and fasb accounting standards update 2009-13 , multiple-deliverable revenue arrangements-a consensus of the fasb emerging issues task force ( asu 2009-13 ) ; and fasb asc topic 605 , revenue recognition ( asc topic 605 ) . to the extent that an arrangement contains software components , which include functional upgrades that are sold on a standalone basis and which the company has deemed outside the scope of the exception defined by asu 2009-14 , the company recognizes software revenue in accordance with asc topic 985 , software ( asc topic 985 ) . multiple element arrangements the company identifies all goods and or services that are to be delivered separately under such a sales arrangement and allocates sales to each deliverable ( if more than one ) based on that deliverable 's selling price . the company considers the appropriate recognition method for each deliverable . the company 's multiple element arrangements can include defined design and development activities , functional upgrades , and product sales .
| the overall gross margin increase was also impacted by an increase in gross margin on edc programs , from 14 % in fiscal 2015 to 68 % in fiscal 2016. the fiscal 2016 edc margin includes the reversal of a loss accrual in the amount of $ 0.5 million as the company negotiated changes in january 2016 to its arrangement with a certain customer whereby the company 's obligation with certain product deliverables were cancelled . research and development ( r & d ) . r & d expense was $ 4.9 million for fiscal 2016 and $ 2.7 million for fiscal 2015. r & d expense increased to 17.4 % of net sales in fiscal 2016 compared to 13.5 % in fiscal 2015 , reflecting a higher proportion of engineering hours incurred on internal r & d projects as the edc programs are nearing completion . 25 selling , general , and administrative . selling , general and administrative expenses increased $ 1.3 million , or 16.9 % , to $ 9.2 million , or 32.8 % of net sales , for fiscal 2016 from $ 7.8 million , or 39.1 % of net sales , for fiscal 2015. the increase in selling , general and administrative expenses for the year ended september 30 , 2016 primarily reflects increased legal expense related to litigation arising from the termination of the delta contract in 2014 and increased audit fees . the increase was partially offset by the reduction of bad debt expense in fiscal 2016 versus fiscal 2015. in fiscal 2015 a $ 1.3 million bad debt expense was incurred due to an impairment of an unbilled receivable . interest income , net . net interest income increased by $ 9,000 to $ 34,000 for fiscal 2016 from $ 25,000 for fiscal 2015. the increase in interest was primarily the result of higher cash balances throughout the year ended september 30 , 2016 as compared to the year ended september 30 , 2015. other income . other income for fiscal 2016 and fiscal 2015 was $ 78,000 and $ 33,000 , respectively . the increase in fiscal 2016 was primarily the result of higher royalties earned compared to fiscal 2015. income taxes . income
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total operating expenses were $ 17,416,066 for the year ended december 31 , 2016 , as compared to total operating expenses of $ 16,779,514 for the year ended december 31 , 2015. total operating expenses for the year ended december 31 , 2016 consisted of general and administrative expenses of , $ 8,797,883 , non-cash compensation of $ 3,463,435 , a bad debt provision of $ 1,688,237 and depreciation and amortization of $ 3,466,511. for the year ended december 31 , 2015 , operating expenses consisted of general and administrative expenses of $ 9,310,477 , non-cash compensation of $ 4,306,304 , a bad debt provision of $ 649,571 , and depreciation and amortization of $ 2,513,162. the components of our general and administrative expenses are discussed below . general and administrative expenses for the years ended december 31 , 2016 and 2015 consisted of operating expenses not otherwise delineated in our consolidated statements of operations and comprehensive loss , including non-cash compensation expense , salaries and benefits , professional fees , rent , filing fees and other expenses required to run our business , as follows : replace_table_token_6_th replace_table_token_7_th 37 salaries , benefits , taxes and contractor payments were $ 4,402,689 for the year ended december 31 , 2016 as compared to $ 3,816,241 for the year ended december 31 , 2015 , representing an increase of $ 586,448 as follows : replace_table_token_8_th the increase in salaries of $ 586,448 was due primarily to the increase of corporate salaries of $ 398,100 due to an increase in north america transactions solutions ' headcount and sales incentives given to our key segment managers . also , $ 304,220 of our online solutions segment salaries increased due to the may 20 , 2015 acquisition and consolidation of payonline expenses were for a partial year in 2015 . 38 professional fees were $ 2,714,840 for the year ended december 31 , 2016 as compared to $ 3,563,885 for the year ended december 31 , 2015 , representing a decrease of $ 849,045 as follows : replace_table_token_9_th the most significant decreases in professional fees were attributable to general legal of $ 389,035 , accounting/auditing fees of $ 206,789 and consulting services of $ 237,997. the primary reason for a $ 389,035 decrease in general legal expenses was due to less litigation activity in our corporate expenses during the year ended december 31 , 2016 versus the year ended december 31 , 2015. corporate accounting fees decreased $ 121,669 , due to payonline 's acquisition which required additional accounting costs in 2015 related to its valuation and separate financial statement audit prior to purchase . online solutions ' accounting fees also decreased $ 76,371 during 2016 because the payonline required increased accounting costs for its purchase in may 20 , 2015 to prepare for its annual audit and to provide accurate financials for its valuation . consulting fees decreased $ 237,997 primarily resulting from a corporate decrease of $ 481,401. this decrease occurred because of a transition of consultants into permanent positions as well as decreased investor relations costs and valuation fees . this was primarily offset by online solutions consulting costs which increased $ 181,479 as result of payonline 's being consolidated for a full year in 2016 versus 2015 's consolidation being effective may 20 , 2015. transaction gains and losses represent changes in exchange rates between our functional currency and the foreign currency in which the transaction is denominated . other general and administrative expenses were $ 1,246,924 for the year ended december 31 , 2016 as compared to $ 999,965 for the year ended december 31 , 2015 , representing an increase of $ 246,959. the differences consisted primarily of an $ 83,131 increase in office expenses , $ 64,805 increase in communications , a $ 42,409 increase in insurance , and a $ 31,921 increase in taxes . the increase in office expenses was attributed to north america transaction solutions ( $ 44,294 ) and online solutions ( $ 41,297 ) . the increase to communications was primarily due to online solutions ( $ 65,555 ) , and corporate expenses ( $ 41,502 ) , offset by a decrease in north america transaction solutions ( $ 20,573 ) and a decrease in mobile solutions ( $ 21,678 ) . the increase in insurance was due to our corporate , primarily as a result of our directors and officers policy . the increase in taxes was primarily due to an increase in corporate ( $ 206,157 ) , which primarily due to an $ 180,000 franchise tax for the state of delaware , offset by a $ 166,926 decrease in mobile solutions taxes . 39 non-cash compensation expense was $ 3,463,435 for the year ended december 31 , 2016 as compared to 4,306,304 for the year ended december 31 , 2015. a summary of 2016 and 2015 non-cash compensation activity was as follows : 2016 non-cash compensation activity $ amount board of directors & employee stock and options $ 3,184,608 options provided for financing 78,827 stock issued in legal settlement 200,000 total for 2016 $ 3,463,435 2015 non-cash compensation activity $ amount board of directors & employee stock and options $ 3,402,082 options provided for financing 904,222 total for 2015 $ 4,306,304 we recorded a provision for bad debt in the amount of $ 1,688,237 for the year ended december 31 , 2016 , compared to provision for bad debts of $ 649,571 for the year ended december 31 , 2015. for the twelve months ended december 31 , 2016 we recorded a loss provision which was primarily comprised of $ 1,274,671 in net ach rejects , attributable to the normal course of our north america transaction solutions segment , and a $ 413,565 loss , which was primarily to reserve for potential accounts receivable losses from our mobile solutions business . story_separator_special_tag for the twelve months ended december 31 , 2015 we recorded a loss provision which was primarily comprised of $ 754,162 in ach rejects , attributable to the normal course of our north america transaction solutions segment , offset by $ 100,868 bad debt recovery from our mobile solutions segment . during the years ended december 31 , 2016 and 2015 , we did not recognize any goodwill impairment . depreciation and amortization expense consists primarily of the amortization of merchant portfolios , trademarks and domain names plus depreciation expense on fixed assets , client acquisition costs , capitalized software expenses and employee non-compete agreements . depreciation and amortization expense was $ 3,466,511 for the year ended december 31 , 2016 as compared to $ 2,513,162 for the year ended december 31 , 2015. the primary reason for the $ 953,349 increase is an $ 834,395 increase attributed to online solutions segment , primarily because we took a full year 's depreciation as we purchased payonline in may 2015. in addition , we had a $ 313,191 increase in north american transaction solutions due to increased customer acquisition costs , offset by $ 138,621 decrease because many of our merchant portfolios became fully amortized in 2015 . 40 interest expense was $ 1,463,833 for the year ended december 31 , 2016 as compared to $ 3,575,698 for the year ended december 31 , 2015 , representing a decrease of $ 2,111,865 as follows : replace_table_token_10_th interest for 2016 was primarily attributed to rbl notes . of the $ 1,282,439 in interest attributable to the rbl notes , $ 789,357 was attributed to discounts on common stock provided in exchange for debt , as compared the market value on the day of issuance . in addition , $ 40,479 resulted from the amortization of related loan costs and $ 452,609 resulted from the payment of interest on the notes . other interest consisted primarily of $ 125,887 due to a third party as a result of delayed payment installments on the payonline stock price guarantee obligation , offset by interest earned by our mobile solutions segment . interest for 2015 was primarily attributed to corporate of which $ 3,027,354 was due to the accretion of interest on the debt discounts attributed to the convertible notes payable that were extinguished during the fourth quarter of 2015. additionally , $ 513,994 was for our rbl notes . during 2016 , we recorded a $ 3,722,142 loss from stock value guarantee and other charges from payonline acquisition , related to online solutions segment . this loss includes a stock price guarantee charge in the amount of $ 2,288,667 , due to a make-whole provision arising from a decrease in the stock value purchase consideration paid and a reserve for merchant liabilities assumed in the amount of $ 1,433,475 pursuant to an amendment to the payonline acquisition agreement . included in other income was a gain of $ 450,000 , from the transfer and settlement of merchant reserves . during 2015 , we recorded a loss on the change in fair value on the beneficial conversion derivative related to convertible preferred stock and the related note payable in the amount of $ 26,932,496. during the fourth quarter , we extinguished the note payable and convertible preferred stock and recognized a $ 27,743,980 gain on these extinguishments which were attributable to our corporate expenses . there was no intangible asset impairment during 2016 and 2015. the net income attributable to non-controlling interests amounted to $ 128,539 and $ 74,314 for 2016 and 2015 , respectively . the income was attributed to our north america transaction solutions segment represents 10 % non-controlling interest in aptito . the non-controlling interest reflects the results of operations of subsidiaries that are allocable to minority equity owners . since our inception , we have incurred significant operating losses . we incurred net losses totaling $ 13.6 million and $ 13.3 million for the years ended december 31 , 2016 and 2015 , respectively . we had a working capital deficit of approximately $ 6.3 million and an accumulated deficit of $ 157 million at december 31 , 2016. these conditions raise substantial doubt about our ability to continue as a going concern . the independent auditors ' report on our consolidated financial statements for the year ended december 31 , 2016 contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern . the accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . see also “ liquidity and capital resources ” below . liquidity and capital resources our total assets at december 31 , 2016 were $ 23.3 million compared to $ 22.9 million at december 31 , 2015. the year over year change in total assets is primarily attributable to the $ 0.9 million increase in our north america transaction solutions receivables , and a $ 0.4 million increase in mobile services receivables , partially offset by a decrease in our intangibles of $ 1.3 million primarily from amortization through the year ended december 31 , 2016 compared to the year ended december 31 , 2015. at december 31 , 2016 , we had total current assets of $ 9.2 million including $ 0.6 million of cash , $ 7.1 million of accounts receivable , and $ 1.5 million of prepaid expenses and other assets . at december 31 , 2015 , we had total current assets of $ 7.3 million including $ 1.0 million of cash , $ 5.2 million of accounts receivable , and $ 1.1 million of prepaid expenses and other assets . 41 as of the filing date of this report with the sec , management expects that our cash flows from operations will not be sufficient to fund our current operations through 2017. we will require additional capital in order to continue our existing business operations and to fund our obligations .
| total transaction dollars processed during 2016 was $ 2.45 billion compared to $ 1.75 billion for 2015. the increase in transaction dollars processed came primarily from our north america transactions solutions segment , which saw a 60 % increase from $ 1.0 billion in 2015 to $ 1.6 billion processed in 2016. our online solutions segment experienced a 24 % increase from $ 333 million in 2015 to $ 412 million processed in 2016 , while our mobile solutions processed $ 36 million in transactions for 2016 compared to $ 90 million in 2015 , which represented a 60 % decrease . growth in the north america transactions solutions and online solutions segments was organic . critical accounting policies and estimates our significant accounting policies are described more fully in note 1 of the accompanying notes to consolidated financial statements . the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting period . actual results could differ materially from those estimates . in applying estimates , management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical experience , terms of existing contracts , the observance of trends in our industries , information provided by outside sources , trade journals and other sources , as appropriate . revenue . we recognize revenue when the following four basic criteria have been met : ( 1 ) persuasive evidence of a sales arrangement exists ; ( 2 ) performance of services has occurred , ( 3 ) the sales price is fixed or determinable , and ( 4 ) collectability is reasonably assured . we consider persuasive evidence of a merchant processing sales arrangement to be the receipt of a billable transaction from aggregators or a signed contract . revenue for access to branded content is recognized monthly as the mobile subscribers purchase access to content . service fee revenue from the aptito saas fees is recognized when billed unless collectability is considered an issue . 34 collectability is assessed based on a number of factors , including transaction history with the customer and the credit worthiness of the customer . if it is determined that the
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early in the year , we quickly rolled out enhanced order fulfillment and pick-up across our stores in the united states and later in the year in the united kingdom to provide our customers convenience when we were required by government mandates to close our stores in march 2020. throughout the year , we accelerated initiatives to expand fulfillment options and were able to provide services that customers have come to expect like fast home delivery , in-store pick-up and curbside pick-up . as we look forward , the environment is still evolving , and our operating model and supporting cost structure are evolving as well . the pandemic has accelerated the evolution of retail and compelled us to change our operating model which we believe is in the best interests of our employees and customers . we have also expedited some planned strategic initiatives that we believe will allow us to emerge from this time stronger and better positioned for long-term success . we are the only global company that offers an interactive “ make your own stuffed animal ” retail entertainment experience under the build-a-bear workshop brand , in which guests participate in the stuffing , fluffing , dressing , accessorizing and naming of their own teddy bears and other stuffed animals . as of january 30 , 2021 , we operated 354 stores globally and had 71 franchised stores operating internationally under the build-a-bear workshop brand . in addition to our stores , we sold product on our company-owned e-commerce sites , third party marketplaces and franchisee sites and through retailer 's wholesale agreements . there were also 56 locations operating through our `` third-party retail '' model in which we sell our products on a wholesale basis to other companies that then in turn execute our retail experience . we operate in three segments that share the same infrastructure , including management , systems , merchandising and marketing , and generate revenues as follows : direct to consumer ( “ dtc ” ) – corporately-managed retail stores located in the u.s. , canada , puerto rico , the u.k. , ireland , denmark and china and two e-commerce sites ; commercial – transactions with other businesses , mainly comprised of wholesale product sales and licensing our intellectual property , including entertainment properties , for third-party use ; and international franchising – royalties as well as product and fixture sales from other international operations under franchise agreements . selected financial data attributable to each segment for fiscal 2020 and 2019 are set forth in note 15 — segment information to our consolidated financial statements included elsewhere in this annual report on form 10-k. our consolidated net loss was $ 23.0 million in fiscal 2020 compared to net income of $ 0.3 million in fiscal 2019. we believe that we have a concept that has broad demographic appeal which , for north american stores open for the entire year other than periods of temporary government-mandated closures , averaged net retail sales per store of $ 0.6 million and $ 0.8 million in fiscal 2020 and 2019 , respectively . with retail as a significant driver of our performance , in order to effectively measure our store operations , we use store contribution as the key performance metric . the diversification of our real estate portfolio and shift to smaller more flexible store formats may result in lower average store revenue but is expected to improve store contribution on a long-term basis . consolidated store contribution as a percentage of net retail sales was 8.5 % for fiscal 2020 reflecting the negative impact of covd-19 , and 15.4 % for fiscal 2019. consolidated store contribution consists of store location net retail sales less cost of product , marketing and store related expenses . non-store general and administrative expenses are excluded as are our revenues and expenses associated with e-commerce sites and adjustments to deferred revenue related to gift card breakage and our loyalty program . see “ non-gaap financial measures ” for a reconciliation of store contribution to net income . the decrease in consolidated store contribution as a percent of net retail sales in fiscal 2020 was primarily due to temporary store closures as a result of covid-19 resulting in a decrease in retail gross margin as a percent of revenue of 470 basis-points . specifically , warehouse and distribution costs increased as a percentage of revenue primarily due to increased 24 customer shipping costs resulting from increased sales from ecommerce . additionally , occupancy costs increased as a percentage of revenue due to expense recognition under asc 842 leases when our stores were temporarily closed and abatements or deferrals were negotiated from landlords for the same period . the effects of these abatements and deferrals on expense recognition are spread across the remainder of the lease term . we ended fiscal 2020 with no borrowings under our credit agreement and with $ 34.8 million in cash , cash equivalents and restricted cash after investing $ 5.0 million in capital projects throughout the year . we did not repurchase any shares during fiscal 2020. our prior stock repurchase authorization expired in september 2020 and our board of directors has not authorized a new stock repurchase plan . following is a description and discussion of the major components of our statement of operations : revenues net retail sales , commercial revenue and international franchising : see note 3 — revenue to the consolidated financial statements for additional accounting information . we use net retail sales per square foot as a performance measure for our business . the following table details net retail sales per square foot for stores open throughout the fiscal year other than periods of temporary government-mandated closures , for the periods presented : replace_table_token_0_th ( 1 ) net retail sales per square foot in north america represents net retail sales from stores open throughout the entire period in north america , other than periods of temporary government-mandated closures , excluding e-commerce sales , divided by the total leased square footage of such stores . story_separator_special_tag ( 2 ) net retail sales per square foot in the u.k. represents net retail sales from stores open throughout the entire period in the u.k. , other than periods of temporary government-mandated closures , excluding e-commerce sales , divided by the total selling square footage of such stores . costs and expenses cost of merchandise sold : cost of merchandise sold is driven primarily by our retail segment . cost of merchandise sold – retail includes the cost of the merchandise , including royalties paid to licensors of third party branded merchandise ; store occupancy cost , including store depreciation and store asset impairment charges ( see note 5 — property and equipment , net to the consolidated financial statements for additional accounting information regarding store asset impairment ) ; cost of warehousing and distribution ; packaging ; stuffing ; damages and shortages ; and shipping and handling costs incurred in shipment to customers . retail gross margin is defined as net retail sales less the cost of merchandise sold - retail . for the commercial segment , cost of merchandise includes the cost of merchandise sold to third-party retailers on a wholesale basis for sale within their stores . for the franchise segment , cost of merchandise includes the sale of furniture , fixtures , and supplies to our franchise partners . selling , general and administrative expense ( “ sga ” ) : these expenses include store payroll and benefits , advertising , credit card fees , store supplies and normal store pre-opening and closing expenses as well as central office general and administrative expenses , including costs for management payroll , benefits , incentive compensation , travel , information systems , accounting , insurance , legal and public relations . these expenses also include depreciation of central office assets as well as the amortization of intellectual property and other assets . certain store expenses such as credit card fees historically have increased or decreased proportionately with net retail sales . in addition , bad debt expenses and accounts receivable related charges are recorded in sga . see note 5 — property and equipment , net to the consolidated financial statements for additional accounting information regarding store asset 25 impairment . additionally , as a result of covid-19 , governments enacted relief legislation and stimulus packages to help combat the economic effects of the pandemic through such things as payroll expense reimbursement and business grants , whose effects are recorded within sga . s tores co rporately-managed locations : the number of build-a-bear workshop stores in the u.s. , canada and puerto rico ( collectively , north america ) , the u.k. , ireland and denmark ( collectively , europe ) and china for the last two fiscal years is summarized as follows : replace_table_token_1_th during fiscal 2020 , our retail business model continued to evolve to address changing shopping patterns by diversifying our locations , formats and geographies . we are updating our store portfolio with our discovery format , which represented 40 % of our store base as of january 30 , 2021. during fiscal 2020 , we halted many of our planned new store openings as a result of covid-19 resulting in the opening of three stores , one discovery , one concourse , and one temporary location which was closed prior to the end of the fiscal year . through our third-party retail model , there were 56 stores in operation with relationships that included carnival cruise line , great wolf lodge resorts , landry 's and beaches family resorts , with select locations temporarily closed due to government mandates or self-imposed reductions in operating days , reduced operating hours and or capacity restrictions and limitations . as in prior years , we operated in a number of other non-traditional locations as well as shop-in-shop arrangements within other retailers ' stores . in one location in the year , we deployed a temporary store which we deemed prudent and profitable . temporary locations generally have lease terms of two to eighteen months . these specific sites are designed to capitalize on short-term opportunities . during fiscal 2020 , we closed 21 stores as part of natural lease events or through negotiations with landlords as part of covid-19 related renegotiations . in the future , we expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans . international franchise locations : our first franchisee location was opened in november 2003. all franchised stores have similar signage , store layout and merchandise assortments as our corporately-managed stores . as of january 30 , 2021 , we had six master franchise agreements , which typically grant franchise rights for a particular country or group of countries , covering an aggregate of 12 countries . the number of international , franchised stores opened and closed for the periods presented below is summarized as follows : replace_table_token_2_th 26 as of january 30 , 2021 , the distribution of franchised locations among these countries was as follows : replace_table_token_3_th ( 1 ) australia master franchise agreement includes singapore where there is not currently any open stores . ( 2 ) india master franchise agreement includes sri lanka where there is not currently any open stores . ( 3 ) china master franchise agreement includes hong kong . ( 4 ) gulf states master franchise agreement includes kuwait , qatar and the united arab emirates which all have stores as well as bahrain and oman where there are not currently stores open . in the ordinary course of business , we anticipate signing additional master franchise agreements in the future and terminating other such agreements . we believe there is a total market potential for approximately 300 international stores outside of the u.s. , canada , the u.k. , ireland and denmark . we source fixtures and other supplies for our franchisees from china which significantly reduces the capital and lowers the expenses required to open franchises .
| percentages will not total due to immaterial rounding : replace_table_token_4_th ( 1 ) cost of merchandise sold – retail is expressed as a percentage of net retail sales . cost of merchandise sold – commercial is expressed as a percentage of commercial revenue . cost of merchandise sold - international franchising is expressed as a percentage of international franchising revenue . ( 2 ) retail gross margin represents net retail sales less cost of merchandise sold – retail ; retail gross margin percentage represents retail gross margin divided by net retail sales . fiscal year ended january 30 , 2021 compared to fiscal year ended february 1 , 2020 total revenues . net retail sales were $ 249.2 million for fiscal 2020 , compared to $ 323.5 million for fiscal 2019 , a decrease of $ 74.3 million or 23.0 % . the components of this decrease are as follows : replace_table_token_5_th 28 the retail revenue decrease was driven primarily by temporary store closures , reductions in store operating days , fewer operating hours and capacity restrictions and limitations as a result of covid-19 partially offset by increased e-commerce sales in north america and the united kingdom resulting from our pivot to digital sales due to the aforementioned temporary store closures . commercial revenue was $ 4.4 million for fiscal 2020 compared to $ 11.9 million for fiscal 2019 , a decrease of $ 7.5 million primarily due to decreased sales volume from our commercial customers as a result of covid-19 , which we believe is principally because the third-party retail locations serviced by our commercial customers were either temporarily closed or operated under similar operating restrictions for our own stores ( government-mandated or self-imposed reductions in operating days , reduced operating hours and or capacity restrictions and limitations ) for portions of the fiscal year . revenue from international franchising was $ 1.7 million for fiscal 2020 compared to $ 3.2 million for fiscal 2019. this $ 1.5 million decrease was primarily the result of the temporary store closures of franchise
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to determine when redemption is remote , the company analyzes an aging of unredeemed cards ( based on the date the card was last used or the activation date if the card has never been used ) and compares that information with historical redemption trends . the company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to determine the timing of recognition of gift card revenues . however , if the company is not able to accurately determine when gift card redemption is remote , the company may be exposed to losses or gains that could be material . the deferred revenue associated with outstanding gift cards decreased from $ 4.5 million at december 31 , 2009 to $ 3.2 million during the year ended december 31 , 2010. revenues from course credits in connection with the use of the company 's upro gps on-course range finders are deferred when purchased and recognized when customers download the course credits for usage . deferred revenue associated with unused course credits increased to $ 2.6 million at december 31 , 2010 from $ 1.5 million at december 31 , 2009. allowance for doubtful accounts the company maintains an allowance for estimated losses resulting from the failure of its customers to make required payments . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , the customer 's financial condition and current economic trends , all of which are subject to change . if the actual uncollected amounts significantly exceed the estimated allowance , the company 's operating results would be significantly adversely affected . assuming there had been a 10 % increase in the company 's 2010 allowance for doubtful accounts , pre-tax loss for the year ended december 31 , 2010 would have been increased by approximately $ 0.9 million . inventories inventories are valued at the lower of cost or fair market value . cost is determined using the first-in , first-out ( fifo ) method . the inventory balance , which includes material , labor and manufacturing overhead costs , is recorded net of an estimated allowance for obsolete or unmarketable inventory . the estimated allowance for obsolete or unmarketable inventory is based upon current inventory levels , sales trends and historical experience as well as management 's understanding of market conditions and forecasts of future product demand , all of which are subject to change . the calculation of the company 's allowance for obsolete or unmarketable inventory requires management to make assumptions and to apply judgment regarding inventory aging , forecasted consumer demand and pricing , regulatory ( usga and r & a ) rule changes , the promotional environment and technological obsolescence . the company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the allowance . however , if estimates regarding consumer demand are inaccurate or changes in technology affect demand for certain products in an unforeseen manner , the company may need to increase its inventory allowance , which could significantly adversely affect the company 's operating results . assuming there had been a 10 % increase in the company 's 2010 allowance for obsolete or unmarketable inventory , pre-tax loss for the year ended december 31 , 2010 would have been increased by approximately $ 2.1 million . 28 long-lived assets in the normal course of business , the company acquires tangible and intangible assets . the company periodically evaluates the recoverability of the carrying amount of its long-lived assets ( including property , plant and equipment , investments , goodwill and other intangible assets ) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or exceeds its fair value . determining whether an impairment has occurred typically requires various estimates and assumptions , including determining the amount of undiscounted cash flows directly related to the potentially impaired asset , the useful life over which cash flows will occur , the timing of the impairment test , and the asset 's residual value , if any . to determine fair value , the company uses its internal cash flow estimates discounted at an appropriate rate , quoted market prices , royalty rates when available and independent appraisals as appropriate . any required impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value and is recorded as a reduction in the carrying value of the asset and a charge to earnings . the company uses its best judgment based on current facts and circumstances related to its business when making these estimates . the company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate long-lived asset impairment losses . however , if actual results are not consistent with the company 's estimates and assumptions used in calculating future cash flows and asset fair values , the company may be exposed to losses that could be material . during the fourth quarter of 2010 , the company conducted its annual impairment test on its goodwill and intangible assets , including the trade names , trademarks and other intangible assets the company acquired in 2003 as part of the acquisition of the assets of tfgc estate , inc. ( f/k/a the top-flite golf company ) . in completing the impairment analysis , the company determined that the discounted expected cash flows from the trade names and trademarks associated with the acquisition was $ 7.5 million less than the carrying value of those assets . story_separator_special_tag as a result , the company recorded an impairment charge of $ 7.5 million during the fourth quarter of 2010. for further discussion , see note 9 to the consolidated financial statementsgoodwill and intangible assets in this form 10-k. warranty policy the company has a stated two-year warranty policy for its golf clubs . the company 's policy is to accrue the estimated cost of satisfying future warranty claims at the time the sale is recorded . in estimating its future warranty obligations , the company considers various relevant factors , including the company 's stated warranty policies and practices , the historical frequency of claims , and the cost to replace or repair its products under warranty . the company 's estimates for calculating the warranty reserve are principally based on assumptions regarding the warranty costs of each club product line over the expected warranty period , where little or no claims experience may exist . experience has shown that warranty rates can vary between product models . therefore , the company 's warranty obligation calculation is based upon long-term historical warranty rates until sufficient data is available . as actual model-specific rates become available , the company 's estimates are modified to ensure that the forecast is within the range of likely outcomes . historically , the company 's actual warranty claims have not been materially different from management 's original estimated warranty obligation . the company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the warranty obligation . however , if the number of actual warranty claims or the cost of satisfying warranty claims significantly exceeds the estimated warranty reserve , the company may be exposed to losses that could be material . assuming there had been a 10 % increase in the company 's 2010 warranty obligation , pre-tax loss for the year ended december 31 , 2010 would have been increased by approximately $ 0.8 million . 29 income taxes current income tax expense or benefit is the amount of income taxes expected to be payable or receivable for the current year . a deferred income tax asset or liability is established for the difference between the tax basis of an asset or liability computed pursuant to asc topic 740 , income taxes , and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled , respectively . the company provides a valuation allowance for its deferred tax assets when , in the opinion of management , it is more likely than not that such assets will not be realized . while the company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance , in the event the company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount , an adjustment to the deferred tax asset would increase income in the period such determination was made . likewise , should the company determine that it would not be able to realize all or part of its net deferred tax asset in the future , an adjustment to the deferred tax asset would be a charge to income in the period such determination was made . pursuant to asc topic 740-25-6 , the company is required to accrue for the estimated additional amount of taxes for uncertain tax positions if it is more likely than not that the company would be required to pay such additional taxes . an uncertain income tax position will not be recognized if it has less than 50 % likelihood of being sustained . the company is required to file federal and state income tax returns in the united states and various other income tax returns in foreign jurisdictions . the preparation of these income tax returns requires the company to interpret the applicable tax laws and regulations in effect in such jurisdictions , which could affect the amount of tax paid by the company . as required under applicable accounting rules , the company accrues an amount for its estimate of additional tax liability , including interest and penalties , for any uncertain tax positions taken or expected to be taken in an income tax return . the company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available . historically , additional taxes paid as a result of the resolution of the company 's uncertain tax positions have not been materially different from the company 's expectations . information regarding income taxes is contained in note 16 income taxes to the notes to consolidated financial statements . share-based compensation the company accounts for share-based compensation arrangements in accordance with asc topic 718 , stock compensation , which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values . asc topic 718 further requires a reduction in share-based compensation expense by an estimated forfeiture rate . the forfeiture rate used by the company is based on historical forfeiture trends . if actual forfeitures are not consistent with the company 's estimates , the company may be required to increase or decrease compensation expenses in future periods . the company uses the black-scholes option valuation model to estimate the fair value of its stock options at the date of grant . the black-scholes option valuation model requires the input of highly subjective assumptions including the company 's expected stock price volatility , the expected dividend yield , the expected life of an option and the risk-free rate , which is based on the u.s. treasury yield curve in effect at the time of grant for the estimated life of the option . the company uses historical data to estimate the expected price volatility and the expected option life .
| these improvements offset a decline in sales in the united states and europe , which continued to be adversely affected by constrained consumer spending on discretionary durable products , particularly during the height of the golf season . the company 's gross profit as a percentage of net sales for 2010 improved by 2 percentage points to 38 % , compared to 36 % for 2009 , despite absorbing an incremental $ 6.7 million in charges in 2010 related to the implementation of the company 's global operations strategy . this 2 percentage points increase is primarily the result of net favorable changes in foreign currency exchange rates , benefits derived from the company 's prior global operations strategy initiatives , and less promotional activity on in-line products in 2010 compared to 2009. during 2010 , the company 's operating expenses as a percentage of net sales increased to 41 % from 39 % in 2009. operating expenses in 2010 include a $ 7.5 million non-cash impairment charge related to certain intangible assets acquired in 2003 as part of the top-flite acquisition . the operating expenses in 2010 also reflect increased costs related to the investments described above and the adverse net effect of changes in foreign currency rates . 33 while the company 's overall net operating results discussed above benefited during 2010 from changes in foreign currency rates related to the translation of the company 's international results into u.s. dollars for reporting purposes , these benefits were partially offset by the effect that foreign currency exchange rates had on the company 's other income ( expense ) for 2010. as a result of the net effect the relatively weak u.s. dollar had on the mark-to-market adjustments on the company 's accounts payable and accounts receivable denominated in foreign currencies and foreign currency exchange contracts , the company 's other income ( expense ) was adversely affected by $ 11.7 million in 2010 compared to $ 0.5 million in 2009. the company 's net loss increased by $ 3.5 million to $ 18.8 million in 2010
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through the awrmp initiative , artesian will provide planning , engineering and technical expertise and help bring together the various state , local and private partners needed for water recycling project approvals . artesian utility currently operates the wslp plan and the sslp plan , effective april 2012. artesian resources initiated the wslp plan in march 2005. the wslp plan covers all parts , material and labor required to repair or replace participating customers ' leaking water service lines up to an annual limit . the wslp plan was expanded in the second quarter of 2008 to include maintenance or repair to customers ' sewer lines . the sslp plan covers all parts , material and labor required to repair or replace participating customers ' leaking or clogged sewer lines up to an annual limit . also , in the second quarter of 2010 , the wslp plan and sslp plan were extended to include non-customers of artesian resources . as of december 31 , 2012 , approximately 17,700 , or 25.7 % , of our eligible water customers signed up for the wslp plan , approximately 10,500 , or 15.2 % , of our eligible customers signed up for the sslp plan and approximately 950 non-customer participants signed up for either the wslp plan or sslp plan . artesian development is a real estate holding company that owns properties , including land zoned for office buildings , a water treatment plant and wastewater facility , as well as property for current operations , including an office facility in sussex county , delaware . the facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space . this facility allows all of our sussex county , delaware operations to be housed in one central location . artesian consulting engineers acquired all the assets of meridian architects and engineers in june 2008. as a result of the decline in new housing and development due to the economic downturn , the need for development and architectural services has remained depressed . therefore , in april 2011 , we decided to reduce staffing levels and reorganize the business . artesian consulting engineers no longer provides development and architectural services to outside third parties . artesian consulting engineers will continue to work with existing clients on projects already in progress for engineering services until those projects are complete . we will continue to provide design and engineering contract services through our artesian utility subsidiary . strategic direction our strategy is to significantly increase customer growth , revenues , earnings and dividends by expanding our water , wastewater and service line protection plan services across the delmarva peninsula . we remain focused on providing superior service to our customers and continuously seeking ways to improve our efficiency and performance . by providing water and wastewater services , we believe we are positioned as the primary resource for developers and communities throughout the delmarva peninsula seeking to fill both needs simultaneously . we have a proven ability to acquire and integrate high growth , reputable entities , through which we have captured additional service territories that will serve as a base for future revenue . we believe this experience presents a strong platform for further expansion and that our success to date also produces positive relationships and credibility with regulators , municipalities , developers and customers in both existing and prospective service areas . 23 in our regulated water division , our strategy is to focus on a wide spectrum of activities , which include identifying new and dependable sources of supply , developing the wells , treatment plants and delivery systems to supply water to customers and educating customers on the wise use of water . our strategy includes focused efforts to expand in new regions added to our delaware service territory over the last 10 years . in addition , we believe growth will occur in the maryland counties on the delmarva peninsula . we plan to expand our regulated water service area in the cecil county designated growth corridor and to expand our business through the design , construction , operation , management and acquisition of additional water systems . the expansion of our exclusive franchise areas elsewhere in maryland and the award of additional contracts will similarly enhance our operations within the state . we believe that delaware 's generally lower cost of living in the region , availability of development sites in relatively close proximity to the atlantic ocean in sussex county , and attractive financing rates for construction and mortgages have resulted , and will continue to result , in increases to our customer base . delaware 's lower property and income tax rate make it an attractive region for new home development and retirement communities . substantial portions of delaware are currently not served by a public water system , which could also assist in an increase to our customer base as systems are added . in our regulated wastewater division , we foresee significant growth opportunities and will continue to seek strategic partnerships and relationships with developers and municipalities to complement existing agreements for the provision of wastewater service on the delmarva peninsula . artesian wastewater completed an agreement with georgetown , delaware in july 2008 to provide wastewater treatment and disposal services for georgetown 's growth and annexation areas . artesian wastewater will provide up to 1 mgd of wastewater capacity for the town . the preliminary engineering and design work was completed on a regional wastewater treatment and disposal facility located in the northern sussex county area that has the potential to treat up to approximately 8 mgd . this facility is strategically situated on 75 acres to provide service to the growing population in the georgetown , ellendale and milton areas , as well as to neighboring municipal systems . story_separator_special_tag this facility was granted conditional use approval by sussex county council to serve the elizabethtown subdivision of approximately 4,000 homes and 439,000 square feet of proposed commercial space , as well as seven additional projects comprising approximately 3,000 residential units . the facility will also be capable of offering wastewater services to local municipalities . artesian wastewater will manage the design and construction of the facility and , once constructed , the operation of the facility . the general need for increased capital investment in our water and wastewater systems is due to a combination of population growth , more protective water quality standards and aging infrastructure . our capital investment plan for the next five years includes projects for water treatment plant improvements and additions in both delaware and maryland and wastewater treatment plant improvements and additions in delaware . capital improvements are planned and budgeted to meet anticipated changes in regulations and needs for increased capacity related to projected growth . the delaware public service commission and maryland public service commission have generally recognized the operating and capital costs associated with these improvements in setting water and wastewater rates for current customers and capacity charges for new customers . in our non-regulated division , we are actively pursuing opportunities to expand our contract operations . through artesian utility , we will seek to expand our contract design and construction services of water and wastewater facilities for developers , municipalities and other utilities . artesian development owns two nine-acre parcels of land , located in sussex county , delaware , which will allow for construction of a water treatment facility and wastewater treatment facility . artesian consulting engineers no longer provides development and architectural services to outside third parties . artesian consulting engineers will continue to work with existing clients on projects already in progress for engineering services until those projects are complete . artesian will continue to provide design and engineering contract services through our artesian utility subsidiary . inflation we are affected by inflation , most notably by the continually increasing costs required to maintain , improve and expand our service capability . the cumulative effect of inflation results in significantly higher facility costs compared to investments made 20 to 40 years ago , which must be recovered from future cash flows . 24 critical accounting policies and estimates critical accounting policies and estimates are those we believe are most important to portraying the financial condition and results of operations and also require significant estimates , assumptions or other judgments by management . the following provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the company . changes in the estimates , assumptions or other judgments included within these accounting policies could result in a significant change to the financial statements in any quarterly or annual period . we consider the following policies to be the most critical in understanding the judgment that is involved in preparing our consolidated financial statements . senior management has discussed the selection and development of our critical accounting policies and estimates with the audit committee of the board of directors . all additions to plant are recorded at cost . cost includes direct labor , materials , and indirect charges for such items as transportation , supervision , pension , medical , and other fringe benefits related to employees engaged in construction activities . effective january 1 , 2012 , as authorized in the rate settlement discussed in item 1 – business under the heading `` regulatory matters , '' when depreciable units of utility plant are retired , any cost associated with retirement , less any salvage value or proceeds received , is charged to a regulated retirement liability . maintenance , repairs , and replacement of minor items of plant are charged to expense as incurred . we record water service revenue , including amounts billed to customers on a cycle basis and unbilled amounts , based upon estimated usage from the date of the last meter reading to the end of the accounting period . as actual usage amounts are received , adjustments are made to the unbilled estimates in the next billing cycle based on the actual results . estimates are made on an individual customer basis , based on one of three methods ( the previous year 's consumption in the same period , the previous billing period 's consumption , or averaging ) and are adjusted to reflect current changes in water demand on a system-wide basis . while actual usage for individual customers may differ materially from the estimate , we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption , as the overall estimate has been adjusted to reflect any change in overall demand on the system for the period . we record accounts receivable at the invoiced amounts . the reserve for bad debts is the company 's best estimate of the amount of probable credit losses in our existing accounts receivable . the company reviews the reserve for bad debts on a quarterly basis . account balances are written off against the reserve when it is probable the receivable will not be recovered . our regulated utilities record deferred regulatory assets under financial accounting standards board , or fasb , accounting standards codification , or asc , topic 980 , which are costs that may be recovered over various lengths of time as prescribed by the depsc , mdpsc and papuc . as the utility incurs certain costs , such as expenses related to rate case applications , a deferred regulatory asset is created . adjustments to these deferred regulatory assets are made when the depsc , mdpsc or papuc determines whether the expense is recoverable in rates , the length of time over which an expense is recoverable , or , because of changes in circumstances , whether a remaining balance of deferred expense is recoverable in rates charged to customers .
| non-utility operating revenue decreased $ 0.4 million for the year ended december 31 , 2012 , or 9.9 % , from $ 4.2 million in 2011 to $ 3.8 million for the same period in 2012. this decrease is primarily due to an approximately $ 0.6 million decrease in artesian utility revenue , related to a decrease in design and permitting services performed and a decrease in contract services performed for municipalities in maryland following the purchase of the cecil county water assets . in addition , consulting revenue earned by artesian consulting engineers decreased approximately $ 0.1 million due to the reorganization of the business . the decrease in non-utility operating revenue is partially offset by an approximately $ 0.3 million increase in water and wastewater service line protection plan , or slp plans , revenue . the slp plans provide coverage for all material and labor required to repair or replace participants ' leaking water service or clogged sewer lines up to an annual limit . replace_table_token_6_th residential residential water service revenues in 2012 amounted to $ 39.1 million , an increase of $ 3.7 million , or 10.5 % over the $ 35.4 million recorded in 2011 , primarily due to an 11.13 % permanent increase in rates effective january 1 , 2012. the increase in 2012 follows an increase of $ 0.4 million , or 1.0 % , in 2011 , which was primarily due to the temporary rate increases placed into effect on june 10 , 2011 and november 11 2011. the volume of water sold to residential customers increased to 3,959 million gallons in 2012 compared to 3,710 million gallons in 2011 , a 6.7 % increase , primarily the result of increased water consumption compared to the unusually wet weather pattern experienced during 2011 and the additional maryland customers added in december 2011. the number of residential customers served increased by approximately 540 , or 0.7 % , in 2012 . 26 commercial water service revenues from commercial customers in 2012 increased by 11.4 % , from $ 13.7 million in 2011 to $ 15.2 million in 2012 , primarily due to an increase in rates . we sold 2,118 million gallons of water to commercial customers in 2012 , a slight decrease as compared to 2,125 million gallons sold in 2011. industrial water service revenues from industrial customers decreased from $ 141,000 in 2011 to $ 70,000 in 2012. the volume of water sold to industrial
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in november 2020 , we presented preclinical data from our lead clinical oncology product candidate , rtx-240 , at the society for immunotherapy of cancer 's annual meeting , demonstrating the following : ● rtx-240 increased cd8 t cell and nk cell expansion and activation in vitro when compared to a 4-1bb agonist antibody and recombinant il-15 , which was directly correlated with the percentage of 4-1bbl and il-15tp expressed on the cell surface ; ● rtx-240 expanded cd56dim nk cells , a cell population with known cytotoxicity ; ● rtx-240 promoted nk cell-killing of a myeloid leukemia cell line , k562 , which was accompanied by increased nk cell degranulation and activation ; ● a murine surrogate for rtx-240 , mrbc-240 , promoted significant expansion of cd8 t cells and nk cells in vivo in a murine model of ct26 colorectal cancer ; and ● mrbc-240 demonstrated potent antitumor activity in a b16f10 melanoma model that was directly correlated with the expansion of terminally differentiated nk cells in the tumors . rtx-321 we are screening patients in a phase 1 clinical trial for rtx-321 for the treatment of patients with human papillomavirus ( hpv ) 16-positive cancers . rtx-321 is an allogeneic , off-the-shelf artificial antigen-presenting cell ( aapc ) therapy product candidate that is engineered to induce a tumor-specific immune response by expanding antigen-specific t cells . rtx-321 expresses hundreds of thousands of copies of an hpv peptide antigen bound to major histocompatibility complex ( mhc ) class i proteins , the costimulatory molecule 4-1bbl and the cytokine il-12 on the cell surface to 122 mimic human t cell-apc interactions . as part of our ind filing , we included frozen drug substance for the first time as part of the manufacturing process , allowing a truly off-the-shelf cellular therapy product candidate with a potential shelf life of several years based on preliminary stability data . hpv 16 is associated with approximately 70 % of cervical cancers , approximately 40 % of head and neck squamous cell carcinoma ( hnscc ) arising in the oropharynx , approximately 25 % -40 % of hnscc arising in other locations and approximately 80 % -85 % of anal cancers . a critical need remains for better treatment options for advanced hpv 16 associated cancers . the prognosis remains poor for patients with metastatic disease with few treatment options beyond the first-line setting . in november 2020 , we presented preclinical data at the federation of clinical immunology societies annual meeting and the american association of cancer research tumor immunology and immunotherapy conference , from our lead aapc program , rtx-321 , for the treatment of hpv 16-positive tumors , and demonstrating the following : ● rtx-321 and its mouse surrogates demonstrated a dual mechanism of action in vivo and in vitro : o functions as an aapc to boost hpv 16 e7-specific cd8+ t-cell responses ; and o promotes hpv 16-independent stimulation of innate ( nk cells ) and adaptive immune ( non-hpv antigen-specific cd8+ t cells ) responses ; ● mouse surrogates of rtx-321 promote tumor control , memory formation and epitope spreading in tumor models in vivo ; ● treatment with the rtx-321 mouse surrogate results in minimal , reversible effects in vivo ( body weight change , ifnγ and alt levels ) ; ● rtx-321 functions as an aapc to boost hpv 16 antigen-specific t cells in vitro ; and ● rtx-321 promotes hpv 16-independent adaptive and innate immune responses in vitro . taken together , we believe these findings support the potential of rtx-321 as an effective therapy for the treatment of hpv 16+ cancers . manufacturing we have generated hundreds of rcts using our red platform and are utilizing our universal engineering and manufacturing processes to advance a broad pipeline of rct product candidates into clinical trials in cancer and autoimmune diseases . common design and manufacturing elements of our rcts should enable us to achieve significant advantages in product development . recognizing the importance of controlling our own manufacturing capabilities to produce consistent and reproducible product at greater scale , we acquired , renovated and operationalized a manufacturing facility in smithfield , ri , that is are currently providing cgmp supply for our three ongoing phase 1 clinical trials for rtx-240 in advanced solid tumors , rtx-240 in relapsed/refractory aml and rtx-321 in hpv-16-positive cancers . during 2020 , the site achieved the following milestones : ● increased productivity in manufacturing of cgmp supply of rtx-240 in 50l bioreactors ; ● increased rtx-240 liquid in-vial shelf life from 28 to 52 days ; ● for rtx-240 , continuously met red blood cell identity ( cd233+ , mean corpuscular hemoglobin , purity , enucleation cell population ) and target product profile criteria ( protein expression , cell viability ) for clinical supply lots ; and 123 ● introduced frozen drug substance for the first time as part of the ind application for rtx-321 , resulting in a truly off-the-shelf cellular therapy with a potential shelf life of up to several years . following liquid reformulation , rtx-321 drug product has an in-vial shelf life of 52 days . since our inception , we have focused substantially all of our resources on building our proprietary red platform , establishing and protecting our intellectual property portfolio , conducting research and development activities , developing our manufacturing process and manufacturing drug product material , organizing and staffing our company , business planning , raising capital and providing general and administrative support for these operations . we do not have any products approved for sale and have not generated any revenue from product sales . to date , we have funded our operations with proceeds from the sale of preferred stock and issuance of debt and with proceeds from our initial public offering , or ipo . on july 20 , 2018 , we completed our ipo pursuant to which we issued and sold 12,055,450 shares of common stock , inclusive of 1,572,450 shares pursuant to the full exercise of the underwriters ' option to purchase additional shares . story_separator_special_tag we received proceeds of $ 254.3 million after deducting underwriting discounts and commissions and other offering costs . in august 2019 , we entered into a distribution agreement with j.p. morgan securities llc , jefferies llc and svb leerink llc with respect to an at-the-market , or atm , offering program under which we may offer and sell , from time to time at our sole discretion , shares of our common stock , having aggregate gross proceeds of up to $ 100.0 million . we have not yet sold any shares of our common stock under the atm offering program . since our inception , we have incurred significant operating losses . our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates . we reported net losses of $ 167.7 million for the year ended december 31 , 2020 and $ 163.5 million for the year ended december 31 , 2019. as of december 31 , 2020 , we had an accumulated deficit of $ 480.5 million . we expect to continue to incur significant expenses and operating losses for at least the next several years . we expect that our expenses and capital requirements will increase in connection with our ongoing activities , particularly if , and as , we : ● conduct clinical trials for our product candidates and to the extent we experience any delays , setbacks or disruptions to our preclinical studies , clinical trials or clinical supply chain due to the covid-19 pandemic ; ● further develop our red platform ; ● continue to discover and develop additional product candidates ; ● maintain , expand and protect our intellectual property portfolio ; ● hire additional clinical , scientific manufacturing and commercial personnel ; ● expand in-house manufacturing capabilities , including through the operation and any future renovation or expansion of our manufacturing facility ; ● establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval ; ● acquire or in-license other product candidates and technologies ; ● seek regulatory approvals for any product candidates that successfully complete clinical trials ; ● establish a sales , marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval ; and ● add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization efforts , as well as to continue to support the requirements of a public company . 124 we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates . if we obtain regulatory approval for any of our product candidates , we expect to incur significant expenses related to developing our commercialization capability to support product sales , marketing and distribution . further , we expect to continue to incur costs associated with operating as a public company . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of private or public equity financings , debt financings , collaborations , strategic alliances or marketing , distribution or licensing arrangements . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we are unable to obtain funding , we plan to implement an operating plan that scales back our operations and focuses our available capital on a reduced number of activities and programs , which we believe will enable the continued advancement of certain of our research and development programs and the preservation of our technology platform . these actions could adversely affect our business prospects . because of the numerous risks and uncertainties associated with pharmaceutical product development , we are unable to accurately predict the timing or amount of increased expenses or when , or if , we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2020 , we had cash , cash equivalents and investments of $ 176.3 million . we believe that our existing cash , cash equivalents and investments will enable us to fund our operating expenses , capital expenditure requirements and debt service payments into the first quarter of 2022. see “ —liquidity and capital resources. ” recent developments in march 2020 , we began precautionary measures to protect the health and safety of our employees , partners and prospective clinical trial participants during the novel coronavirus , or covid-19 , pandemic . because covid-19 infections have been reported throughout the united states and worldwide , numerous 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 , we have eliminated business travel and substantially reduced the number of employees working on-site at any one time at each of our facilities by shifting to remote work wherever possible and implementing rotating laboratory work schedules . in addition , 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 .
| the reduction in stock-compensation expense of $ 1.0 million was driven by a reduction in the market price of our common stock resulting in a lower valuation of options granted during 2020. the decrease in personnel-related costs and facility related and other costs of $ 4.2 million was principally due to the allocation of the costs to operate our manufacturing facility to research and development program costs starting in the first quarter of 2020 , as well as a reduction in onsite activities in connection with our response to the covid-19 pandemic . 129 general and administrative expenses replace_table_token_2_th general and administrative expenses for the year ended december 31 , 2020 were $ 50.3 million , compared to $ 57.2 million for the year ended december 31 , 2019. the decrease in general and administrative expenses of $ 6.8 million was primarily the result of a reduction in stock-based compensation expense of $ 6.6 million due principally to restricted stock awards that fully vested in january 2020. in addition , the decrease in professional and consultant fees of $ 0.9 million was driven by reduced spending on business support initiatives . the increase in personnel-related costs of $ 1.6 million was due to the timing of executive management hiring , as well as executive recruiting costs and compensation . the decrease in facility-related and other expenses of $ 0.9 million was largely driven by decreased spending for business support initiatives and a reduction in onsite activities in connection with our response to the covid-19 pandemic . interest income interest income was $ 1.8 million for the year ended december 31 , 2020 , compared to $ 8.0 million for the year ended december 31 , 2019. interest income decreased due to reduced invested balances as cash was used to fund operations , as well as reduced interest rates . interest expense interest expense was $ 4.2 million for the year ended december 31 , 2020 , compared to $ 2.6 million for the year ended december 31 , 2019. the increase in interest expense was principally due to higher outstanding borrowings in connection with our 2018 credit facility ( as defined below ) . other income , net other income , net was $ 1.1 million for the year ended december 31 , 2020 , compared to $ 0.7 million for the year ended december 31 , 2019. other income , net primarily
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the company assigns useful lives to its intangible assets based on the periods over which it expects the assets to contribute directly or indirectly to the future cash flows of the company . customer relationships are amortized over 6 or 7 year useful lives . if events or circumstances were to indicate that any of the company 's definite-lived intangible assets might be impaired , the company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable intangible asset . vendor rebates many of our arrangements with our vendors entitle us to receive a rebate of a specified amount when we achieve any of a number of measures , generally related to the volume of purchases from the vendor . we account for such rebates as a reduction of the prices of the vendor 's products and therefore as a reduction of inventory until we sell the product , at which time such rebates reduce cost of sales . throughout the year , we estimate the amount of the rebates earned based on purchases to date relative to the total purchase levels expected to be achieved during the rebate period . we continually revise these estimates to reflect rebates expected to be earned based on actual purchase levels and forecasted purchase volumes for the remainder of the rebate period . a 20 % change in our estimate of total rebates earned during 2012 would have resulted in a change in income before income taxes of $ 1.4 million for the year ended december 31 , 2012. goodwill goodwill represents the excess of the amount we paid to acquire businesses over the estimated fair value of tangible assets and identifiable intangible assets acquired , less liabilities assumed . at december 31 , 2012 , our goodwill balance was $ 25.1 million , representing 12.7 % of our total assets . we test goodwill for impairment annually , or more frequently if indications of possible impairment exist , by applying a fair value-based test . because the acquired businesses were not meeting the internal performance expectations used in the october 2011 annual impairment test , an interim goodwill impairment test was performed as of july 31 , 2012. this test was performed using the same methodology as used for the annual test and the result indicated that no impairment had occurred . the annual october 2012 test also showed no indication of impairment . the fair value of the southern wire reporting unit exceeded its carrying value by approximately 11 % and its goodwill balance was 20.1 million at december 31 , 2012. we are still anticipating significant growth in the acquired businesses , but if this growth is not achieved a goodwill impairment may result . sales we generate most of our sales by providing wire and cable and related hardware to our customers , as well as billing for freight charges . we recognize revenue upon shipment of our products to customers from our distribution centers or directly from our suppliers . sales incentives earned by customers are accrued in the same month as the shipment is invoiced and are accounted for as a reduction in sales . 15 cost of sales cost of sales consists primarily of the average cost of the wire and cable and related hardware that we sell . we also incur shipping and handling costs in the normal course of business . cost of sales also reflects cash discounts for prompt payment to vendors and vendor rebates generally related to annual purchase targets , as well as inventory obsolescence charges . operating expenses operating expenses include all expenses , excluding freight , incurred to receive , sell and ship product and administer the operations of the company . salaries and commissions . salary expense includes the base compensation , and any overtime earned by hourly personnel , for all sales , administrative and warehouse employees and stock compensation expense for options and restricted stock granted to employees . commission expense is earned by inside sales personnel based on gross profit dollars generated , by field sales personnel from generating sales and meeting various objectives , by sales , national and marketing managers for driving the sales process , by region managers based on the profitability of their branches and by corporate managers based primarily on our profitability and also on other operating metrics . other operating expenses . other operating expenses include all other expenses , except for salaries and commissions and depreciation and amortization . this includes all payroll taxes , health insurance , traveling expenses , public company expenses , advertising , management information system expenses , facility rent and all distribution expenses such as packaging , reels , and repair and maintenance of equipment and facilities . depreciation and amortization . we incur depreciation expense for costs related to the capitalization of property and equipment on a straight-line basis over the estimated useful lives of the assets , which range from three to thirty years . we incur amortization expense on leasehold improvements over the shorter of the lease term or the life of the related asset and on intangible assets over the estimated life of the asset . interest expense interest expense consists primarily of interest we incur on our debt . story_separator_special_tag within our five internal growth initiatives encompassing environmental compliance , engineering & construction , industrials , lifeguard ( and other private branded products ) and power generation increased approximately 30 % as project activity in these areas remained strong due to ongoing market penetration and previously booked backlog . gross profit replace_table_token_10_th gross profit increased 42.0 % to $ 88.9 million in 2011 from $ 62.6 million in 2010. the increase in gross profit was attributed to an increase in our legacy business and the contribution from the acquired businesses . story_separator_special_tag gross margin increased to 22.4 % in 2011 from 20.3 % in 2010 due to a better macroeconomic business environment which allowed a higher gross margin on our products and higher margins from the acquired businesses . operating expenses replace_table_token_11_th note : due to rounding , numbers may not add up to total operating expenses . 18 salaries and commissions . salaries and commissions increased primarily due to the additional personnel from the acquisition and increases in commissions from our legacy business associated with higher organic sales volumes and related profitability . this increase was partially offset by a $ 1.7 million onetime reversal in 2011 of salary expense recorded prior to january 1 , 2011 attributed to the change in the estimated forfeiture rate from 0 % to 100 % for non-vested options previously awarded to the former chief executive officer , who retired from the company effective december 31 , 2011. other operating expenses . other operating expenses increased primarily due to the additional operations of the acquired businesses and increased expenses associated with higher sales . depreciation and amortization . the depreciation and amortization increase is primarily attributable to the assets from the acquisition . operating expenses as a percentage of sales decreased to 14.0 % in 2011 from 15.4 % in 2010. this decrease is attributed to the reversal of salary expense , ongoing cost control initiatives and operating leverage from our legacy business , partially offset by the acquired businesses . interest expense interest expense increased 68.7 % to $ 1.4 million in 2011 from $ 0.8 million in 2010 due to higher debt levels resulting from borrowings to fund the entire purchase price of the acquisition and an increase in working capital . average debt was $ 58.5 million in 2011 compared to $ 33.5 million in 2010. the average effective interest rate increased slightly to 2.3 % in 2011 from 2.2 % in 2010. income tax expense income tax expense increased 121.5 % to $ 12.3 million in 2011 from $ 5.5 million in 2010 as our income before income taxes increased 125.6 % . the effective income tax rate decreased to 38.4 % in 2011 from 39.1 % in 2010 primarily due to the impact of non-deductible acquisition and other expenses incurred in 2010. net income we achieved net income of $ 19.7 million in 2011 compared to $ 8.6 million in 2010 , an increase of 128.3 % . impact of inflation and commodity prices our results of operations are affected by changes in the inflation rate and commodity prices . moreover , because copper , petrochemical , aluminum and steel products are components of the wire and cable and related hardware we sell , fluctuations in the costs of these and other commodities have historically affected our operating results . we estimate decreasing metal prices negatively impacted sales by approximately 3 % in 2012. to the extent commodity prices decline , the net realizable value of our existing inventory could also decline , and our gross profit can be adversely affected because of either reduced selling prices or lower of cost or market adjustments in the carrying value of our inventory . if we turn our inventory approximately four times a year , the impact of changes in commodity prices in any particular quarter would primarily affect the results of the succeeding calendar quarter . if we are unable to pass on to our customers future cost increases due to inflation or rising commodity prices , our operating results could be adversely affected . liquidity and capital resources our primary capital needs are for working capital obligations , capital expenditures , dividend payments and other general corporate purposes , including acquisitions . our primary sources of working capital are cash from operations supplemented by bank borrowings . liquidity is defined as the ability to generate adequate amounts of cash to meet the current need for cash . we assess our liquidity in terms of our ability to generate cash to fund our operating activities . significant factors which could affect liquidity include the following : · the adequacy of available bank lines of credit ; · the ability to attract long-term capital with satisfactory terms ; · cash flows generated from operating activities ; · capital expenditures ; · payment of dividends ; and · acquisitions 19 comparison of years ended december 31 , 2012 and 2011 our net cash used in operating activities was $ 3.0 million in 2012 compared to cash provided by operations of $ 14.3 million in 2011. our net income decreased by $ 2.6 million or 13.4 % to $ 17.0 million in 2012 from $ 19.7 million in 2011. changes in our operating assets and liabilities accounted for $ 24.0 million of cash used in operating activities in 2012. inventories increased $ 16.0 million to support anticipated sales activity , the geographic expansion of product lines and the addition of new products . the increase in accounts receivable of $ 6.1 million is due to higher sales in the last two months of 2012 compared to the prior year period . accrued and other current liabilities decreased $ 3.7 million due to lower prepayments on cable management orders as these projects shipped in 2012 and lower commissions due to lower profitability . net cash used in investing activities was $ 1.0 million in 2012 compared to $ 1.2 million in 2011. the decrease was primarily due to the cash paid for acquisition of $ 0.3 million in 2011. net cash provided by financing activities was $ 4.3 million in 2012 compared to net cash used in financing activities of $ 13.1 million in 2011. net borrowings of $ 10.6 million and the payment of dividends of $ 6.4 million were the main components of financing activities in 2012. comparison of years ended december 31 , 2011 and 2010 our net cash provided by operating activities was $ 14.3 million in 2011
| salaries and commissions increased 7.0 % to $ 30.0 million in 2012 from $ 28.1 million in 2011. the increase was primarily due to a onetime reversal during 2011 relating to $ 1.7 million of salary expense recognized prior to january 1 , 2011 attributed to the change in the estimated forfeiture rate from 0 % to 100 % for non-vested options previously awarded to our former chief executive officer and to additional headcount in 2012. this was offset by a decrease in commissions in 2012 due to the lower level of profitability . other operating expenses . other operating expenses increased slightly primarily due to costs associated with the higher headcount and an increase in consulting and professional fees during the 2012 period . depreciation and amortization . depreciation and amortization decreased slightly between the periods . 17 operating expenses as a percentage of sales increased to 14.8 % in 2012 from 14.0 % in 2011. more than half of this increase resulted from the onetime reversal during 2011 relating to $ 1.7 million of salary expense recognized prior to january 1 , 2011 attributed to the change in the estimated forfeiture rate from 0 % to 100 % for non-vested options previously awarded to our former chief executive officer . interest expense interest expense decreased 12.1 % to $ 1.3 million in 2012 from $ 1.4 million in 2011 due to lower london interbank offered rate ( “ libor ” ) interest rates and a higher percentage of the debt in libor borrowings . average debt was $ 58.0 million in 2012 compared to $ 58.5 million in 2011. the average effective interest rate decreased to 2.1 % in 2012 from 2.3 % in 2011. this decrease was primarily due to a lower applicable libor spread as a result of the higher availability under the loan agreement in 2012. income tax expense income tax expense decreased $ 1.6 million or 13.4 % to $ 10.6 million in 2012 compared to $ 12.3 million in 2011 , as pretax income decreased by 13.4 % year over year . the effective income
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cash , marketable securities and debt at the end of fiscal 2018 , cash and marketable securities totaled $ 186 million , a decrease of $ 34 million compared to the end of fiscal 2017 , while debt totaled $ 58 million , a decrease of $ 11 million compared to the end of fiscal 2017 . this $ 34 million decrease in cash and marketable securities includes $ 124 million in return of cash to shareholders through dividends and our share repurchase program . inventories at the end of fiscal 2018 , inventories totaled $ 235 million compared to $ 234 million at the end of fiscal 2017 . this $ 1 million increase , or 0.6 % , primarily reflects accelerated in-transits in fiscal 2018 due to the timing of the chinese new year , partially offset by a 7 % decrease in on-hand inventory compared to the end of fiscal 2017 . liquidity and capital resources overview we believe that our existing cash and marketable securities balances , cash generated from operations , available credit facilities and potential future borrowings will be sufficient to fund capital expenditures , working capital needs , dividend payments , potential share repurchases , commitments and other liquidity requirements associated with our operations for the foreseeable future . furthermore , while it is our intention to repurchase our stock and pay a quarterly cash dividend in the future , any determination to repurchase additional shares of our stock or pay future dividends will be made by the board of directors and will depend on our stock price , future earnings , financial condition and other factors considered by the board . our ongoing capital requirements will continue to be primarily for enhancing and expanding our omnichannel capabilities , including expanded , relocated and remodeled stores ; information technology ; and supply chain . the following table summarizes cash flows for fiscal 2018 , 2017 and 2016 : replace_table_token_11_th operating activities net cash provided by operating activities in fiscal 2018 was $ 158 million compared to $ 167 million for fiscal 2017 . this $ 9 million decrease primarily reflects a decline in fiscal 2018 net income and an increase in income tax receivables which was partially offset by the timing of vendor payments and payroll accruals , payments made in fiscal 2017 for outside services , the clearing of seasonal merchandise and the impact of lower incentive compensation payments . 25 net cash provided by operating activities in fiscal 2017 was $ 167 million , a decrease of approximately $ 64 million from fiscal 2016. this decrease primarily results from the settlement of fiscal 2016 accruals for outside services and severance , the timing of tax payments and the impact of a decrease in the incentive compensation accrual , partially offset by the timing of vendor payments . investing activities net cash used in investing activities for fiscal 2018 was $ 56 million compared to $ 58 million for fiscal 2017 . the change in net cash used in investing activities reflects an $ 8 million net decrease in marketable securities activity as a result of the timing of securities purchases and sales , partially offset by an increase in purchases of property and equipment . net cash used in investing activities for fiscal 2017 was $ 58 million compared to $ 32 million for fiscal 2016. the change in net cash used in investing activities primarily reflects a $ 10 million net increase in marketable securities related to the investment of cash from operations in fiscal 2017 and the impact of $ 16 million in proceeds from the sale of land in fiscal 2016. financing activities net cash used in financing activities for fiscal 2018 was $ 138 million compared to $ 91 million in fiscal 2017 . this $ 47 million increase in net cash used in financing activities primarily reflects a $ 54 million increase in share repurchases in fiscal 2018 compared to fiscal 2017 , partially offset by a decrease in payments on net borrowings under our credit agreement in fiscal 2018 . in fiscal 2018 , we paid four cash dividends at $ 0.085 per share on our common stock , totaling $ 43 million , and received approximately $ 2 million in proceeds from issuing approximately 2 million shares related to employee stock ownership plans and stock option exercises . net cash used in financing activities for fiscal 2017 was $ 91 million compared to $ 147 million in fiscal 2016. the decrease in net cash used in financing activities primarily reflects a $ 69 million decline in share repurchases in fiscal 2017 compared to fiscal 2016 , partially offset by higher payments on borrowings under our previous credit agreement ( entered into on may 4 , 2015 ) in fiscal 2017. in fiscal 2017 , we paid four cash dividends at $ 0.0825 per share on our common stock , totaling $ 43 million , and received approximately $ 2 million in proceeds from issuing approximately 2 million shares related to employee stock ownership plans and stock option exercises . store and franchise activity during fiscal 2018 , we had 42 net store closures , consisting of 12 chico 's stores , 18 whbm stores and 12 soma stores . as part of our retail fleet optimization plan , the company expects to close approximately 100 chico 's , 90 white house black market and 60 soma locations over the next three years , with the majority of the closings occurring in years two and three . we continuously evaluate the appropriate store base in light of economic conditions and our business strategy and may adjust the openings and closures as conditions require or as opportunities arise . as of february 2 , 2019 , the company 's franchise operations consisted of 83 international retail locations in mexico . story_separator_special_tag contractual obligations the following table summarizes our contractual obligations at february 2 , 2019 : replace_table_token_12_th as of february 2 , 2019 , our contractual obligations consisted of : 1 ) amounts outstanding under operating leases , 2 ) open purchase orders for inventory and other operating expenses , in the normal course of business , 3 ) contractual commitments for fiscal 2019 capital expenditures , 4 ) long-term debt obligations and 5 ) interest payments on long-term debt . 26 until formal resolutions are reached between us and the relevant taxing authorities , we are unable to estimate a final determination related to our uncertain tax positions and therefore , we have excluded the uncertain tax positions , totaling approximately $ 2 million at february 2 , 2019 from the above table . credit facility on august 2 , 2018 , the company and certain of its domestic subsidiaries entered into a credit agreement ( the “ agreement ” ) as borrowers and guarantors , with wells fargo bank , national association , as agent , letter of credit issuer and swing line lender , and certain lenders party thereto . our obligations under the agreement are guaranteed by the subsidiary guarantors and secured by a lien on certain assets of the company and the subsidiary borrowers and guarantors , including inventory , accounts receivable , cash deposits , and certain insurance proceeds . the agreement provides for a five-year asset-based senior secured revolving loan and letter of credit facility of up to $ 200 million , maturing august 2 , 2023. in addition , during the term of the agreement , the company may increase the commitments under the agreement by up to an additional $ 100 million , subject to customary conditions , including obtaining the agreements from the lenders to provide such commitment increase . the interest rate applicable to the loans under the agreement will be equal to , at the company 's option , either a base rate , determined by reference to the federal funds rate , plus an interest rate margin , or a libo rate , plus an interest rate margin , in each case , depending on availability under the agreement . the company expects borrowings to be at a libo rate , plus an interest rate margin . in addition , the company will pay a commitment fee per annum on the unused portion of the commitments under the agreement . the previous credit agreement entered into on may 4 , 2015 with jpmorgan chase bank , n.a. , as administrative agent , bank of america , n.a. , as syndication agent and other lenders , which was unsecured and had provided for a term loan commitment in the amount of $ 100 million and a $ 100 million revolving credit facility , was terminated on august 2 , 2018 in connection with the company entering into the agreement described above , and all outstanding amounts thereunder were repaid . we used the proceeds from the initial draw of the revolving loan of the agreement to repay such obligations . as of february 2 , 2019 , $ 57.5 million in net borrowings were outstanding under the agreement and is reflected as long-term debt in the accompanying consolidated balance sheet . off-balance sheet arrangements at february 2 , 2019 and february 3 , 2018 , we did not have any relationship with unconsolidated entities or financial partnerships for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes . critical accounting policies the discussion and analysis of our consolidated financial condition and results of operations are based upon the consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors , and believes the following assumptions and estimates are significant to reporting our consolidated results of operations and financial position . inventory valuation and shrinkage we identify potentially excess and slow-moving inventories by evaluating inventory aging , turn rates and inventory levels in conjunction with our overall sales trend . further , inventory realization exposure is identified through analysis of gross margins and markdowns in combination with changes in current business trends . we record excess and slow-moving inventories at net realizable value and may liquidate certain slow-moving inventory through third parties . historically , the variation of those estimates to actual results is immaterial and material variation is not expected in the future . 27 we estimate our expected shrinkage of inventories between our physical inventory counts by using average store shrinkage experience rates , which are updated on a regular basis . historically , the variation of those estimates to actual results is immaterial and material variation is not expected in the future . revenue recognition retail sales by our stores are recorded at the point of sale and are net of estimated customer returns , sales discounts under rewards programs and company issued coupons , promotional discounts and employee discounts . for sales from our websites and catalogs , revenue is recognized at the point of shipment . amounts related to shipping and handling costs billed to customers are recorded in net sales and the related shipping and handling costs are recorded in cost of goods sold in the accompanying consolidated statements of income .
| the following table depicts comparable sales percentages for chico 's , whbm and soma for fiscal 2018 , 2017 and 2016 : replace_table_token_8_th 1 comparable sales for the fifty-two weeks ended february 2 , 2019 have been adjusted to eliminate the impact of the calendar shift due to the fifty-third week in fiscal 2017. fiscal 2018 comparable sales represent sales for the fifty-two weeks ended february 2 , 2019 compared to sales for the fifty-two weeks ended february 3 , 2018 . 2 the fifty-third week of fiscal 2017 is excluded from the comparable sales calculation . 22 cost of goods sold/gross margin the following table depicts cost of goods sold and gross margin in dollars and gross margin as a percentage of total net sales for fiscal 2018 , 2017 and 2016 : replace_table_token_9_th for fiscal 2018 , gross margin was $ 763 million , or 35.8 % , compared to $ 865 million , or 37.9 % , in fiscal 2017 . the decline in gross margin primarily reflects the continued expansion of our omnichannel programs and deleverage of occupancy costs as well as a 50-basis point charge due to our retail fleet optimization plan , partially offset by an improvement in merchandise margin . for fiscal 2017 , gross margin was $ 865 million , or 37.9 % , compared to $ 947 million , or 38.2 % , in fiscal 2016. this 30-basis point decrease from fiscal 2016 primarily reflects deleverage of occupancy costs as a percent of sales , partially offset by an improvement in merchandise margin and a decrease in incentive compensation . selling , general and administrative expenses the following table depicts selling , general and administrative expenses ( `` sg & a '' ) , which includes store and direct operating expenses , marketing expenses and nssc expenses , in dollars and as a percentage of total net sales for fiscal 2018 , 2017 and 2016 : replace_table_token_10_th 23 for fiscal 2018 , sg & a was $ 720 million , or 33.8 % , compared to $ 720 million , or 31.5 % , in fiscal 2017 . this 230 -basis point increase primarily reflects investments in marketing and technology as well as deleverage of store-operating costs . for fiscal 2017 , sg & a was $ 720 million , or 31.5 % , compared to $ 775 million ,
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as a result , the company 's income from sbsf decreased in 2014 to $ 84,000. the company 's professional expenses during 2014 , 2013 and 2012 include the costs of an arbitration proceeding commenced by a former employee following the termination of his employment , which was resolved in 2014 resulting in a $ 4,300,000 settlement payment . the action has adversely affected the company 's results of operations . competition in the brokerage industry remains intense . on november 4 , 2014 , the company , which held a 49 % membership interest in , and the other members of , siebert brandford shank & co. , llc ( sbs ) , contributed their sbs membership interests into a newly formed delaware limited liability company , siebert brandford shank financial , l.l.c . ( sbsf ) , in exchange for the same percentage interests in sbsf . on the same day , the company entered into an asset purchase agreement ( the purchase agreement ) with sbs and sbsf , pursuant to which the company sold substantially all of the assets relating to the company 's capital markets business to sbsf . pursuant to the purchase agreement , sbsf assumed post-closing liabilities relating to the transferred business . the purchase agreement provides for an aggregate purchase price for the disposition of $ 3,000,000 , payable by sbsf after closing in annual installments commencing on march 1 , 2016 and continuing on each of march 1 , 2017 , 2018 , 2019 and 2020. the transferred business was contributed by sbsf to , and operated by sbs . the amount payable to the company on each annual payment date will equal 50 % of the net income attributable to the transferred business recognized by sbs in accordance with generally accepted accounting principles during the fiscal year ending immediately preceding the applicable payment date ; provided that , if net income attributable to the transferred business generated prior to the fifth annual payment date is insufficient to pay the remaining - 15 - balance of the purchase price in full on the fifth annual payment date , then the unpaid amount of the purchase price will be paid in full on march 1 , 2021. transferred assets of the company 's capital markets business consisted of issuer relationships and goodwill , which assets had no carrying value to the company , and the company recorded a gain on sale of $ 1,820,000 , which reflected the fair value of the purchase obligation . such fair value ( level 3 ) was based on the present value of estimated annual installments to be received during 2016 through 2020 from forecasted net income of the transferred business plus a final settlement in 2021 , discounted at 11.5 % ( representing sbs 's weighted average cost of capital ) , the discount recorded for the purchase obligation will be amortized as interest income using an effective yield , initially calculated based on the original carrying amount of the obligation and estimated annual installments to be received and adjusted in future periods to reflect actual installments received and changes in estimates of future installments . interest income recognized on the obligation for the period from november 4 , 2014 to december 31 , 2014 , amounted to approximately $ 37,000 based on a yield of approximately 12 % . as a result of the company 's continuing involvement in the capital markets business through its 49 % ownership in sbsf , results of operations of the capital markets business and the gain on sale were not reflected as discontinued operations in the accompanying statement of operations . the following table sets forth certain metrics as of december 31 , 2014 , 2013 and 2012 , respectively , which we use in evaluating our business . replace_table_token_4_th replace_table_token_5_th description : total retail trades represents retail trades that generate commissions . average commission per retail trade represents the average commission generated for all types of retail customer trades . retail customer net worth represents the total value of securities and cash in the retail customer accounts before deducting margin debits . retail customer money market fund value represents all retail customers accounts invested in money market funds . retail customer margin debit balances represents credit extended to our customers to finance their purchases against current positions . retail customer accounts with positions represent retail customers with cash and or securities in their accounts . we , like other securities firms , are directly affected by general economic and market conditions including fluctuations in volume and prices of securities , changes and the prospect of changes in interest rates , and demand for brokerage and investment banking services , all of which can affect our profitability . in addition , in periods of reduced financial market activity , profitability is likely to be adversely affected because certain expenses remain relatively fixed , including salaries and related costs , portions of communications costs and occupancy expenses . accordingly , earnings for any period should not be considered representative of earnings to be expected for any other period . - 16 - competition continues to intensify among all types of brokerage firms , including established discount brokers and new firms entering the on-line brokerage business . electronic trading continues to account for an increasing amount of trading activity , with some firms charging very low trading execution fees that are difficult for any conventional discount firm to meet . some of these brokers , however , impose asset based charges for services such as mailing , transfers and handling exchanges which we do not currently impose , and also direct their orders to market makers where they have a financial interest . story_separator_special_tag continued competition could limit our growth or even lead to a decline in our customer base , which would adversely affect our results of operations . industry-wide changes in trading practices , such as the continued use of electronic communications networks , are expected to put continuing pressure on commissions/fees earned by brokers while increasing volatility . we are a party to an operating agreement ( the operating agreement ) , with suzanne shank and napoleon brandford iii , the two individual principals ( the principals ) of sbsfpc . pursuant to the terms of the operating agreement , the company and each of the principals made an initial capital contribution of $ 400,000 in exchange for a 33.33 % initial interest in sbsfpc . sbsfpc engages in derivatives transactions related to the municipal underwriting business . the operating agreement provides that profit and loss will be shared 66.66 % by the principals and 33.33 % by us . the company and principals closed down the operations of sbsfpc in 2014. in 2014 , we began business as a registered investment advisor through our wholly-owned subsidiary , siebert investment advisors , inc. ( “ sia ” ) . sia is a boutique investment management firm that greatly extends our ability to meet our customer 's investment needs . sia offers advice to clients regarding asset allocation and the selection of investments . our investment management services include the design , implementation , and continued monitoring of client accounts on a discretionary or non-discretionary basis . investment selections and recommendation are guided by the stated objectives of the customer , other considerations include the customer 's risk profile and financial status . sia offers to its clients a number of asset management programs ( “ managed programs ” ) consisting of asset allocation , flexible asset management and focused or completion strategies . in these managed programs , sia acts as the co-adviser to clients . ia representatives will assist each client in reviewing information about the programs , completing a client questionnaire to determine the client 's risk tolerance , financial situation and investment objectives and selecting an investment strategy . sia does not ever act as portfolio manager directly , sia selects other investment advisers to act as portfolio manager on behalf of its clients . during 2014 , the results of sia operations are immaterial to the operations of the company . on january 23 , 2008 , our board of directors authorized a buy back of up to 300,000 shares of our common stock . under this program , shares are purchased from time to time , at our discretion , in the open market and in private transactions . no shares were purchased during 2014. critical accounting policies we generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our financial position and results of operations . our management makes significant estimates that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosure of contingent assets and liabilities included in the financial statements . the estimates relate primarily to revenue and expense items in the normal course of business as to which we receive no confirmations , invoices , or other documentation , at the time the books are closed for a period . we use our best judgment , based on our knowledge of revenue transactions and expenses incurred , to estimate the amount of such revenue and expenses . we are not aware of any material differences between the estimates used in closing our books for the last five years and the actual amounts of revenue and expenses incurred when we subsequently receive the actual confirmations , invoices or other documentation . estimates are also used in determining the useful lives of intangibles assets , and the fair market value of intangible assets . our management believes that its estimates are reasonable . - 17 - story_separator_special_tag wrote off its remaining unamortized carrying value of development costs of $ 433,000. effective july 1 , 2012 , such services are provided by our clearing broker . other general and administrative expenses decreased $ 129,000 or 5.4 % from the prior year to $ 2.2 million in 2013 due to decreases in depreciation , computer security updates , and registration expense offset by increases in office expenses , sipc expenses , and state and local taxes . income from our equity investment in sbs , an entity in which siebert holds a 49 % equity interest , for 2013 was $ 94,000 compared to income of $ 774,000 for 2012 , a decrease of $ 680,000 , primarily due to sbs participating in less municipal bond offerings as senior- and co-manager . losses from our equity investment in sbsfpc , an entity in which we hold a 33 % equity interest , for 2013 was $ 159,000 as compared to income of $ 32,000 from the same period in 2012. this decrease was principally due to - 19 - sbsfpc terminating swap position and mark to market positions . results of operations of equity investees are considered to be integral to our operations and material to the results of operations . taxes . the tax provision for the year ended december 31 , 2013 and 2012 was $ 19,000 and $ 34,000 , respectively . the provision for income taxes for 2013 represents new york state , new york city and internal revenue service payments . the company has recorded a valuation allowance to fully offset our deferred tax asset at december 31 , 2013 and 2012. liquidity and capital resources our assets are highly liquid , consisting generally of cash and money market funds . our total assets at december 31 , 2014 were $ 20.7 million , of which we regarded $ 7.7 million , or 37.2 % , as highly liquid . siebert is subject to the net capital requirements of
| the discount recorded for the purchase obligation will be amortized as interest income using an effective yield initially calculated based on the original carrying amount of the obligation and estimated annual installments to be received and adjusted in future periods to reflect actual installments received and changes in estimates of future installments . interest income recognized on the obligation for the period from november 4 , 2014 to december 31 , 2014 amounted to $ 36,641 based on a yield of approximately 12 % . income from interest and dividends increased $ 32,000 , or 51.6 % , from the prior year to $ 94,000 in 2014 primarily due to accrued interest on our receivable from business sold to affiliate ( see above paragraph ) . expenses . total expenses for 2014 were $ 22.5 million , an increase of $ 247,000 , or 1.1 % , from the prior year . employee compensation and benefit costs decreased $ 995,000 , or 10.7 % , from the prior year to $ 8.3 million in 2014. this decrease was due a reduction in head count from the previous year . clearing and floor brokerage fees decreased $ 717,000 , or 30.1 % , from the prior year to $ 1.7 million in 2014 primarily due to lower retail trading volumes , lower execution charges for institutional equity trading , as well as shutting down our rebate recapture business on september 30 , 2014. professional fees decreased $ 1.0 million , or 18.6 % from the prior year to $ 4.3 million in 2014 primarily due to a decrease in legal fees relating to a dispute with a former employee ( see settlement of case below ) . in july 2014 , the company entered into a settlement agreement in regard to a dispute with a former employee , in which the former employee sought , among other things , damages arising from his separation from the company . the company asserted counter claims in the arbitration . pursuant to the settlement , the company paid $ 4,300,000 to the former employee , and the claims and counterclaims have been dismissed and released .
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in addition , given the need to phenotypically match donations and patients and the existing burden of managing the production and supply to sickle-cell anemia patients , donor recruitment in a potential additional phase 3 clinical trial may be difficult or impractical , which could significantly delay or preclude our ability to obtain any fda approval of our red blood cell system . although we filed for ce mark under the mdd for the red blood cell system , we understand that we will need to submit additional data from qualified suppliers which we will not have prior to needing to refile under the mdr , and therefore , we do not expect to receive any regulatory approvals of our red blood cell system prior to 2022 , if ever . we must demonstrate an ability to define , test and meet acceptable specifications for our current good manufacturing practice manufactured compounds used to prepare intercept-treated red blood cells before we can submit and seek regulatory approval of our red blood cell system . we understand that while the data generated from our european phase 3 clinical trials may be sufficient to receive ce mark approval , we may need to generate additional safety data from commercial use in order to achieve broad market acceptance . in addition , these trials may need to be supplemented by additional , successful phase 3 clinical trials for approval in certain countries . if such additional phase 3 clinical trials are required , they would likely need to demonstrate equivalency of intercept-treated red blood cells compared to conventional , un-treated red blood cells and the significantly lower lifespan for intercept-treated red blood cells compared to conventional , un-treated red blood cells may limit our ability to obtain any regulatory approvals in certain countries for the red blood cell system . as part of our development activities , we will need to successfully complete a number of in vitro studies prior to receiving any regulatory approvals in europe and certain additional activities , including successfully completing the redes and recepi studies and an additional phase 3 clinical trial for chronic anemia patients , including sickle-cell anemia 56 patients , in the u.s. , prior to receiving any regulatory approvals in the u.s. successful completion of these activities may require capital beyond that which we currently have or that may be available to us under our agreement with the biomedical advanced research and development authority , or barda , and we may be required to obtain additional capital in order to complete the development of and obtain any regulatory approvals for the red blood cell system . in addition , if we are unable to obtain from our suppliers sufficient clinical quantities of the active compounds for our red blood cell system meeting defined quality and regulatory specifications or if our suppliers are not able to maintain regulatory compliance , we may experience delays in testing , conducting trials or obtaining approvals , and our product development costs would likely increase . in 2016 , we entered into a five-year agreement with barda , part of the u.s. department of health and human services ' office of the assistant secretary for preparedness and response , to receive funding from barda to support the development of our red blood cell system , including clinical and regulatory development programs in support of potential licensure , and development , manufacturing and scale-up activities , as well as activities related to broader implementation of all three intercept systems in areas of zika virus risk . the redes and recepi studies are being funded as part of our agreement with barda . under the contract , barda reimburses us for allowable direct contract costs , as such costs are incurred , and for allowable indirect costs . see the discussion under “ barda ” below for more information . our near-term capital requirements are dependent on various factors , including operating costs and working capital investments associated with developing and commercializing the intercept blood system , including in connection with continuing u.s. commercialization of our platelet and plasma systems , costs to develop different configurations of existing products and new products , including our illuminator , costs associated with planning , enrolling and completing ongoing studies , and the post-approval studies we are required to conduct in connection with the fda approval of the platelet system , costs associated with pursuing potential regulatory approvals in other geographies where we do not currently sell our platelet and plasma systems , costs associated with conducting in vitro studies and clinical development of our red blood cell system in europe and the u.s. , costs associated with performing the agreed-upon activities under our barda agreement , and costs related to creating , maintaining and defending our intellectual property . our long-term capital requirements will also be dependent on the success of our sales efforts , competitive developments , the timing , costs and magnitude of our longer-term clinical trials and other development activities , required post-approval studies , market preparedness and product launch activities for any of our product candidates and products in geographies where we do not currently sell our products , and regulatory factors . until we are able to generate a sufficient amount of product revenue and generate positive net cash flows from operations , which we may never do , meeting our long-term capital requirements is in large part reliant on continued access to funds under our barda agreement and the public and private equity and debt capital markets , as well as on collaborative arrangements with partners , augmented by cash generated from operations and interest income earned on the investment of our cash balances . story_separator_special_tag while we believe that our available cash and cash equivalents and short-term investments , as well as cash received from product sales and under our agreement with barda , will be sufficient to meet our capital requirements for at least the next twelve months , if we are unable to generate sufficient product revenue , or access sufficient funds under our barda agreement or the public and private equity and debt capital markets , we may be unable to execute successfully on our operating plan . we have based our cash sufficiency estimate on assumptions that may prove to be incorrect . if our assumptions prove to be incorrect , we could consume our available capital resources sooner than we currently expect or in excess of amounts than we currently expect , which could adversely affect our commercialization and clinical development activities . we have borrowed and in the future may borrow additional capital from institutional and commercial banking sources to fund future growth , including pursuant to our term loan agreement and revolving loan agreement with midcap financial trust , or midcap , as described below , or potentially pursuant to new arrangements with different lenders . we may borrow funds on terms that may include restrictive covenants , including covenants that restrict the operation of our business , liens on assets , high effective interest rates , financial performance covenants and repayment provisions that reduce cash resources and limit future access to capital markets . in addition , we expect to continue to opportunistically seek access to the equity capital markets to support our development efforts and operations . to the extent that we raise additional capital by issuing equity securities , our stockholders may experience substantial dilution . to the extent that we raise additional funds through collaboration or partnering arrangements , we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies , grant licenses on terms that are not favorable to us , or issue equity that may be substantially dilutive to our stockholders . as a result of economic conditions , general global economic uncertainty , political change , and other factors , we do not know whether additional capital will be available when needed , or that , if available , we will be able to obtain additional capital on reasonable terms . if we are unable to raise additional capital due to the volatile global financial markets , general economic uncertainty or other factors , we may need to curtail planned development or commercialization activities . in addition , we may need to obtain additional funds to complete development activities for the red blood cell system necessary for potential regulatory approval in europe , if costs are higher than anticipated or we encounter delays . we may need to obtain additional funding to conduct additional randomized controlled clinical trials for existing or new products , particularly if we are unable to access any additional portions of the funding contemplated by our barda agreement , and we may choose to defer such activities until we can obtain sufficient additional funding or , at such time our existing operations provide sufficient cash flow to conduct these trials . 57 although we received fda approval of our platelet and plasma systems in december 2014 , our u.s. commercial efforts in 2019 have been largely focused on enabling blood centers that are using intercept to optimize production and increase the number of platelet and plasma units produced and made available to patients and continuing to develop awareness of intercept 's product profile relative to other platelet and plasma products , including conventional , un-treated components . significant increase in product revenue from customers in the u.s. may not occur , if at all , until we have been able to successfully implement the platelet and plasma systems and demonstrate that they are economical , safe and efficacious for potential customers . in addition , to address the entire market in the u.s. , we will need to develop , test and obtain fda approval of additional configurations of the platelet system . in september 2019 , the fda issued a final guidance document , “ bacterial risk control strategies for blood collection establishments and transfusion services to enhance the safety and availability of platelets for transfusion. ” the guidance document requires all blood collection facilities to comply with the options available under the guidance document , which includes the intercept b lood s ystem , for all platelet collections , no later than eighteen months from the issuance date . blood centers may wait until later in the compliance grace period before beginning to take steps to implement intercept . should a large number of blood centers wait , we may not have sufficient resources or product available to allow customers to timely and successfully implement intercept before the end of the compliance grace period . should we be unable to manufacture intercept in sufficient quantities in a timely manner , or have adequate resources to assist customer with implementing the intercept b lood s ystem , u.s. blood centers may be forced to use alternate options allowed by the guidance document , which could permanently impact our ability to convert those blood centers to intercept users . we also plan to perform in vitro studies and seek a premarket approval , or pma , supplement to use our plasma system to produce extended-storage cryoprecipitate and possibly other plasma derived biological products . we currently have agreements with certain blood center manufacturing partners and are actively working to identify additional partners to manufacture the extended-storage cryoprecipitate . we are also working on implementing the infrastructure we believe will be necessary to market an approved extended-storage cryoprecipitate product directly to hospitals subsequent to potential regulatory approval of any pma supplement that we may propose to submit to the fda .
| however , a deterioration of the euro relative to the u.s. dollar has in the past and could in the future have a material impact on our product revenues , as a significant portion of our product revenue is expected to come from euro denominated markets over the near term . as a result of these and other factors , the historical results may not be indicative of intercept blood system product revenue in the future . we recognized $ 19.1 million , $ 15.1 million and $ 7.8 million of revenue from our barda agreement during the years ended december 31 , 2019 , 2018 and 2017 , respectively , as a result of the direct and indirect contract costs incurred under the barda agreement . as our redes and recepi studies continue to enroll patients , and as additional other qualified clinical and development activities potentially increase under the exercised option periods , we anticipate that reported barda revenue will increase . cost of product revenue our cost of product revenue consists of the cost of the intercept blood system sold , provisions for obsolete , slow-moving and unsaleable product , certain order fulfillment costs , to the extent applicable , and costs for idle facilities . inventory is accounted for on a first-in , first-out basis . replace_table_token_4_th cost of product revenue increased by $ 1.8 million during the year ended december 31 , 2019 , compared to the year ended december 31 , 2018. the increase was primarily due to the increase of sales in the current period compared to the same period of the prior year , partially offset by volume tier discounts from a contract manufacturer . cost of product revenue increased by $ 9.1 million during the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. the increase was primarily due to the increase in the volume of intercept platelet kits sold in the current year compared to the prior year . cost of product revenue was also impacted by less favorable foreign currency exchange rates related to inventory production compared to prior year . our gross margin on product sales was 55 % during the year
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currency fluctuation and the strengthening u.s. dollar . our consolidated operations are impacted by the relationships between our reporting currency , the u.s. dollar , and those of our non-u.s. subsidiaries whose functional/local currency is other than the u.s. dollar . the recent decline in the value of the euro relative to the u.s. dollar has impacted the conversion of the results of our european operations , as they are reported , which represent approximately 21 % of our consolidated revenue for fiscal 2016 . during fiscal 2016 , the euro experienced a decline in value relative to u.s. dollar of approximately 13 % , as compared to fiscal 2015 . in addition , our fiscal 2016 results have been negatively impacted by a decline of 13 % in the canadian dollar and a decline of approximately 9 % in japanese yen relative to the u.s. dollar , as compared to fiscal 2015 . disruptions in shipping and distribution . our operations are subject to the impact of shipping disruptions as a result of changes or damage to our distribution infrastructure , as well as due to external factors . during the fourth quarter of fiscal 2015 , our u.s. third party operated e-commerce fulfillment center was impacted by structural damage , which resulted in shipping delays to consumers who ordered merchandise through our e-commerce website . in addition , we were impacted by the work slowdowns and stoppages resulting from the labor dispute at the u.s. west coast ports during fiscal 2015 , which created a backlog of containers at the ports and resulted in inventory delivery delays , which continued into fiscal 2016. any future disruptions could have a negative impact on our results of operations . costs of manufacturing . our industry is subject to volatility in costs related to certain raw materials used in the manufacturing of our products . this volatility applies primarily to costs driven by commodity prices , which can increase or decrease dramatically over a short period of time . these fluctuations may have a material impact on our sales , results of operations and cash flows to the extent they occur . we use commercially reasonable efforts to mitigate these effects by sourcing our products as efficiently as possible . in addition , manufacturing labor costs are also subject to degrees of volatility based on local and global economic conditions . we use commercially reasonable efforts to source from localities that suit our manufacturing standards and result in more favorable labor driven costs to our products . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states ( `` u.s. gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of revenue and expenses during the reporting period . critical accounting policies are those that are the most important to the portrayal of our financial condition and results of operations and that require our most difficult , subjective and complex judgments to make estimates about the effect of matters that are inherently uncertain . in applying such policies , we must make certain assumptions based on our informed judgments , assessments of probability and best estimates . estimates , by their nature , are subjective and are based on analysis of available information , including current and historical factors and the experience and judgment of management . we evaluate our assumptions and estimates on an ongoing basis . while our significant accounting policies are detailed in note 2 to the accompanying financial statements , our critical accounting policies are discussed below and include revenue recognition , inventories , impairment of long-lived assets , goodwill , share-based compensation , derivatives and income taxes . revenue recognition revenue is recognized when there is persuasive evidence of an arrangement , delivery has occurred , the price has been fixed and determinable and collectability is reasonably assured . we recognize retail store revenue upon sale of our products to retail consumers , net of estimated returns . revenue from sales through our e-commerce site is recognized at the time of delivery to the customer , reduced by an estimate of returns . wholesale revenue is recognized net of estimates for sales returns , discounts , markdowns and allowances , after merchandise is shipped and title and risk of loss are transferred to our wholesale customers . to arrive at net sales for retail , gross sales are reduced by actual customer returns , as well as by a provision for estimated future customer returns , which is based on management 's review of historical and current customer returns . the amounts reserved for retail sales returns were $ 4.7 million , $ 2.5 million and $ 2.3 million at april 2 , 2016 , march 28 , 2015 and march 29 , 2014 , respectively . to arrive at net sales for wholesale , gross sales are reduced by provisions for estimated future returns based on current expectations , as well as trade discounts , markdowns , allowances , operational chargebacks , and certain cooperative selling expenses . total sales reserves for wholesale were $ 110.9 million , $ 87.5 million and $ 65.9 million at april 2 , 2016 , march 28 , 2015 and march 29 , 2014 , respectively . these estimates are based on such factors as historical trends , actual and forecasted performance , and market conditions , which are reviewed by management on a quarterly basis . our historical estimates of these costs were not materially different from actual results . 27 as of april 2 , 2016 , a hypothetical 1 % increase in allowances for our reserves for sales returns , discounts , markdowns and other allowances would have decreased our fiscal 2016 revenues by approximately $ 1.2 million . story_separator_special_tag royalty revenue generated from product licenses , which includes contributions for advertising , is based on reported sales of licensed products bearing our tradenames at rates specified in the license agreements . these agreements are also subject to contractual minimum levels . royalty revenue generated by geography-specific licensing agreements is recognized as it is earned under the licensing agreements based on reported sales of licensees applicable to specified periods , as outlined in the agreements . these agreements allow for the use of our tradenames to sell our branded products in specific geographic regions . inventories our inventory costs include amounts paid to independent manufacturers , plus duties and freight to bring the goods to the company 's warehouses , which are located in the united states , holland , canada , japan , south korea and hong kong . we continuously evaluate the composition of our inventory and make adjustments when the cost of inventory is not expected to be fully recoverable . the net realizable value of our inventory is estimated based on historical experience , current and forecasted demand and market conditions . in addition , reserves for inventory losses are estimated based on historical experience and physical inventory counts . our inventory reserves are estimates , which could vary significantly from actual results if future economic conditions , customer demand or competition differ from expectations . our historical estimates of these adjustments have not differed materially from actual results . long-lived assets we evaluate all long-lived assets , including fixed assets and finite-lived intangible assets , for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable . for the purposes of impairment testing , we group our long-lived assets according to their lowest level of use , such as aggregating and capitalizing all construction costs related to a retail store into leasehold improvements and those related to our wholesale business into shop-in-shops . our leasehold improvements are typically amortized over the life of the store lease , including highly probable renewals , and our shop-in-shops are amortized over a useful life of three or four years . our impairment testing is based on our best estimate of the future operating cash flows . if the sum of our estimated undiscounted future cash flows associated with the asset is less than the asset 's carrying value , we recognize an impairment charge , which is measured as the amount by which the carrying value exceeds the fair value of the asset . these estimates of cash flow require significant management judgment and certain assumptions about future volume , sales and expense growth rates , devaluation and inflation . as such , these estimates may differ from actual cash flows and future impairments may result if actual cash flows are lower than our expectations . for fiscal 2016 , fiscal 2015 , and fiscal 2014 , we recorded charges for impairments on fixed assets , primarily related to our retail segment , of $ 10.9 million , $ 0.8 million and $ 1.3 million , respectively . see note 6 to the accompanying consolidated audited financial statements for additional information . goodwill we perform an impairment assessment of goodwill on an annual basis , or whenever impairment indicators exist . in the absence of any impairment indicators , goodwill is assessed during the fourth quarter of each fiscal year . these assessments are made with regards to reporting units within our wholesale , retail and licensing segments where our goodwill is recorded , and are based on our current operating projections . judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business . we may assess our goodwill for impairment initially using a qualitative approach ( “ step zero ” ) to determine whether it is more likely than not that the fair value of goodwill is greater than its carrying value . if the results of the qualitative assessment indicate that it is not more likely than not that the fair value of goodwill exceeds its carrying value , a quantitative goodwill analysis would be performed to determine if impairment is required . we may also elect to perform a quantitative analysis of goodwill initially rather than using a qualitative approach . the valuation methods used in the quantitative fair value assessment , discounted cash flow and market multiples methods , require management to make certain assumptions and estimates regarding certain industry trends and future profitability of our reporting units . if the carrying amount of a reporting unit exceeds its fair value , we would compare the implied fair value of the reporting unit goodwill to its carrying value . to compute the implied fair value , we would assign the fair value of the reporting unit to all of the assets and liabilities of that unit ( including any unrecognized intangible assets ) as if the reporting unit had been acquired in a business combination . the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill . if the carrying value of the reporting unit 's goodwill exceeded the implied fair value of the reporting unit 's goodwill , we would record an impairment loss to write down such goodwill to its implied fair value . the valuation of goodwill is affected by , among other things , our business plan for the future and estimated results of future operations . future events could cause us to conclude the impairment indicators exist and , therefore , that goodwill may be impaired . 28 during the fourth quarter of fiscal 2016 , we elected to bypass the initial qualitative assessment and performed our annual impairment analysis using a quantitative approach , using the discounted cash flow method to estimate fair value .
| we operated 668 retail stores , including concessions , as of april 2 , 2016 , compared to 526 retail stores , including concessions , as of march 28 , 2015 . our comparable store sales declined $ 77.1 million , or 4.2 % , during fiscal 2016 , which included unfavorable foreign currency effects of $ 61.3 million . our comparable store sales benefited 194 basis points from the inclusion of the u.s. e-commerce sales in comparable store sales beginning with the third quarter of fiscal 2016. on a constant currency basis , our comparable store sales declined $ 15.8 million , or 0.9 % , primarily driven by lower comparable store sales from our retail business in the americas , partially offset by increased comparable store sales from our international businesses . the decline in our comparable store sales primarily reflected lower sales of watches , apparel and jewelry , partially offset by increased sales of accessories during fiscal 2016 compared to fiscal 2015 . our non-comparable store sales increased $ 337.4 million during fiscal 2016 , which included unfavorable foreign currency effects of $ 45.9 million . on a constant currency basis , our non-comparable store sales increased $ 383.3 million . approximately 86 % of this sales growth was attributable to operating 142 additional stores since march 28 , 2015 ( including 14 stores included as a result of obtaining controlling interest in mk panama and 36 stores acquired in connection with the mk korea acquisition ) and approximately 14 % was attributable to non-comparable sales from our e-commerce sites in the americas , which included our u.s. e-commerce store sales through the second quarter of fiscal 2016. fiscal 2016 included approximately $ 33.7 million of incremental net retail sales attributable to the inclusion of the 53rd week . wholesale net sales to our wholesale customers increased $ 78.8 million , or 3.8 % , to $ 2.144 billion for fiscal 2016 , compared to $ 2.065
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as these arrays become available , we believe activity in the microarray market will increase relative to 2009. american recovery and reinvestment act of 2009 ( the recovery act ) the recovery act was enacted in february 2009 to provide stimulus to the u.s. economy in the wake of the economic downturn . as part of the recovery act legislation , over $ 10 billion in funding was provided to the national institute of health ( nih ) through september 2010 to support the advancement of scientific research . in the second and third quarters of 2009 we experienced negative unintended consequences of the recovery act as customers delayed orders while they waited to receive stimulus funds . during the fourth quarter of 2009 , we believe we saw an increase in the distribution of recovery act funds and received an estimated $ 16 million in orders directly related to recovery act grants . we believe a significant portion of recovery act awards may be distributed in 2010 , which may create a pipeline of opportunity in the upcoming year . life science research funding across regional markets we have developed a broad sales and distribution network with a sales presence in more than 40 countries . our financial results will continue to be impacted by significant regional trends in life science research funding as described below : united states . a significant increase to the nih budget in addition to recovery act stimulus funds has made for a strong funding environment in the united states that we expect to continue into 2010. asia-pacific . strong funding in china was partially offset by a funding decrease in japan due to a change in government that resulted in the suspension of supplemental life science research funding during the second and third quarters of 2009. during the fourth quarter of 2009 , we saw an increase in activity in the japanese market as funds began to be released , which we expect to continue into 2010. europe . central and southern european markets had a strong year driven by the establishment and expansion of genome centers . however , there was a decrease in funding in northern european countries , primarily due to reduced institutional funding in areas like the united kingdom and the financial crisis in iceland . we saw some positive signs during the fourth quarter of 2009 in northern europe , and , although we expect funding to stabilize , we do not expect a material increase in activity in this region in 2010. cost of revenue our cost of revenue as a percentage of revenue declined during 2009 due to cost efficiencies in our manufacturing process and an improved mix of sequencing consumables driven by growth in the installed base of our sequencing systems . we expect changes in our product mix to continue to affect our cost of revenue as a percentage of revenue , particularly in the latter half of the year . we anticipate cost of revenue as a 30 percentage of revenue to be lower in the first half of the year and then increase as the mix shifts to newer products and the effects of our trade-in promotions associated with the launch of the hiseq 2000 are realized . additionally , we expect price competition to continue in our market causing added variability in our cost of revenue as a percentage of revenue on a quarterly and annual basis . operating expense we expect to incur additional operating costs to support the expected growth in our business . as a result of revenues growing faster in the second half of 2010 , we expect operating expenses as a percentage of revenue to be higher in the first half of the year compared with the second half . we believe a substantial investment in research and development is essential to remaining competitive and expanding into additional markets . accordingly , we expect our research and development expenses to increase in absolute dollars as we expand our product base . selling , general and administrative expenses are also expected to increase in absolute dollars as we continue to expand our staff and add sales and marketing infrastructure . while these trends are important to understanding and evaluating our financial results , the other transactions , events and trends discussed in risk factors in item 1a of this report may also materially impact our business operations and financial results . 31 story_separator_special_tag 0 % ; margin-right : 0 % ; text-indent : 0 % ; font-size : 10pt ; font-family : 'times new roman ' , times ; color : # 000000 ; background : # ffffff '' > the increase in research and development was driven primarily by a $ 22.9 million increase in personnel-related expenses , including salaries , non-cash stock-based compensation and benefits , a $ 10.4 million increase to non-personnel related expenses and an increase in outside services of $ 3.2 million attributable to consulting fees . these increases are primarily related to the growth in our efforts to optimize and commercialize our sequencing and beadarray technologies . the increase in selling , general and administrative expenses was driven by an increase of $ 26.6 million in personnel-related expenses associated with the growth of our business , including salaries , non-cash stock-based compensation and benefits . acquired in-process research and development ( ipr & d ) replace_table_token_9_th during the year ended december 28 , 2008 , we recorded acquired ipr & d charges of $ 24.7 million as a result of the avantome , inc. acquisition in august 2008. during the year ended january 3 , 2010 , we recorded additional ipr & d charges of $ 11.3 million related to milestone payments made to avantome inc. 's former shareholders . other income ( expense ) , net replace_table_token_10_th 34 interest income decreased despite an increase in our average cash and investment balance due to an overall decline in interest rates during 2009. interest expense increased due to the amortization of the discount on our convertible senior notes . story_separator_special_tag other income , net decreased due to a decrease of $ 1.5 million in gains on net foreign currency transactions , which was partially offset by a gain of $ 0.8 million on the conversion of a portion of our debt during the first quarter of 2009. provision for income taxes replace_table_token_11_th the increase in the provision for income taxes was attributable to the increase in the consolidated income before income taxes . the effective tax rate decreased from 45.8 % in 2008 to 36.7 % in 2009 predominately because the amount of nondeductible acquired ipr & d recognized for financial reporting purposes was lower by $ 13.3 million . additionally , the percentage of consolidated income before income taxes earned in foreign jurisdictions , which primarily have lower statutory tax rates than the u.s. statutory tax rate , increased from 36 % in 2008 to 43 % in 2009. comparison of years ended december 28 , 2008 and december 30 , 2007 our fiscal year is 52 or 53 weeks ending the sunday closest to december 31 , with quarters of 13 or 14 weeks ending the sunday closest to march 31 , june 30 , and september 30. the years ended december 28 , 2008 and december 30 , 2007 were both 52 weeks . revenue replace_table_token_12_th product revenue consists primarily of revenue from the sale of consumables and instruments . revenue from the sale of consumables increased $ 140.2 million , or 72 % , to $ 333.7 million for the year ended december 28 , 2008 compared to $ 193.5 million for the year ended december 30 , 2007. growth in consumable revenue was primarily attributable to strong demand for our infinium and sequencing products , which led to increased sales of $ 104.8 million and $ 35.4 million , respectively . the increase in revenue associated with our infinium products was attributable to the strong demand for our infinium high-density beadchips , particularly the human610-quad , which we began shipping during the first quarter of 2008. of the overall increase in infinium beadchip sales , approximately 79 % was due to new product introductions with higher average selling prices , while the remaining 21 % can be attributed to increased volume . the increase in sequencing consumables was primarily attributable to the growth of our installed base of instruments and the progression of customer labs ramping to production scale . revenue from the sale of instruments increased $ 64.8 million , or 54 % , to $ 185.7 million for the year ended december 28 , 2008 compared to $ 120.9 million for the year ended december 30 , 2007. the increase was primarily attributable to a $ 63.0 million increase in sales of our genome analyzer driven by both an increase in sales volume and average selling prices . additionally , during the second quarter of 2008 , we launched the iscan system , our next-generation beadchip scanner to replace the beadarray reader . any increase in revenue resulting from shipments of this new system was offset by a reduction in sales of our beadarray reader as we stopped manufacturing this product upon the launch of our iscan system . 35 cost of product and service and other revenue replace_table_token_13_th total cost of revenue , which excludes the impairment of manufacturing equipment and the amortization of intangible assets , increased primarily due to higher instrument and consumable sales . cost of product revenue as a percentage of related revenue was 36 % for the year ended december 28 , 2008 compared to 37 % for the year ended december 30 , 2007. the decrease was primarily due to favorable product mix driven by increased sales of our new high-density infinium beadchips , with higher average selling prices as compared to the infinium beadchips sold in the prior year . this was partially offset by increased provisions for inventory obsolescence of $ 7.2 million for the year ended december 28 , 2008 compared to $ 1.9 million for the year ended december 30 , 2007. the increase in the inventory reserve was primarily associated with product transitions . during the year , we recorded reserves for product obsolescence associated with the launch of our new infinium beadchips and the launch of a new sequencing kit . instrument cost of sales as a percentage of related revenue increased slightly over the prior year due to lower average selling prices mainly associated with promotional campaigns as we launched our next generation beadarray reader , the iscan in the first half of 2008. operating expenses replace_table_token_14_th the increase in research and development was driven by a $ 17.4 million increase in personnel-related expenses associated with increased headcount , including salaries , non-cash stock-based compensation and benefits , an $ 11.6 million increase to non-personnel related expenses associated with the growth of our business and a $ 1.5 million increase to accrued compensation expense associated with contingent consideration for the avantome acquisition completed on august 1 , 2008. these increases were partially offset by a decrease in outside services of $ 4.5 million primarily related to a decrease in consulting fees . the increase in selling , general and administrative expenses was driven primarily by an increase of $ 42.8 million in personnel-related expenses , including salaries , non-cash stock-based compensation and benefits and a $ 4.0 million increase to non-personnel related expenses . these increases were primarily associated with the growth of our business . acquired in-process research and development ( ipr & d ) replace_table_token_15_th 36 as a result of the avantome , inc. acquisition in august 2008 and the solexa inc. acquisition in january 2007 , we recorded acquired ipr & d charges of $ 24.7 million and $ 303.4 million , respectively .
| sales volume for our infinium beadchip product lines , which constitute a majority of our microarray consumable sales , was relatively flat on a sample basis during 2009 compared to 2008. the average selling price per sample , however , declined due to a change in product mix attributable to growth in the sales of our focused content arrays coupled with lower sales of whole-genome genotyping arrays and an increase in the average number of samples per beadchip . revenue from sequencing consumables increased $ 68.9 million , or 144 % , driven by growth in the installed base of our genome analyzer systems and the progression of customer labs ramping to production scale . the increase was partially offset by a loss of sales related to a quality issue affecting our paired-end cluster kits that arose in september 2009 when some of our larger sequencing customers began experiencing higher than average error rates on the second read of their paired-end analysis . during the fourth quarter , we began shipping reformulated paired-end cluster kits at full capacity and cleared the related shipping backlog . revenue from the sale of instruments increased $ 40.0 million , or 22 % , to $ 225.7 million for the year ended january 3 , 2010 compared to $ 185.7 million for the year ended december 28 , 2008 primarily due to a $ 56.4 million , or 43 % , increase in sales of our sequencing systems . during 2009 as compared to 2008 both units sold and average selling prices increased for our genome analyzer systems , which constitute a majority of sequencing instrument revenue . the increase in units sold was driven by increased demand for next generation sequencing and our sequencing-by-synthesis technology . the increase in average selling prices was attributable to the product transition from the genome analyzer i to the genome analyzer ii in the second quarter of 2008 and technological improvements leading to the launch of the genome analyzer iix in the second quarter of 2009. the increase in sequencing instrument revenue was partially offset by a $ 16.4 million , or 30 % , decrease in the sales of our microarray systems , which declined primarily due to customers delaying the start of new gwas in anticipation of new and rare variant content from the 1000 genomes project , order delays
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21 animal hospital and laboratory acquisitions , excluding healthy pet the following table summarizes the aggregate consideration , including acquisition costs , paid by us for our acquired animal hospitals and laboratories , excluding healthy pet , and the allocation of the purchase price ( in thousands ) : replace_table_token_6_th ( 1 ) see the cash flows from investing activities section in the liquidity and capital resources discussion for reconciliation of cash paid for acquisitions per this schedule to the consolidated statements of cash flows . ( 2 ) we expect that $ 33.6 million , $ 81.2 million and $ 45.7 million of the goodwill recognized in 2009 , 2008 and 2007 , respectively , will be fully deductible for income tax purposes . in addition to the purchase price listed above are cash payments made for real estate acquired in connection with our purchase of animal hospitals totaling $ 4.9 million , $ 17.6 million and $ 8.0 million in 2009 , 2008 and 2007 , respectively . healthy pet acquisition on june 1 , 2007 , we acquired healthy pet , which operated at the time of its acquisition , 44 animal hospitals and a small laboratory , which primarily serviced its own animal hospitals . this acquisition allowed us to expand our animal hospital operations , particularly in massachusetts , connecticut , virginia , rhode island and georgia . our consolidated financial statements reflect the operating results of healthy pet since june 1 , 2007. we acquired healthy pet for a purchase price of $ 152.8 million . the following table summarizes the purchase price and the allocation of the purchase price ( in thousands ) : replace_table_token_7_th ( 1 ) includes customer relationships , covenants not to compete , and favorable lease assets . 22 replace_table_token_8_th in addition , we incurred integration costs of $ 1.6 million primarily to operate healthy pet 's corporate office , which was closed in 2007. these costs were expensed as incurred and are included in corporate selling , general and administrative expense . the pro forma impacts on revenue and earnings have not been disclosed for the current or comparable prior periods , as the amounts were immaterial to the financial statements as a whole . eklin medical systems , inc. acquisition on july 1 , 2009 , we acquired eklin , a leading seller of digital radiography and ultrasound systems in the veterinary market . we acquired eklin for a purchase price of $ 12.5 million , net of cash acquired of $ 1.0 million . the following table summarizes the purchase price and allocation of the purchase price ( in thousands ) : replace_table_token_9_th ( 1 ) see the cash flows from investing activities section in the liquidity and capital resources discussion for a reconciliation of cash paid for acquisitions per this schedule to the consolidated statements of cash flows . ( 2 ) we expect that $ 2.8 million of the goodwill recorded for this acquisition as of december 31 , 2009 will be fully deductible for income tax purposes . in addition we incurred $ 537,000 in transaction costs , which were expensed in accordance with the fasb 's revised accounting guidance on business combinations , effective january 1 , 2009. eklin has been combined with sti and is reported within our medical technology segment . the pro forma impacts on revenue and earnings have not been disclosed for the current or comparable prior periods , as the amounts were immaterial to the financial statements as a whole . critical accounting policies we believe that the application of the following accounting policies , which are important to our financial position and results of operations , require significant judgments and estimates on the part of management . for a summary of all our accounting policies , including the accounting policies discussed below , see note 2 , summary of significant accounting policies , in our consolidated financial statements of this annual report on form 10-k. 23 revenue animal hospital and laboratory revenue we recognize revenue when persuasive evidence of a sales arrangement exists , delivery of goods has occurred or services have been rendered , the sales price or fee is fixed or determinable and collectability is reasonably assured . medical technology revenue our medical technology segment generates a majority of its revenue from the sale of digital radiography and ultrasound imaging equipment . we also generate revenue from : ( i ) licensing software ; ( ii ) providing technical support and product updates on a when-and-if available basis related to our software , otherwise known as maintenance ; ( iii ) providing professional services related to our equipment and software , including installations , on-site training , education services and extended warranty programs ; and ( iv ) providing mobile imaging services . we frequently sell equipment and license our software in multiple element arrangements in which the customer may choose a combination of our products and services . the accounting for the sale of equipment is substantially governed by the requirements of the fasb 's general revenue recognition rules , and the sale of software licenses and related items is governed by the fasb 's accounting guidance for software revenue recognition . in october 2009 , the fasb issued new accounting guidance pertaining to revenue recognition for arrangements where equipment is sold with embedded software that is more than incidental to the products and services as a whole . although we plan to early adopt this new guidance , our results for the year ended december 31 , 2009 remain to be accounted for under the fasb 's accounting guidance for software revenue arrangements . see note 2c , summary of significant accounting policies revenue and related cost recognition , in our consolidated financial statements in this annual report on form 10-k. the determination of the amount of software license , maintenance and professional service revenue to be recognized in each accounting period requires us to exercise judgment and use estimates . story_separator_special_tag in determining whether or not to recognize revenue , we evaluate each of these criteria : evidence of an arrangement : we consider a non-cancelable agreement signed by the customer and us to be evidence of an arrangement . delivery : we consider delivery to have occurred when the ultrasound imaging equipment is delivered . we consider delivery to have occurred when the digital radiography imaging equipment , including software , is delivered or accepted by the customer if installation is required . we consider delivery to have occurred with respect to professional services when those services are provided or on a straight-line basis over the service contract term , based on the nature of the service or the terms of the contract . fixed or determinable fee : we assess whether fees are fixed or determinable at the time of sale and recognize revenue if all other revenue recognition requirements are met . we generally consider payments that are due within six months to be fixed or determinable based upon our successful collection history . we only consider fees to be fixed or determinable if they are not subject to refund or adjustment . collection is deemed probable : we conduct a credit review for all significant transactions at the time of the arrangement to determine the credit worthiness of the customer . collection is deemed probable if we expect that the customer will be able to pay amounts under the arrangement as payments become due . if we determine that collection is not probable , we defer the revenue and recognize the revenue upon cash collection . under the residual method prescribed by the fasb 's software revenue recognition guidance , in multiple element arrangements involving software that is more than incidental to the products and services as a whole , revenue may be recognized when vendor-specific objective evidence ( vsoe ) of fair value exists for all of the undelivered elements in the arrangement ( i.e. , maintenance and professional services ) , but does not exist for one or more of the delivered elements in the arrangement ( i.e. , the equipment , computer hardware or the 24 software product ) . vsoe of fair value is based on the price for those products and services when sold separately by us or the contractual renewal rates for the post-contract customer support services that we provide . under the residual method , the fair value of the undelivered elements is deferred and recognized as revenue upon delivery , provided that other revenue recognition criteria are met . if vsoe of fair value of one or more undelivered elements does not exist , the revenue for the entire transaction , including revenue related to the delivered elements , is deferred and recognized , based on the facts and circumstances , either : i ) on a straight-line basis over the life of the post-contract service period if this is the only undelivered element , or ii ) when the last undelivered element is delivered . each transaction requires careful analysis to determine whether all of the individual elements in the license transaction have been identified , along with the fair value of each element and that the transaction is accounted for correctly . digital radiography imaging equipment we sell our digital radiography imaging equipment with multiple elements , including hardware , software , licenses and or services . we have determined that the software included in these sales arrangements is more than incidental to the products and services as a whole . as a result , we account for digital radiography imaging equipment sales under the fasb 's software revenue recognition guidance . for those sales arrangements where we have determined vsoe of fair value for all undelivered elements , we allocate revenue to the undelivered items based on the vsoe of value independent of any discounts given . we then recognize the revenue for undelivered elements when the services are provided . we recognize the remaining or residual revenue for the delivered elements at the time of delivery or installation and customer acceptance . generally , at the time of delivery and installation of equipment the only undelivered item is the post-contract customer support ( pcs ) . this obligation is contractually defined in both terms of scope and period . when we have established vsoe of fair value for the pcs , we recognize the revenue for these services on a straight-line basis over the period of support and we expense the costs of these services as they are incurred . we recognize revenue for the delivered elements under the residual method . when we have not established vsoe of fair value for the pcs , we defer all revenue , including revenue for the delivered elements , recognizing it on a straight-line basis over the period of support . in the third quarter of 2005 , we established vsoe of fair value for the undelivered elements for a majority of our sales arrangements by including renewal rates in the sales contracts for pcs . as a result , for transactions with defined renewal rates for pcs , we began recognizing revenue on the sale of our digital radiography imaging equipment , computer hardware and software at the time of delivery or installation and customer acceptance if required per the sale arrangement , and revenue from the pcs on a straight-line basis over the term of the support period . as of 2008 , we had obtained sufficient historical pricing information to establish vsoe of fair value for the undelivered elements based upon the actual sales price of the pcs sold separately . ultrasound imaging equipment we sell our ultrasound imaging equipment on a stand-alone basis and with multiple elements , including hardware , software , licenses and or services . we account for the sale of ultrasound imaging equipment on a stand-alone basis under the requirements of the fasb 's general revenue recognition rules and recognize revenue upon delivery .
| consolidated gross margins in 2009 and 2008 benefited from a decrease in workers ' compensation insurance expense of $ 1.8 million and $ 2.9 million , respectively , or 0.1 % and 0.2 % of revenue , respectively , due to a reduction in our estimated workers ' compensation insurance liability for prior year policy periods . consolidated gross profit increased $ 21.2 million in 2008 as compared to 2007. the increase was primarily due to the increase in consolidated revenue discussed above . consolidated gross profit in 2008 was impacted by a decrease in consolidated gross margins as compared to 2007. this decrease was primarily attributable to a decline in laboratory gross margin . consolidated gross margins in 2008 and 2007 benefited from a decrease in workers ' compensation insurance expense of $ 2.9 million and $ 3.2 million , respectively , or 0.2 % and 0.3 % of revenue , respectively , due to a reduction in our estimated workers ' compensation insurance liability for prior years policy periods . segment results animal hospital segment the following table summarizes revenue and gross profit for the animal hospital segment ( in thousands , except percentages ) : replace_table_token_13_th 30 animal hospital revenue increased $ 34.8 million in 2009 as compared to 2008 , and $ 115.1 million in 2008 as compared to 2007. the components of the increases are summarized in the following table ( in thousands , except percentages and average price per order ) : replace_table_token_14_th ( 1 ) same-store revenue and orders were calculated using animal hospital operating results , adjusted to exclude the operating results for newly acquired animal hospitals that we did not own as of the beginning of the comparable period in the prior year and adjusted for the impact resulting from any differences in the number of business days in the comparable periods . same-store revenue also includes revenue generated by customers referred from our relocated or combined animal hospitals , including those merged upon acquisition . ( 2 ) the change in orders may not calculate exactly due to
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our overall strategy with our cloud customers has not changed and we continue to execute against our innovation roadmap , which includes our plan to continue to grow our relevance and our business in the cloud vertical . in 2017 , we continued to execute on our product strategy , specifically around the cloud . we announced cloud-grade networking , which we expect will accelerate agility and innovation with cloud customers . cloud-grade networking builds on carrier-grade reach and reliability with enterprise-grade control and usability , bringing cloud-level agility and operational scale to networks everywhere . this announcement included two new foundational products : junos node slicing : converges multiple concurrent network functions on the same physical routing infrastructure , letting customers optimize their infrastructure while offering differentiated services with enhanced operational and administrative isolation within a single chassis . universal chassis : a breakthrough system allowing customers to standardize on a hardware platform across their data center , core , and network edge . we believe the system will create significant value for our customers by enhancing their return on investment through reduced costs . aligning with our cloud-grade networking initiative , we also announced a programmable photonic layer solution , comprised of two main products : tcx1000 series programmable roadm and pronx optical director . this solution is a disaggregated optical line system that is designed to offer greater levels of flexibility , cost control , and multi-layer visibility to packet-optical transport . we also announced enhancements to our software-defined secure networks , or sdsn , platform and expanded our public cloud offering with the introduction of vsrx for microsoft azure . our sdsn enhancements deliver pervasive security across multi-vendor environments , public clouds , and private clouds . further , we announced enhancements to our contrail cloud platform that includes appformix integrations , pre-validated virtual network functions , and a managed solution of professional services offering to simplify our customers ' transition to telco clouds . in addition , we announced further cloud-based enhancements to our security portfolio . we introduced our contrail security product , a new solution specifically designed to allow enterprises and software-as-a-service , or saas , cloud providers to protect applications running in multiple cloud environments . we also completed the acquisition of cyphort inc. , a software company that provides security analytics for advanced threat defense . this acquisition is expected to strengthen the capabilities of our cloud-based threat prevention service , sky advanced threat prevention , or sky atp , by increasing efficiency and performance and providing additional threat detection functionalities and analytics . we will continue to look at targeted and strategic acquisitions that we believe can complement our product portfolio , operations , r & d strategy or overall business . 42 financial results and key performance metrics overview the following table provides an overview of our financial results and key financial metrics ( in millions , except per share amounts , percentages and days sales outstanding , or dso ) : replace_table_token_6_th ( * ) dso is for the fourth quarter ended december 31 , 2017 , 2016 , and 2015 . net revenues : during 2017 , net revenues increased compared to 2016 , due to growth from our services business driven by strong attach rates and renewals of support contracts , partially offset by a decline in product revenues . the decline in product revenues was primarily driven by lower revenues from our routing products as a result of the continued architectural shifts in the cloud vertical to more automated , cost efficient , and scalable networks and a decrease in our high-end srx series in our security business . this was partially offset by an increase in net revenues from our switching products driven by continued growth from our data center switching portfolio , particularly from our qfx product family which grew 25 % year-over-year . of our top ten customers for 2017 , four were cloud , five were telecom/cable , and one was a strategic enterprise . of these customers , two were located outside of the u.s. gross margin : our gross margin as a percentage of net revenues decreased during 2017 , compared to 2016 , primarily due to lower product net revenues , customer mix , and product mix resulting from the year-over-year decline in routing revenues , including as a result of architectural shifts described above , partially offset by higher service gross margin . operating margin : during 2017 , compared to 2016 , operating income as a percentage of net revenues decreased primarily due to lower gross margin as discussed above and higher operating expenses primarily from restructuring charges , partially offset by higher net revenues driven by the strength from our services and switching businesses . capital return : in 2017 , we repurchased 26.1 million shares of our common stock for an aggregate amount of $ 719.7 million and paid cash dividends of $ 0.10 per share each quarter for an aggregate annual amount of $ 150.4 million . operating cash flows : cash flow from operations increased in 2017 , compared to 2016 , primarily due to an increase in cash collections from customers in the first half of 2017 due to higher invoicing activity during the fourth quarter 43 of 2016 , partially offset by an increase in payments to suppliers , higher payments for restructuring activities , and an increase in cash paid for income taxes . dso : dso is calculated as the ratio of ending accounts receivable , net of allowances , divided by net revenues for the preceding 90 days . dso for the quarter ended december 31 , 2017 decreased , compared to the quarter ended december 31 , 2016 , primarily due to lower invoicing activities . product deferred revenue : product deferred revenue increased as of december 31 , 2017 , compared to december 31 , 2016 , primarily due to shipments that have not met certain revenue recognition criteria . story_separator_special_tag critical accounting policies and estimates the preparation of the financial statements and related disclosures in conformity with u.s. gaap requires us to make judgments , assumptions , and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes . on an ongoing basis , we evaluate our estimates , including those related to sales returns , pricing credits , warranty costs , allowance for doubtful accounts , impairment of long-term assets , especially goodwill and intangible assets , contract manufacturer liabilities , assumptions used in the valuation of share-based compensation , and litigation . we base our estimates and assumptions on current facts , historical experience , and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . for further information about our significant accounting policies , see note 2 , significant accounting policies , in notes to consolidated financial statements in item 8 of part ii of this report , which describes the significant accounting policies and methods used in the preparation of the consolidated financial statements . the accounting policies described below are significantly affected by critical accounting estimates . such accounting policies require significant judgments , assumptions , and estimates used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies . to the extent there are material differences between our estimates and the actual results , our future consolidated results of operations may be affected . goodwill : we make significant estimates , assumptions , and judgments when valuing goodwill and other intangible assets in connection with the initial purchase price allocation of an acquired entity , as well as when evaluating impairment of goodwill and other intangible assets on an ongoing basis . these estimates are based upon a number of factors , including historical experience , market conditions , and information obtained from the management of the acquired company . critical estimates in valuing certain intangible assets include , but are not limited to , historical and projected customer retention rates , anticipated growth in revenue from the acquired customer and product base , and the expected use of the acquired assets . these factors are also considered in determining the useful life of the acquired intangible assets . the amounts and useful lives assigned to identified intangible assets impacts the amount and timing of future amortization expense . goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recorded . the excess of the purchase price over the estimated fair value of net assets of businesses acquired in a business combination is recognized as goodwill . we evaluate our goodwill for impairment on an annual basis , as of november 1 st , or more frequently if an event occurs or facts and circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying amount . goodwill is tested for impairment at the reporting unit level , which is one level below our operating segment level , by comparing the reporting unit 's carrying value , including goodwill , to the fair value of the reporting unit . the reporting units are determined based on the components of our operating segment that constitutes a business for which discrete financial information is available and segment management regularly review the operating results of the component . the provisions of the accounting standard for goodwill and other intangibles allows us to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . various factors are considered in the qualitative assessment , including macroeconomic conditions , financial performance , or a sustained decrease in share price . if as a result of the qualitative assessment , it is deemed more likely than not that the fair value of a reporting unit is less than its carrying amount , management will perform the quantitative test . the quantitative goodwill impairment test , if necessary , involves a two-step process to identify goodwill impairment and measure the amount of goodwill impairment loss to be recognized , if any . the first step tests for potential impairment by comparing the fair value of reporting units with the reporting unit 's carrying values . if the fair value of the reporting units exceeds the carrying value of the reporting unit 's net assets , goodwill is not impaired and no further testing is required . if the fair value of the reporting units does not exceed the carrying value of the net assets assigned to the 44 reporting unit , then we perform the second step of the impairment test in order to determine the implied fair value of the reporting unit 's goodwill . the second step requires an assignment of the reporting unit 's fair value to the reporting unit 's assets and liabilities , using the relevant acquisition accounting guidance , to determine the implied fair value of the reporting unit 's goodwill . the implied fair value of the reporting unit 's goodwill is then compared with the carrying amount of the reporting unit 's goodwill , and if the carrying value of a reporting unit 's goodwill exceeds its implied fair value , we record an impairment loss equal to the difference . in the first step , the fair value of each of our reporting units is determined using both the income and market valuation approaches . we believe the income approach and the market approach are equally representative of the reporting unit 's fair value . under the income approach , the fair value of the reporting unit is based on the present value of estimated future cash flows that the reporting unit is expected to generate over its remaining life .
| 2017 compared to 2016 net cash used in investing activities decreased in 2017 , compared to 2016 , primarily due to lower payments for business combinations and capital expenditures and the receipt of $ 75.0 million in proceeds from the pulse note , partially offset by higher net purchases of available-for-sale securities . 2016 compared to 2015 net cash used in investing activities decreased in 2016 , compared to 2015. the decrease was primary due to a decrease in net purchases of available-for-sale investments , partially offset by an increase in cash used for business acquisitions in 2016. financing activities financing cash flows consist primarily of repurchases and retirement of common stock , payment of cash dividends to stockholders , issuance and repayment of long-term debt , and proceeds from the issuance of shares of common stock through employee equity incentive plans . 2017 compared to 2016 net cash used in financing activities increased in 2017 , compared to 2016 , primarily due to an increase in repurchases and retirement of our common stock in 2017. in 2016 , we raised $ 494.0 million from our 2019 notes and 2024 notes and repaid $ 300.0 million of our 2016 notes . 2016 compared to 2015 net cash used in financing activities decreased in 2016 , compared to 2015. the decrease was primarily due to lower purchases and retirements of our common stock in 2016 , partially offset by the payment of our 2016 notes and a decrease in cash proceeds received from the issuance of long-term debt and the issuance of common stock in 2016. capital return the following table summarizes our dividends paid and stock repurchase activities ( in millions , except per share amounts ) : replace_table_token_14_th in 2014 and 2015 , our board of directors , which we refer to as the board , approved a stock repurchase program that authorized us to repurchase up to $ 2.1 billion of our common stock , including $ 1.2 billion pursuant to an accelerated share repurchase program ( `` asr '' ) , and subsequent increases to the authorization totaling $ 1.8 billion ( `` stock
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this decrease was partially offset by a $ 1.1 million increase in compensation expense primarily due to annual benefit and merit salary increases and a $ 0.3 million increase in stock-based compensation expense primarily due to restricted stock units granted to senior management during the fourth quarter of 2013. the remainder of the decrease was due to insignificant partially offsetting increases and decreases across the remaining expense categories , which resulted in an additional $ 0.2 million net decrease . selling , general and administrative selling , general and administrative expense includes compensation and related costs for personnel , sales commissions , allocations for facilities and information technology expenses , travel , outside services and other general expenses incurred in our sales , marketing , customer support , management , legal and other professional and administrative support functions . selling , general and administrative expense was as follows ( in thousands ) : replace_table_token_7_th 2014 v. 2013 selling , general and administrative expense increased $ 1.6 million from 2013 to 2014. the increase was primarily due to a $ 1.0 million increase in stock-based compensation expense primarily due to restricted stock units granted to senior management during the fourth quarter of 2013 and the third quarter of 2014 , a $ 0.5 million increase in outside services expense primarily due to increased resources focused on marketing our mobile products and a $ 0.3 million increase in compensation expense primarily due to an increased management bonus accrual and annual merit salary increases . in addition , these increases were partially offset by insignificant partially offsetting increases and decreases across the remaining expense categories , which resulted in a $ 0.2 million net decrease . 2013 v. 2012 selling , general and administrative expense decreased $ 1.1 million from 2012 to 2013. the decrease was primarily due to a $ 1.0 million decrease in compensation expense due to reduced headcount for positions that were not replaced . this decrease was partially offset by a $ 0.5 million increase in stock-based compensation expense primarily due to restricted stock units granted to senior management during the fourth quarter of 2013. the remainder of the decrease was due to a general decrease across most other expense categories as we focused on cost management . 37 interest expense and other , net interest expense and other , net , consisted of the following ( in thousands ) : replace_table_token_8_th interest expense and other , net consists of interest expense and interest income . the increase from 2013 to 2014 is primarily due to an increase in interest expense related to a software license contract entered into in 2014 under extended payment terms . provision ( benefit ) for income taxes the provision ( benefit ) for income taxes was as follows ( in thousands ) : replace_table_token_9_th the income tax expense recorded for the year ended december 31 , 2014 is comprised of $ 0.8 million in current and deferred tax expense for our profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign jurisdictions , partially offset by $ 0.3 million for the reversal of previously recorded tax contingencies due to the expiration of the applicable statute of limitations . the income tax expense recorded for the year ended december 31 , 2013 is comprised of $ 0.8 million in current and deferred tax expense for our profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign jurisdictions , partially offset by $ 0.5 million for the reversal of previously recorded tax contingencies due to the expiration of the applicable statute of limitations . the income tax benefit recorded for the year ended december 31 , 2012 is comprised of a benefit of $ 1.5 million for the reversal of previously recorded tax contingencies due to the expiration of the applicable statute of limitations , partially offset by $ 0.9 million in current and deferred tax expense for our profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign jurisdictions . we continue to record a full valuation allowance against our u.s. net deferred tax assets at december 31 , 2014 and 2013 as it is not more likely than not that we will realize a benefit from these assets in a future period . we have not provided a valuation allowance against any of our other foreign net deferred tax assets as we have concluded it is more likely than not that we will realize a benefit from these assets in a future period because our subsidiaries in these jurisdictions are cost-plus taxpayers . as of december 31 , 2014 , we have federal and state net operating loss carryforwards of approximately $ 203.4 million and $ 17.7 million , respectively , which will expire between 2015 and 2034. as of december 31 , 2014 , we have available federal and state research and experimentation tax credit carryforwards of approximately $ 8.0 million and $ 3.2 million , respectively , which begin expiring in 2019. we have a general foreign tax credit of $ 3.2 million which will begin expiring in 2016. our ability to utilize our federal net operating losses may be limited by section 382 of the internal revenue code of 1986 , as amended , which imposes an annual limit on the ability of a corporation that undergoes an `` ownership change '' to use its net operating loss carryforwards to reduce its tax liability . an ownership change is generally defined as a greater than 50 % point increase in equity ownership by 5 % shareholders in any three-year period . 38 liquidity and capital resources cash and cash equivalents total cash and cash equivalents decreased $ 2.9 million from $ 20.8 million at december 31 , 2013 to $ 17.9 million at december 31 , 2014 . story_separator_special_tag the decrease resulted primarily from $ 5.9 million used for purchases of property and equipment and payments on other asset financings partially offset by $ 1.3 million in proceeds from the issuances of common stock under our employee equity incentive plans and $ 1.7 million provided by operating activities due primarily to changes in working capital . total cash and cash equivalents increased $ 7.4 million from $ 13.4 million at december 31 , 2012 to $ 20.8 million at december 31 , 2013 . the increase resulted primarily from approximately $ 9.6 million in net proceeds from our underwritten registered public offering of our common stock ( see `` equity offering '' ) , a $ 3.0 million non-formula advance on our short-term line of credit and $ 0.5 million in proceeds from the issuances of common stock under our employee equity incentive plans . these increases were partially offset by $ 1.2 million used in operating activities due primarily to the net loss we recorded for the year ended december 31 , 2013 and $ 4.5 million used for purchases of property and equipment and licensed technology and payments on other asset financings . as of december 31 , 2014 , our cash and cash equivalents balance of $ 17.9 million consisted of $ 0.4 million in cash and $ 17.5 million in u.s. denominated money market funds . although we did not hold short- or long-term investments as of december 31 , 2014 , our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months . additionally , no maturities can extend beyond 24 months and concentrations with individual securities are limited . investments must be rated at least a-1 / p-1 / f-1 by at least two nationally recognized statistical rating organizations , and our investment policy is reviewed at least annually by our audit committee . although cash balances held at our foreign subsidiaries would be subject to u.s. taxes if repatriated , we have sufficient u.s. net operating losses to eliminate the liability associated with any such repatriation and foreign taxes due upon repatriation would not be significant . accounts receivable , net accounts receivable , net decreased to $ 4.6 million at december 31 , 2014 from $ 4.8 million at december 31 , 2013 . average number of days sales outstanding decreased to 28 days at december 31 , 2014 from 29 days at december 31 , 2013 . inventories inventories increased to $ 2.9 million at december 31 , 2014 from $ 1.7 million at december 31 , 2013 . the increase in inventory was primarily due to an increase in units associated with the co-development agreement . inventory turnover increased to 13.3 at december 31 , 2014 from 12.9 at december 31 , 2013 . inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter . capital resources short-term line of credit on december 21 , 2010 , we entered into a loan and security agreement ( the `` revolving loan agreement '' ) with silicon valley bank ( the `` bank '' ) . on december 14 , 2012 , we and the bank entered into amendment no . 1 ( the `` amendment no . 1 '' ) to the revolving loan agreement . the revolving loan agreement , as amended , provides a secured working capital-based revolving line of credit ( the `` revolving line '' ) in an aggregate amount of up to the lesser of ( i ) $ 10.0 million , or ( ii ) $ 1.0 million plus 80 % of eligible domestic accounts receivable and certain foreign accounts receivable . on december 4 , 2013 , we and the bank entered into amendment no . 2 ( the `` amendment no . 2 '' ) to the revolving loan agreement which changes the maturity date of the revolving line of credit provided pursuant to the revolving loan agreement to january 1 , 2016. the maturity date was previously december 14 , 2014 , as provided by amendment no . 1 to the revolving loan agreement . in addition , the revolving loan agreement , as amended , provides for non-formula advances of up to $ 10.0 million which may be made solely during the last five business days of any fiscal month or quarter and which must be repaid by the company on or before the fifth business day after the applicable fiscal month or quarter end . due to their repayment terms , non-formula advances do not provide the company with usable liquidity . 39 the revolving loan agreement , as amended , contains customary affirmative and negative covenants as well as customary events of default . the occurrence of an event of default could result in the acceleration of the company 's obligations under the revolving loan agreement , as amended , and an increase to the applicable interest rate , and would permit the bank to exercise remedies with respect to its security interest . as of december 31 , 2014 , we were in compliance with all of the terms of the revolving loan agreement , as amended . short-term borrowings outstanding under the revolving line consisted of non-formula advances of $ 3.0 million as of december 31 , 2014 and as of december 31 , 2013 , both advances were repaid within required terms . equity offering on august 21 , 2013 , we completed the sale of 3,024,500 shares of common stock , in an underwritten registered offering at a price to the public of $ 3.50 per share . net proceeds to the company , after deducting underwriting discounts and commissions and other expenses were approximately $ 9.6 million . liquidity as of december 31 , 2014 , we had no long-term debt , our short-term debt of $ 3.0 million was repaid within required terms and our cash and cash equivalents balance of $ 17.9 million was highly liquid .
| 2013 v. 2012 net revenue decreased $ 11.6 million , or 19 % , from 2012 to 2013. revenue related to ic product sales was $ 40.0 million and $ 54.7 million for 2013 and 2012 , respectively . revenue related to license of ip was $ 8.1 million and $ 5.0 million for 2013 and 2012 , respectively . the decrease related to ic product sales was primarily attributable to a 32 % decrease in units sold partially offset by a 7 % increase in asp . the decrease in units sold was primarily due to decreased sales into both the digital projector and advanced television markets , primarily due to the continued impact of the macro-economic environment on end market demand . the increase in asp was primarily due to increased sales of our ultra high definition advanced television product , as a percentage of our overall units sold , which has a higher asp than our other advanced television products . the license revenue recorded during 2013 was primarily due to achieving milestones under the licensing agreement entered into during 2013. licensing revenue recorded in 2012 related to licensing agreements that were entered into during 2011 and 2012 . 35 cost of revenue and gross profit cost of revenue and gross profit were as follows ( in thousands ) : replace_table_token_5_th 1 includes purchased materials , assembly , test , labor , employee benefits and royalties , all of which are related to sales of ic products . 2 includes charges to reduce inventory to lower of cost or market and a benefit for sales of previously written down inventory . 3 includes direct labor costs and allocated overhead associated with licensing agreements . 4 includes stock-based compensation and additional amortization of a non-cancelable prepaid royalty . 2014 v. 2013 cost of revenue increased to 48 % of revenue in 2014 from 45 % of revenue in 2013. the increase in cost of revenue as a percentage of revenue was due primarily to a
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third party products consist of revenue from the sale of hotel rooms , ground transportation ( rental cars and hotel shuttle products ) , attraction and show tickets , and fees we receive from other merchants selling products through our website : replace_table_token_10_th ( a ) includes payment expenses and travel agency commissions . 30 ancillary third party revenue increased $ 3.6 million in 2015 from 2014 . this was due primarily to the 16.7 percent increase in scheduled service passengers which drove a 31.5 percent increase in rental car days sold , mostly serving our east coast destinations . hotel room night sales have slowed in the current year mostly due to our network shift away from las vegas ( our largest hotel market ) to east coast cities where hotel room night sales are weaker . additionally , weakness in the canadian dollar has led to a decrease in canadian passengers who have historically comprised a significant percentage of our hotel room night sales . fixed fee contract revenue . fixed fee contract revenue for 2015 increased $ 2.3 million , or 13.5 percent , compared with 2014 , due to additional charter activity in the current year . other revenue . other revenue for 2015 increased $ 13.0 million compared with 2014 , primarily from aircraft lease revenue related to the 12 airbus a320 series aircraft acquired in june 2014 , which remain on lease to a european carrier . operating expenses we primarily evaluate our expense management by comparing our costs per passenger and per available seat mile ( `` asm '' ) across different periods , which enables us to assess trends in each expense category . the following table presents operating expense per passenger for the indicated periods . the table also presents operating expense per passenger , excluding fuel , a statistic which provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility . both the cost and availability of fuel are subject to many economic and political factors beyond our control . replace_table_token_11_th the following table presents unit costs on a per asm basis , or casm , for the indicated periods . as on a per-passenger basis , excluding fuel on a per asm basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility . replace_table_token_12_th 31 aircraft fuel expense . aircraft fuel expense for 2015 decreased $ 109.8 million , or 28.3 percent , compared with 2014 . the decrease was primarily the result of a 38.2 percent decrease in system average cost per gallon . this was offset by a 16.3 percent increase in system fuel gallons consumed . as we add additional airbus aircraft , which are more fuel efficient than our md-80 aircraft , we anticipate our fuel efficiency will continue to improve . airbus aircraft flew 32.6 percent of scheduled service asms in 2015 , compared to 21.1 percent in 2014. salary and benefits expense . excluding a one-time expense of $ 7.3 million related to the departure of our former president and coo in september 2014 , salary and benefits expense for 2015 increased $ 43.8 million , or 23.5 percent , compared with 2014 . the increase is primarily attributable to an 18.0 percent increase in the number of full-time equivalent employees ( `` ftes '' ) needed to support an 8.0 percent increase in average number of aircraft in service . in addition , a year over year increase in profitability drove a $ 15.1 million increase in our bonus accrual , and our pilots entered a higher pay-band in may 2015. salary and benefits expense on a per asm basis was relatively flat year over year . station operations expense . station operations expense for 2015 increased $ 17.6 million , or 20.8 percent on a 20.7 percent increase in scheduled service departures compared with the same period in 2014 . maintenance and repairs expense . maintenance and repairs expense for 2015 increased $ 5.8 million , or 6.7 percent compared with 2014 . the increase is due mostly to an 8.0 percent increase in the average number of operating aircraft in service . our total major maintenance events decreased by one when compared to 2014 due to the regular rotation of scheduled events for our md-80 aircraft ; additionally , the increase in average number of operating aircraft was related to airbus a320 series aircraft , which have yet to experience major maintenance events . sales and marketing expense . sales and marketing expense for 2015 decreased $ 7.1 million , or 25.1 percent , compared to 2014 , primarily due to a reduction in credit card fees paid by us . we implemented a credit card fee reimbursement charge , at zero margin , in the fourth quarter 2014 , which is applied as a reduction to this expense . aircraft lease rentals expense . aircraft lease rentals expense decreased $ 13.6 million for 2015 compared with 2014 , as our need for sub-service flights decreased in the current year . we do not currently lease any aircraft . depreciation and amortization expense . depreciation and amortization expense for 2015 increased $ 14.7 million , or 17.6 percent , compared with 2014 due mainly to an 8.0 percent increase in average number of operating aircraft ( all airbus aircraft ) , and was flat on a per asm basis . our airbus aircraft will continue to comprise a larger percentage of total depreciation expense as more are added to revenue service and as our md-80 fleet nears full depreciation . additionally , during the second quarter of 2014 , we began depreciating 12 airbus a320 series aircraft on lease to a european carrier , which are non-asm producing aircraft . other expense . story_separator_special_tag other expense for 2015 increased by $ 10.1 million , or 18.1 percent , compared with 2014 , due primarily to increased flight crew training needed to support our growing operating fleet , as well as expenses incurred to support improvement and development of our information technology initiatives . other ( income ) expense other expense for 2015 increased by $ 4.8 million compared with 2014 , due to additional interest expense from higher borrowings , primarily driven by the issuance of $ 300.0 million of senior unsecured notes which did not occur until june 2014. income tax expense our effective income tax rate remained relatively flat at 36.5 percent for 2015 compared to 37.1 percent for 2014 . while we expect our tax rate to be fairly consistent in the near term , it will vary depending on recurring items such as the amount of income we earn in each state and the state tax rate applicable to such income . discrete items during interim periods may also affect our tax rates . 2014 compared to 2013 operating revenue scheduled service revenue . scheduled service revenue for 2014 increased by $ 80.7 million , or 12.4 percent , compared with 2013. the increase was primarily driven by a 12.9 percent increase in scheduled service passengers , and a relatively flat 32 average base fare year over year . passenger growth was driven by a 12.5 percent increase in the number of scheduled service departures , as we increased the average number of aircraft in service by 9.4 percent from 2013. ancillary air-related revenue . ancillary air-related revenue for 2014 increased $ 43.8 million , or 15.2 percent , compared with 2013 , primarily due to the increase in scheduled service passengers and our optimization efforts related to certain ancillary products and fees . our efforts included a focus on seat assignment fees , priority boarding , and boarding pass printing fees , as well as certain policy initiatives such as trip cancellation and itinerary changes . ancillary third party revenue . the following table details the calculation of ancillary revenue from third party products . third party products consist of revenue from the sale of hotel rooms , ground transportation ( rental cars and hotel shuttle products ) , attraction and show tickets , and fees we receive from other merchants selling products through our website : replace_table_token_13_th ( a ) includes payment expenses and travel agency commissions . third party ancillary revenue decreased slightly in 2014 from 2013 , due to a decrease of 11.3 percent in hotel room nights sold , offset by an 8.5 percent increase in rental car days sold . the reduction in hotel room sales was driven by a decline in las vegas nights sold , primarily due to a 2013 change in a pre-purchase agreement for discounted room rates . the increase in rental car days sold was driven by an increase in scheduled service passengers to those markets where a higher percentage of rental car days are typically sold , such as florida and phoenix . fixed fee contract revenue . fixed fee contract revenue for 2014 remained relatively flat compared with 2013 as no significant changes were made to existing flying agreements . other revenue . other revenue for 2014 increased $ 16.9 million compared with 2013 , due mostly to aircraft lease revenue related to the 12 airbus a320 series aircraft acquired in june 2014 , which are on lease to a european carrier . 33 operating expenses we primarily evaluate our expense management by comparing our costs per passenger and per asms across different periods , which enables us to assess trends in each expense category . the following table presents operating expense per passenger for the indicated periods . replace_table_token_14_th the following table presents unit costs on a per asm basis , or casm , for the indicated periods . replace_table_token_15_th aircraft fuel expense . aircraft fuel expense for 2014 increased $ 2.7 million , or 0.7 percent , compared with 2013. we consumed 7.0 percent more system fuel gallons , which was offset by a 5.9 percent decrease in the average cost per gallon . fuel efficiency was positively impacted by a 2.6 percent increase in total system asms per gallon , to approximately 70 asms per gallon in 2014. salary and benefits expense . salary and benefits expense for 2014 increased $ 34.7 million , or 21.9 percent , compared with 2013. the increase is primarily attributable to a 16.8 percent increase in the number of full-time equivalent employees related to company growth , as well as crew training constraints that negatively affected our productivity . we also experienced a one-time expense in 2014 of $ 7.3 million related to the departure of our former president and coo . station operations expense . station operations expense for 2014 increased $ 6.4 million , or just 8.2 percent on a 12.5 percent increase in scheduled service departures . this was due to east coast network growth during 2014 as florida per-departure costs , on average , were 61.6 percent less than las vegas . maintenance and repairs expense . maintenance and repairs expense for 2014 increased $ 14.0 million , or 19.2 percent , compared with 2013. our major check expense related to our md-80 aircraft increased $ 5.5 million , or 22.9 in 2014 , resulting 34 from an approximate 30 percent increase in shop visits year over year , the majority of which were scheduled . additionally , the increase is partially due to a 9.4 percent increase in the average number of operating aircraft in service from the addition of airbus a320 series aircraft , which have yet to experience major maintenance events . sales and marketing expense . sales and marketing expense for 2014 increased $ 6.8 million , or 31.4 percent , compared with 2013. the increase is partially due to additional processing fees resulting from a shift to credit card usage from debit cards , and a 12.7 percent increase in total passenger revenue .
| million taken in 2014 , operating expense per available seat mile or `` casm '' decreased 19.2 percent in 2015 from 2014 , which was largely attributable to a drop in system average price per gallon . our strong liquidity position continues to provide us the ability to invest in the growth of our fleet while returning cash to shareholders . as of december 31 , 2015 , we have acquired 27 airbus a320 series aircraft , eight of which remain unencumbered . in addition , we also own 12 airbus a319 aircraft for future inclusion in our fleet , which are currently on lease to a european carrier . aircraft operating fleet the following table sets forth the number and type of aircraft in service and operated by us as of the dates indicated : replace_table_token_8_th ( 1 ) does not include aircraft acquired but not yet in revenue service or temporarily stored as of the date indicated . as of february 22 , 2016 , we have entered into purchase agreements for 11 additional airbus a320 series aircraft which we expect to be delivered in 2016 and 2017. we also have 12 airbus a319 aircraft on lease to a european carrier until 2018 , which we plan to subsequently add to our operating fleet . we believe our current fleet count , coupled with the purchase and acquisition of additional used airbus a320 series aircraft under contract , will meet our aircraft needs to support planned growth beyond 2017 . refer to part i - item 2-properties for further detail . we continuously consider other aircraft acquisitions on an opportunistic basis . network we use profitability management tools to manage capacity and route expansion through optimization of our flight schedule to , among other things , better match demand in certain markets . we continually adjust our network through the addition of new markets and routes , adjusting the frequencies into existing markets ,
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we review investment securities on an ongoing basis for the presence of other-than-temporary impairment ( otti ) or permanent impairment , taking into consideration current market conditions , fair value in relationship to cost , extent and nature of the change in fair value , issuer rating changes and trends , whether we intend to sell a security or if it is likely that we will be required to sell the security before recovery of our amortized cost basis of the investment , which may be maturity , and other factors . for debt securities , the classification of otti depends on whether we intend to sell the security or if it is more likely than not that we will be required to sell the security before recovery of its costs basis , and on the nature of the impairment . if we intend to sell a security or if it is more likely than not that we will be required to sell the security before recovery , an otti write-down is recognized in earnings equal to the entire difference between the security 's amortized cost basis and its fair value . if we do not intend to sell the security or it is not more likely than not that we will be required to sell the security before recovery , the otti write-down is separated into an amount representing credit loss , which is recognized in earnings , and the amount related to all other factors , which is recognized in other comprehensive income net of tax . a credit loss is the difference between the cost basis of the security and the present value of cash flows expected to be collected , discounted at the security 's effective interest rate at the date of acquisition . the cost basis of an other than temporarily impaired security is written down by the amount of impairment recognized in earnings . the new cost basis is not adjusted for subsequent recoveries in fair value . management does not believe that there are any investment securities that are deemed otti as of december 31 , 2013. income taxes in accordance with the provisions of fasb asc 740 , the company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations , and records adjustments as appropriate . this review takes into consideration the status of current taxing authorities ' examinations of the company 's tax returns , recent positions taken by the taxing authorities on similar transactions , if any , and the overall tax environment . as of each reporting date , management considers the realization of deferred tax assets based on management 's judgment of various future events and uncertainties , including the timing and amount of future income , as well as the implementation of various tax planning strategies to maximize realization of deferred tax assets . a valuation allowance is provided when it is more likely than not that some portion of deferred tax assets will not be realized . as of december 31 , 2013 , management determined that no valuation allowance for deferred tax assets is required , as management believes it is more likely than not that deferred tax assets will be realized principally through future reversals of existing taxable temporary differences . management further believes that future taxable income will be sufficient to realize the benefits of temporary deductible differences that can not be realized through carry-back to prior years or through the reversal of future temporary taxable differences . income taxes are discussed in more detail in notes to consolidated financial statements , note 1 summary of significant accounting policies and note 8 income taxes presented elsewhere herein . 37 executive overview for the years ended december 31 , 2013 , 2012 and 2011 , we recognized net income of $ 39.9 million , $ 90.4 million and $ 28.1 million , respectively . the decrease in net income for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 was primarily attributable to the absence of the reversal of the deferred tax asset ( dta ) valuation allowance , which contributed an income tax benefit of $ 47.4 million in 2012. for the years ended december 31 , 2013 , 2012 and 2011 , our earnings per diluted share were $ 1.26 , $ 2.87 and $ 1.38 , respectively . significant financial highlights include : total assets increased 6.0 percent to $ 3.06 billion at december 31 , 2013 , compared to $ 2.88 billion at december 31 , 2012 , resulting from increases in investment portfolio and gross loans . with new loan growth across the portfolio , particularly in commercial and industrial loans , gross loans increased by $ 185.5 million , or 9.1 percent , to $ 2.23 billion as of december 31 , 2013 , compared to $ 2.05 billion as of december 31 , 2012. during 2012 , gross loans decreased by $ 109.8 million , or 5.7 percent , compared to $ 1.94 billion as of december 31 , 2011. asset quality improved in all major aspects as of december 31 , 2013 compared to december 31 , 2012. non-performing assets declined to 0.87 percent of total assets as of december 2013 from 1.32 percent of total assets as of december 31 , 2012. net loss on sales of other loans was $ 557,000 for the year ended december 31 , 2013 , compared to $ 9.5 million for the year ended december 31 , 2012. classified loans were $ 80.3 million , or 3.6 percent of gross loans , at december 31 , 2013 , down from $ 100.4 million , or 4.9 percent , at december 31 , 2012. net income was $ 39.9 million , or $ 1.26 per diluted share , for the year ended december 31 , 2013 , compared to $ 90.4 million , or $ 2.87 per diluted share , for the year ended december 31 , 2012 , which included $ 47.4 million net story_separator_special_tag tax benefit from the dta valuation allowance reversal . net interest margin continued to increase year over year . for the year ended december 31 , 2013 , net interest margin was 4.05 percent , increases of 28 and 37 basis points compared to 3.77 percent and 3.68 percent for the years ended december 31 , 2012 and 2011 , respectively . operating efficiency improved to 55.80 percent for the year ended december 31 , 2013 , from 61.07 percent for the year ended december 31 , 2012 and 67.22 percent for the year ended the december 31 , 2011 , reflecting higher revenues . cash dividends of $ 0.07 per share of common stock were paid on december 23 and september 17 , 2013. story_separator_special_tag new roman '' > provision for credit losses in anticipation of credit risks inherent in our lending business , we set aside allowance for loan losses through charges to earnings . these charges are made not only for our outstanding loan portfolio , but also for off-balance sheet items , such as commitments to extend credit , or letters of credit . the charges made for our outstanding loan portfolio are recorded to the allowance for loan losses , whereas charges for off-balance sheet items are recorded to the reserve for off-balance sheet items , and are presented as a component of other liabilities . net charge-offs decreased by $ 27.5 million , or 81.3 percent , to $ 6.3 million for the year ended december 31 , 2013 from $ 33.8 million for the year ended december 31 , 2012 , and decreased by $ 34.9 million , or 50.8 percent , for the year ended december 31 , 2012 from $ 68.7 million for the year ended december 31 , 2011. non-performing loans decreased by $ 11.4 million , or 30.6 percent , to $ 25.9 million for the year ended december 31 , 2013 from $ 37.3 million for the year ended december 31 , 2012 , and decreased by $ 15.1 million , or 28.8 percent , for the year ended december 31 , 2012 from $ 52.4 million for the year ended december 31 , 2011. all other credit metrics also experienced improvements as the quality of the loan portfolio improved . therefore , provision for credit losses was zero for the year ended december 31 , 2013 , compared to $ 6.0 million for the year ended december 31 , 2012. see non-performing assets and allowance for loan losses and allowance for off-balance sheet items for further details . non-interest income the following table sets forth the various components of non-interest income for the years indicated : replace_table_token_11_th for the year ended december 31 , 2013 , non-interest income was $ 31.4 million , an increase of $ 6.6 million , or 26.6 percent , from $ 24.8 million for the year ended december 31 , 2012. this increase was primarily attributable to an $ 8.9 million decrease in net loss on sales of other loans , mainly offset by a $ 1.9 million decrease in gain on sales of the guaranteed portion of sba loans . service charges on deposit accounts , which represent 36.0 percent of total non-interest income for the year ended december 31 , 2013 , decreased to $ 11.3 million for the year ended december 31 , 2013 , compared with $ 12.1 million for the year ended december 31 , 2012 , due mainly to a decrease in non-sufficient fund charges . gain on sales of the guaranteed portion of sba loans for the year ended december 31 , 2013 totaled $ 8.0 million , or 25.5 percent of total non-interest income . insurance commissions increased $ 390,000 , or 8.0 percent , to $ 5.2 million for the year ended december 31 , 2013 from $ 4.9 million for the year ended december 31 , 2012. for the year ended december 31 , 2012 , non-interest income was $ 24.8 million , an increase of $ 961,000 , or 4.0 percent , from $ 23.9 million for the year ended december 31 , 2011. the increase in non-interest income for 2012 was primarily attributable to a gain from selling the guaranteed portion of sba loans , partially offset by a net loss recognized from selling other loans . gain from selling the guaranteed portion of sba loans for the year ended december 31 , 2012 totaled $ 9.9 million , or 40.0 percent of total non-interest income , a $ 5.4 million increase from $ 4.5 million for the year ended december 31 , 2011. however , net loss on sales of other loans increased to $ 9.5 million for the year ended december 31 , 2012 from $ 6.0 million for the year ended december 31 , 2011. this increase was a result of management 's effort to reduce problem and non-performing assets . the other large source of non-interest income for the year ended december 31 , 2012 was service charges on deposit accounts , which represented 49.0 percent of total non-interest income for the year ended december 31 , 2012. service charge income decreased to $ 12.1 million for the year ended december 31 , 2012 , compared with $ 12.8 million for the year ended december 31 , 2011 , due mainly to a decrease in number of non-interest bearing demand deposit accounts . 41 non-interest expense the following table sets forth the breakdown of non-interest expense for the years indicated : replace_table_token_12_th for the year ended december 31 , 2013 , non-interest expense was $ 78.2 million , an increase of $ 1.4 million , or 1.8 percent , compared to $ 76.9 million for the year ended december 31 , 2012. the increase was due primarily to the increases in salaries and employee benefits , and professional fees , mainly offset by the decrease in deposit insurance premiums and regulatory assessments . professional fees increased $ 2.7 million , 57.7 percent , to $ 7.4 million for the year ended december 31 , 2013 from $ 4.7
| ( 3 ) represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . ( 4 ) represents net interest income as a percentage of average interest-earning assets . the table below shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated . the variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate . 39 replace_table_token_10_th for the years ended december 31 , 2013 , 2012 and 2011 , net interest income before provision for credit losses on a tax-equivalent basis was $ 109.0 million , $ 101.3 million and $ 101.3 million , respectively . the increase in net interest income in 2013 , as compared to 2012 , was primarily attributable to an increase in average gross loans , a decline in jumbo time deposits , lower deposit costs resulting from the replacement of high-cost time deposits with low-cost deposit products , and a decrease in interest expense from the full redemption of $ 80 million of trust preferred securities ( tps ) . net interest income remained stable for the years ended december 31 , 2012 and 2011 due to the decrease in interest income , which was primarily offset by the decrease in interest expense . the decrease in interest income was due primarily to declines in average gross loans and loan yields , and a decrease in other debt securities yield . this decrease was primarily offset in the interest expense by lower deposit costs resulting from the replacement of high-cost promotional time deposits with low-cost deposits . the net interest spread and net interest margin for the year ended december 31 , 2013 were 3.76 percent and 4.05 percent , respectively , compared to 3.40 percent and
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in north america and south korea , we also see store growth opportunities with our g by guess concept . we will continue to regularly assess and implement initiatives that we believe will build brand equity , grow our business and enhance long-term profitability in each region , including investing in advertising and marketing programs to build awareness and drive customer traffic to our stores and websites . in europe , over the long-term , we will continue to focus on developing new markets in northern and eastern europe where our brand is well known but still under-penetrated and expand on our success in western and southern europe . in fiscal 2012 , we have made significant progress on developing important european markets such as germany , russia , portugal and the netherlands . we have flagship stores in key cities such as paris , barcelona , dusseldorf , london and milan . together with our licensee partners , we opened 120 stores during fiscal 2012 and we plan to continue our international expansion in europe by opening approximately 90 retail stores in fiscal 2013 , about one third of which will be operated directly by us . our north american retail growth strategy is to increase retail sales and profitability by expanding our network of retail stores and improving the productivity and performance of existing stores . we will continue to emphasize our newer g by guess store concept and our e-commerce channel . during fiscal 2012 , we opened 37 retail stores and we currently plan to open approximately 35 retail stores across all 30 concepts in the u.s. and canada during fiscal 2013 , with roughly half under the g by guess brand . in addition , we plan to remodel key existing locations as part of the roll-out of our new store designs . in february 2011 , we opened our largest flagship store in the world in new york city with over 13,000 square feet . we see significant market opportunities in asia and we are dedicating capital and human resources to support the region 's growth and development . we and our partners opened flagship stores in key cities such as seoul , shanghai , hong kong , macau , taipei and beijing and we have partnered with licensees to develop our business in the second tier cities in this region . during fiscal 2012 , we also launched our newer g by guess store concept in south korea where we have 47 locations as of january 28 , 2012. our strategy in south korea , with a combined 283 stores and concessions at january 28 , 2012 , is to continue to improve productivity and expand distribution for both our guess ? and g by guess branded locations . we and our partners opened 89 stores and 107 concessions during fiscal 2012 across all of asia and plan to open between 140 and 150 retail stores and concessions combined across all concepts in asia during fiscal 2013. the company 's investments in capital for the full fiscal year 2013 are planned between $ 130 million and $ 145 million ( after deducting estimated lease incentives of approximately $ 10 million ) . the planned investments in capital are primarily for expansion of our retail businesses in north america and europe and store remodeling programs in north america . other the company reports national retail federation ( `` nrf '' ) calendar comparable store sales on a quarterly basis for our stores in the u.s. and canada . a store is considered comparable after it has been open for 13 full months . if a store remodel results in a square footage change of more than 15 % , or involves a relocation or a change in store concept , the store is removed from the comparable store base until it has been opened at its new size , in its new location or under its new concept for 13 full months . story_separator_special_tag at january 28 , 2012 , we directly operated 504 stores in the u.s. and canada compared to 481 stores as of january 29 , 2011. north american retail earnings from operations increased by $ 10.6 million , or 8.6 % , to $ 133.2 million for the year ended january 28 , 2012 , compared to $ 122.6 million in the prior year . operating margin improved by 40 basis points to 11.9 % for the year ended january 28 , 2012 , compared to 11.5 % for the year ended january 29 , 2011 , driven by higher product margins and a lower sg & a rate . the product margin improvement resulted from lower markdowns and selective price increases , partially offset by the negative impact of product cost inflation . the lower sg & a rate was driven mainly by the leveraging of store selling expenses . these increases were partially offset by occupancy deleverage , given the negative comparable store sales , and the prior year positive revenue impact of the revision in the estimated liability from the company 's loyalty program . asia in asia , revenue increased by $ 49.8 million , or 24.8 % , to $ 250.7 million for the year ended january 28 , 2012 , compared to $ 200.9 million in the prior year . in constant dollars , net revenues increased by 21.2 % over the prior year . all of our asian businesses contributed to this growth , led by our south korea and greater china businesses . we continued to expand our operations in the region , where we and our partners opened 89 stores and 107 concessions during the year ended january 28 , 2012. earnings from operations from our asia segment decreased slightly to $ 28.5 million for the year ended january 28 , 2012 , compared to $ 28.6 million in the prior year . operating margin declined 290 basis points to 11.4 % for the year ended january 28 , 2012 , compared to 14.3 % for the prior year . story_separator_special_tag the decrease was driven by a higher sg & a rate due to a larger store base and higher infrastructure investments to support our future growth in this region . in addition , gross margins were lower mainly due to higher promotional sales and channel mix in south korea . north american wholesale our north american wholesale segment revenue increased by $ 6.4 million , or 3.5 % , to $ 187.4 million for the year ended january 28 , 2012 , from $ 181.0 million in the prior year . in constant dollars , net revenues increased by 2.4 % . during the year ended january 28 , 2012 , higher revenues from our canadian and mexican wholesale businesses were partially offset by lower revenues in our u.s. wholesale business . north american wholesale earnings from operations increased by $ 1.0 million , or 2.2 % , to $ 47.2 million for the year ended january 28 , 2012 , compared to $ 46.2 million in the prior year . operating margin decreased by 30 basis points to 25.2 % for the year ended january 28 , 2012 , compared to 25.5 % for the year ended january 29 , 2011 , due primarily to increased distribution costs . licensing our licensing royalty revenues increased by $ 6.2 million , or 5.4 % , to $ 121.4 million compared to $ 115.2 million in the prior year , driven by royalties from higher sales in our footwear , eyewear and watches categories , partially offset by lower sales in handbags . earnings from operations increased by $ 4.4 million 33 to $ 108.6 million for the year ended january 28 , 2012 , compared to $ 104.2 million for the year ended january 29 , 2011. corporate overhead corporate overhead expenses decreased by $ 3.0 million , or 3.3 % , to $ 87.2 million for the year ended january 28 , 2012 , from $ 90.2 million in the prior year . the decrease was due primarily to the net impact of higher curtailment expense recorded in the prior year . global store count in fiscal 2012 , together with our partners , we opened 261 new stores worldwide , consisting of 120 stores in europe and the middle east , 89 stores in asia , 37 stores in the u.s. and canada and 15 stores in central and south america . together with our partners we closed 75 stores worldwide , including 33 stores in europe and the middle east , 23 stores in asia , 14 stores in the u.s. and canada and five stores in central and south america . we ended fiscal 2012 with 1,559 stores worldwide , comprised as follows : replace_table_token_9_th this store count does not include 349 concessions located primarily in south korea and greater china because of their smaller store size in relation to our standard international store size . of the total 1,559 stores , 1,067 were guess ? stores , 302 were guess ? accessories stores , 100 were guess by marciano stores and 90 were g by guess stores . critical accounting policies and estimates the consolidated financial statements are prepared in conformity with accounting principles generally accepted in the u.s. , which require management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . management bases its estimates and judgments on its historical experience and other relevant factors , 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 evaluates its estimates and judgments on an ongoing basis including those related to the valuation of inventories , accounts receivable allowances , sales return allowances , loyalty and gift card accruals , the useful life of assets for depreciation , restructuring expense and accruals , evaluation of asset impairment , recoverability of deferred taxes , unrecognized tax benefits , workers compensation and medical self-insurance expense and accruals , litigation reserves , pension obligations and share-based compensation . the company believes that the following significant accounting policies involve a higher degree of judgment and complexity . in addition to the accounting policies mentioned below , see note 1 to the consolidated financial statements for other significant accounting policies . 34 accounts receivable reserves in the normal course of business , the company grants credit directly to certain wholesale customers after a credit analysis is performed based on financial and other criteria . accounts receivable are recorded net of an allowance for doubtful accounts . the company maintains allowances for doubtful accounts for estimated losses that result from the inability of its wholesale customers to make their required payments . the company bases its allowances on analysis of the aging of accounts receivable at the date of the financial statements , assessments of historical collection trends , an evaluation of the impact of current economic conditions and whether the company has obtained credit insurance or other guarantees . costs associated with customer markdowns are recorded as a reduction to revenues , and any unapplied amounts are included in the allowance for accounts receivable . historically , these markdown allowances resulted from seasonal negotiations with the company 's wholesale customers , as well as historical trends and the evaluation of the impact of economic conditions . sales returns reserves the company accrues for estimated sales returns in the period in which the related revenue is recognized . to recognize the financial impact of sales returns , the company estimates the amount of goods that will be returned based on historical experience and reduces sales and cost of sales accordingly based on historical return experience . the company 's policy allows retail customers in certain regions a grace period to return merchandise following the date of sale .
| gross margin ( gross profit as a percentage of total net revenues ) declined 50 basis points to 43.3 % for the year ended january 28 , 2012 , compared to 43.8 % in the prior year , due to a higher occupancy rate partially offset by higher overall product margins . 31 selling , general and administrative ( `` sg & a '' ) expenses increased 9.8 % to $ 746.3 million for the year ended january 28 , 2012 , compared to $ 679.8 million in the prior year . sg & a expenses as a percentage of revenues ( `` sg & a rate '' ) increased by 50 basis points to 27.8 % for the year ended january 28 , 2012 , compared to 27.3 % in the prior year . in addition to sg & a expenses described above , the company recorded the $ 19.5 million settlement charge and a $ 1.2 million pre-tax supplemental executive retirement plan ( `` serp '' ) curtailment expense during fiscal 2012. in fiscal 2011 , the company recorded a $ 5.8 million pre-tax serp curtailment expense . earnings from operations decreased 1.8 % to $ 397.2 million for the year ended january 28 , 2012 , compared to $ 404.6 million in the prior year . operating margin declined 150 basis points to 14.8 % for the year ended january 28 , 2012 , compared to 16.3 % in the prior year . the settlement charge negatively impacted the operating margin in fiscal 2012 by 70 basis points . other income , net , ( including interest income and expense ) totaled $ 2.1 million for the year ended january 28 , 2012 , compared to other income , net , of $ 16.7 million in the prior year . the effective income tax rate increased 210 basis points to 32.2 % for the year ended january 28 , 2012 , compared to 30.1 % in the prior year . the company had $ 491.8 million in cash and cash equivalents as of january 28 , 2012 , up $ 64.8 million , compared to $ 427.0 million as of january 29 , 2011. the company invested $ 92.0 million to repurchase approximately 3.2 million shares of its common stock during the fourth quarter of fiscal 2012. accounts receivable , which relates primarily to
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the acquisition continues our focus on expanding management services and software-as-a-service solutions , which allows us to provide more value to our customers by optimizing devices , network technologies , outcomes and analytics . upon acquisition , ssni changed its name to itron networked solutions , inc. ( ins ) , and initially operated separately as our networks operating segment . subsequent to the october 1 , 2018 reorganization , the prior networks operating segment was integrated into the new networked solutions and outcomes operating segments . in order to facilitate the funding of the acquisition of ssni , we entered into a $ 1.2 billion senior secured credit facility ( the 2018 credit facility ) , which amended and restated our existing senior secured credit facility . the 2018 credit facility consists of a $ 650 million u.s. dollar term loan and a multicurrency revolving line of credit with a principal amount of up to $ 500 million . we also issued $ 300 million of 5 % senior notes on december 22 , 2017 to fund this acquisition . on january 19 , 2018 , we issued an additional $ 100 million of 5 % senior notes . for additional information regarding our 2018 credit facility and senior notes , refer to item 8 : `` financial statements and supplementary data , note 6 : debt '' . we are also implementing an integration plan associated with this acquisition . for the year ended december 31 , 2018 , we recognized $ 91.9 million of acquisition and integration related expenses . we estimate annualized savings of $ 50 million at the conclusion of the integration plan , which we expect to substantially complete by the end of 2020. for further discussion of the acquisition , refer to item 8 : `` financial statements and supplementary data , note 17 : business combinations '' . 2018 restructuring projects on february 22 , 2018 , our board of directors approved a restructuring plan ( 2018 projects ) to continue our efforts to optimize our global supply chain and manufacturing operations , research and development , and sales and marketing organizations . we expect to substantially complete the plan by the end of 2020. we recognized restructuring expense of $ 78.1 million related to the 2018 projects during the year ended december 31 , 2018 , and we anticipate an additional $ 20.6 million to be recognized in future periods . at the conclusion of the 2018 projects , we anticipate annualized savings of $ 45 million to $ 50 million . for further discussion of restructuring activities , refer to item 8 : `` financial statements and supplementary data , note 13 : restructuring '' . 23 total company gaap and non-gaap highlights and unit shipments replace_table_token_3_th ( 1 ) these measures exclude certain expenses that we do not believe are indicative of our core operating results . see pages 40-42 for information about these non-gaap measures and reconciliations to the most comparable gaap measures . 24 endpoints summary our revenue is driven significantly by sales of endpoints . we classify our endpoints into two categories : standard endpoints – an itron product with no built-in remote reading communication technology , which is delivered primarily via our device solutions segment . the majority of our standard devices are used for delivery and metrology in the electricity , water , and gas distribution industries . networked endpoints – an itron product with one-way communication or two-way communication of data including remote device configuration and upgrade ( consisting primarily of our openway® or gen x technology ) . this primarily includes itron devices used in electricity , water , and gas distribution industries that are delivered via our networked solutions segment . networked endpoints also include smart communication modules and network interface cards ( nics ) . nics are communicating modules that can be sold separately from the device directly to our customers or to third party manufacturers for use in endpoints such as electric , water , and gas meters ; streetlights and smart city devices ; sensors or another standard device that the end customer would like to connect to our openway or gen x networked solutions . these endpoints are primarily delivered via our networked solutions segment . a summary of our endpoints shipped is as follows : replace_table_token_4_th results of operations revenues and gross margin the actual results and effects of changes in foreign currency exchange rates in revenues and gross profit were as follows : replace_table_token_5_th ( 1 ) constant currency change is a non-gaap financial measure and represents the total change between periods excluding the effect of changes in foreign currency exchange rates . revenues revenues increased $ 357.9 million in 2018 , compared with 2017 of which $ 353.0 million is related to our acquisition of ssni . product revenues increased $ 281.5 million in 2018 , primarily in north america as a result of the ssni acquisition as well as in our europe , middle east , and africa ( emea ) region . this was partially offset by reduced product revenues in our latin america and asia pacific regions during 2018. service revenues increased $ 76.4 million in 2018 as compared with 2017 , which was 25 primarily driven by north america including the addition of ssni . changes in currency exchange rates favorably impacted revenues by $ 15.9 million in 2018. revenues increased $ 5.0 million in 2017 compared with 2016. product revenues decreased $ 16.1 million in 2017 primarily in our north america and europe , middle east , and africa ( emea ) regions . this was partially offset by improved product revenues in our latin america and asia pacific regions during 2017. service revenues increased $ 21.2 million in 2017 as compared with 2016 , which was primarily driven by comverge service revenues of $ 19.6 million . story_separator_special_tag changes in currency exchange rates favorably impacted revenues by $ 11.6 million in 2017. a more detailed analysis of these fluctuations , including analysis by segment , is provided in story_separator_special_tag ( 1 ) constant currency change is a non-gaap financial measure and represents the total change between periods excluding the effect of changes in foreign currency exchange rates . revenues - 2018 vs. 2017 revenues increased by $ 50.5 million in 2018 , or 6 % , compared with 2017 . this was a result of an increased meter deployment in emea and increased product sales in latin america . the improvements were partially offset by a decline in product sales in north america . revenues - 2017 vs. 2016 revenues decreased by $ 30.6 million in 2017 , or 3 % , compared with 2016 . this was a result of completion of various contracts in north america and emea partly offset by increased product revenue in emea . gross margin - 2018 vs. 2017 gross margin was 20.1 % in 2018 , compared with 24.5 % in 2017 . the 440 basis point deterioration compared with the prior year was due to unfavorable product mix , supply chain transition inefficiencies , increased component costs , as well as higher warranty charges in 2018. gross margin - 2017 vs. 2016 gross margin was 24.5 % in 2017 , compared with 25.5 % in 2016 . the 100 basis point deterioration over the prior year was primarily the result of unfavorable product mix . operating expenses - 2018 vs. 2017 operating expenses decreased $ 0.7 million , or 1 % . the decrease was primarily due to lower product development expense . operating expenses - 2017 vs. 2016 operating expenses increased by $ 2.3 million , or 4 % . the increase was primarily due to higher product marketing expense partially offset by lower product development expense . 29 networked solutions : the effects of changes in foreign currency exchange rates and the constant currency changes in certain networked solutions segment financial results were as follows : replace_table_token_10_th ( 1 ) constant currency change is a non-gaap financial measure and represents the total change between periods excluding the effect of changes in foreign currency exchange rates . revenues - 2018 vs. 2017 revenues increased by $ 276.8 million , or 29 % , in 2018 compared with 2017 . this increase in revenues was primarily related to the acquisition of ssni , partially offset by decrease in product revenue due to completion of significant projects in the prior year . revenues - 2017 vs. 2016 revenues increased by $ 7.7 million , or 1 % , in 2017 compared with 2016. this increase in revenue was primarily driven by increase in smart metering revenues in north america , partially offset by the completion of significant projects in the prior year . gross margin - 2018 vs. 2017 gross margin was 39.4 % in 2018 , compared with 43.5 % in 2017 . the decrease of 410 basis points was driven by unfavorable product mix , as well as higher warranty expenses in 2018 due to the insurance recovery received in 2017. gross margin - 2017 vs. 2016 gross margin was 43.5 % in 2017 , compared with 40.3 % in 2016 . the increase of 320 basis points was primarily driven by favorable product mix as well as lower warranty expenses due to the insurance recovery received in 2017. operating expenses - 2018 vs. 2017 operating expenses increased by $ 31.7 million , or 35 % , in 2018 . the increase was primarily due to higher product development expenses due to our acquisition of ssni in 2018. operating expenses - 2017 vs. 2016 operating expenses increased by $ 2.9 million , or 3 % in 2017 . the increase in product marketing and product development was related to variable compensation and professional service expenses . 30 outcomes : the effects of changes in foreign currency exchange rates and the constant currency changes in certain outcomes segment financial results were as follows : replace_table_token_11_th ( 1 ) constant currency change is a non-gaap financial measure and represents the total change between periods excluding the effect of changes in foreign currency exchange rates . revenues - 2018 vs. 2017 revenues increased $ 30.7 million , or 16 % , in 2018 . this increase was primarily due to the acquisition of ssni and a full year of revenue incurred from the acquisition of peak holding corp. ( comverge ) . this increase was partially offset by decrease in service revenue in emea and north america . revenues - 2017 vs. 2016 revenues increased $ 27.9 million , or 17 % , in 2017 . this was the result of increased revenue in north america due to the comverge acquisition . this was partially offset by decline in service revenues in emea . gross margin - 2018 vs. 2017 gross margin increased to 27.7 % in 2018 , compared with 25.4 % in 2017 . the 230 basis point increase was driven by the acquisition of ssni and partially offset by lower margin services in emea and north america . gross margin - 2017 vs. 2016 gross margin decreased to 25.4 % in 2017 , compared with 32.0 % in 2016 . the 660 basis point decrease was driven by an increase in investment spending within managed services to support growth initiatives and a decline in services in emea . operating expenses - 2018 vs. 2017 operating expenses increased $ 1.1 million , or 3 % , in 2018 . the increase was due to higher product development expense . operating expenses - 2017 vs. 2016 operating expenses increased by $ 7.8 million , or 22 % in 2017 . the increase was primarily due to higher product marketing and product development expense related to the comverge acquisition . 31 corporate unallocated : operating expenses not directly associated with an operating segment are classified as `` corporate unallocated . ''
| this was primarily due to increased restructuring expense following the announcement of the 2018 projects in the first quarter of 2018 , increased acquisition and integration related expenses included within sales , general and administrative expenses , and increased amortization of intangible asset and research and development expenses associated with the ssni acquisition . these increases were partially offset by reduced variable compensation expense in 2018. operating expenses were favorably impacted by $ 7.4 million due to the effect of changes in foreign currency exchange rates . operating expenses decreased $ 39.7 million for the year ended december 31 , 2017 as compared with the same period in 2016 . this was primarily related to a decrease of $ 42.7 million in restructuring expense , partially offset by $ 5.7 million in higher sales , general and administrative expenses . other income ( expense ) the following table shows the components of other income ( expense ) : replace_table_token_7_th total other income ( expense ) for the year ended december 31 , 2018 was a net expense of $ 59.5 million compared with $ 20.3 million in 2017 . the increases were related to the increase in interest expense and amortization of prepaid debt fees as a result of the funding from the 2018 credit facility and senior secured notes . in 2018 , we had reduced losses , classified within other income ( expense ) , resulting from foreign currency exchange fluctuations from transactions denominated in a currency other than our various subsidiary entities ' functional currencies . total other income ( expense ) for the year ended december 31 , 2017 was a net expense of $ 20.3 million compared with an expense of $ 16.4 million in 2016. the change for the year ended december 31 , 2017 as compared with 2016 was due to fluctuations in the recognized foreign currency exchange gains and losses due to transactions denominated in a currency other than an entity 's functional currency . income tax provision our income tax provision ( benefit ) was
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as previously disclosed in a form 8-k/a filed with the securities and exchange commission on march 15 , 2012 , the company agreed to settle a legal dispute relating to insurance coverage and received $ 4,700,000 as part of the settlement during that same month . this receipt was all recorded as income during the first quarter of 2012. there was no comparable event during 2013 , and thus the change between periods is $ 4,700,000. this event also impacted incentive compensation , which is included in the general and administrative expenses , and income tax expenses , increasing both significantly compared to this year . engineering expense . engineering expenses consist of development expenses associated with the development of new products , and costs related to enhancements of existing products and manufacturing processes . engineering expenses have increased $ 161,000 between periods , as they were $ 2,758,000 during 2013 , and $ 2,597,000 in 2012. engineering expenses as a percentage of sales were 3.6 % for the year ended december 31 , 2013 , and were 4.1 % for the full year of 2012. operating profit . reflecting all of the factors mentioned above , operating profits increased $ 4,301,000 or 40 % , ending with a profit of $ 15,048,000 for 2013 , compared to $ 10,747,000 in 2012. excluding the insurance legal recovery and the uk settlement discussed above , less their applicable auxiliary costs , operating profits were actually higher by 90.6 % versus the prior year . interest income ( expense ) . interest income is recorded on cash investments , and interest expense is recorded at times when the company has debt amounts outstanding on its line of credit . the net interest income was nominal during 2013 and 2012 , and both periods had similar amounts of income . other income ( expense ) . other income ( expense ) primarily consists of foreign currency exchange gains ( losses ) on transactions with omega flex limited , our u.k. subsidiary . income tax expense . income tax expense was $ 4,891,000 in 2013 , compared to $ 4,046,000 for the same period in 2012 , increasing by $ 845,000 , largely in correlation with the change in income before taxes . the company 's effective tax rate in 2013 was 33 % of pretax income compared to 37 % in 2012. the rates in both years do not differ materially from expected statutory rates , based upon the jurisdictions in which the income was earned . commitments and contingencies see note 11 to the company 's financial statements for a detailed description of commitments and contingencies . future impact of known trends or uncertainties the company 's operations are sensitive to a number of market and extrinsic factors , any one of which could materially adversely affect its results of operations in any given year : construction activity the company is directly impacted by the level of single family and multi-family residential housing starts and , to a lesser extent , commercial construction starts . the construction industry can be cyclical , shifting upwards and downwards depending on a variety of factors . after a few years of significant building , the united states construction industry appeared to hit a peak in 2006. low interest rates and easy availability of credit , contributed to a high level of construction activity . however , following that period , the industry experienced a significant deterioration in demand for residential , commercial and institutional construction . some of the factors that influenced the decline include : · the crisis in the financial markets reduced the availability of financing for new construction , especially large projects · foreclosures had increased the inventory of available residential housing , thereby decreasing the demand for new construction , and -16- · consumer demand and confidence declined as a result of reduced economic activity and increased unemployment . during 2012 and 2013 , the construction activity appeared to reflect a recovery , and has shown upward mobility . statistics provided by the national association of home builders suggests housing starts will continue to increase during the coming year . however , any significant decrease in residential construction activity may materially adversely affect the company 's financial condition . technological changes although the hvac industry has historically been impacted by technology changes in a relatively incremental manner , it can not be discounted that radical changessuch as might be suggested by fuel cell technology , burner technology and or other developing technologies which might impact the use of natural gascould materially adversely affect the company 's results of operations and or financial position in the future . weather conditions the company 's flagship tracpipe ® and counterstrike ® products are used in residential and commercial heating applications . as such , the demand for its products is impacted by weather as it affects the level of construction . furthermore , severe climatic changes , such as those suggested by the global climate change phenomenon , could over time adversely affect the demand for fossil fuel heating products and adversely affect the company 's results of operations and financial position . purchasing practices it has been the company 's policy in recent years to aggregate purchase volumes for high value commodities with fewer vendors to achieve maximum cost reductions while maintaining quality and service . this policy has been effective in reducing costs , but has introduced additional risk which could potentially result in short-term supply disruptions or cost increases from time to time in the future if one of the company 's key vendors experiences any catastrophic event , such as bankruptcy . legal costs the company is subject to lawsuits mostly relating to claims of product liability . the company has in place insurance policies to cover the defense of most of these cases , and any amounts payable with respect thereto , are typically subject to deductibles or self-insured retention amounts that vary depending on the policy year . story_separator_special_tag the company is vigorously defending these cases , and in 2013 was successful in obtaining a couple favorable outcomes . however , continued litigation and the defense costs associated therewith , in addition to any other payments made , could affect the company 's results of operations , perhaps materially , and could potentially inhibit the company from obtaining insurance in the future through mainstream markets at an affordable price . supply disruptions and commodity risks the company uses a variety of materials in the manufacture of its products , including stainless steel , polyethylene and brass for its autoflare ® connectors . in connection with the purchase of commodities , principally stainless steel for manufacturing requirements , the company occasionally enters into one-year purchase commitments which include a designated fixed price or range of prices . these agreements sometimes require the company to accept delivery of the commodity in the quantities committed , at the agreed upon prices . transactions required for these commodities in excess of the one year commitments are conducted at current market prices at the company 's discretion . currently , the company does not have any fixed purchase commitment contracts , but may enter into such transactions in the future . management believes at present that it has adequate sources of supply for its raw materials and components ( subject to the risks described above under purchasing practices ) and has historically not had significant difficulty in obtaining the raw materials , component parts or finished goods from its suppliers . the company is not dependent for any commodity on a single supplier , the loss of which would have a material adverse effect on its business . interest rate sensitivity - the company currently has access to a $ 10,000,000 line of credit ( loc ) with santander bank , formerly sovereign bank , na ( sovereign ) , and as of december 31 , 2013 , has no outstanding amounts due on the line . when the company borrows against the loc , all amounts must be paid back with interest , using an interest rate range of libor plus 1.75 % to libor plus 2.75 % or prime less 0.50 % to prime plus 0.50 % , depending upon the company 's then existing financial ratios . the company may elect to use either the libor or prime rates . as of december 31 , 2013 , the actual rate to borrow was at approximately 2.00 % . interest rates are also significant to the company as a participant in the residential construction industry , since interest rates can be a determinant factor on whether or not borrowing funds for building will be affordable to our customers . ( see construction activity , above ) . currently , interest rates are at historic lows , but any dramatic change to interest rates could have a detrimental effect on the business . retention of qualified personnel the company does not operate with multiple levels of management . it is relatively flat organizationally , which does subject the company to the risks associated with the loss of critical managers . from time to -17- time , there may be a shortage of skilled labor , which may make it more difficult and expensive for the company to attract and retain qualified employees . the company is dependent upon the relatively unique talents and managerial skills of a small number of key executives . critical accounting policies and use of estimates financial reporting release no . 60 , released by the securities and exchange commission , requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements . note 2 in the notes to the consolidated financial statements include a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements . the following is a brief discussion of the company 's more significant accounting policies . the preparation of financial statements in conformity with generally accepted accounting principles ( gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods . the most significant estimates and assumptions relate to revenue recognition , inventory valuations , goodwill and intangible asset valuations , product liability costs , phantom stock and accounting for income taxes . actual amounts could differ significantly from these estimates . our critical accounting policies and significant estimates and assumptions are described in more detail as follows : revenue recognition the company 's revenue recognition activities relate almost entirely to the manufacture and sale of flexible metal hose and pipe . under gaap , revenues are considered to have been earned when the company has substantially accomplished what it must do to be entitled to the benefits represented by the revenues . the following criteria represent preconditions to the recognition of revenue : · persuasive evidence of an arrangement for the sale of product or services must exist . · delivery has occurred or services rendered . · the sales price to the customer is fixed or determinable . · collection is reasonably assured . the company generally recognizes revenue upon shipment in accordance with the above principles . gross sales are reduced for all consideration paid to customers for which no identifiable benefit is received by the company . this includes promotional incentives , which includes various programs including year-end rebates and discounts . the amounts of certain incentives are known with reasonable certainty at the time of sale , while others are projected based upon the most reliable information available at the reporting date . commissions , for which the company receives an identifiable benefit , are accounted for as a selling expense . accounts receivable accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future .
| sales expense as a percent of net sales has however decreased , being 16.1 % for the three-months ended december 31 , 2013 , compared to 17.4 % for the three-months ended december 31 , 2012. general and administrative expenses . general and administrative expenses consist primarily of employee salaries , benefits for administrative , executive and finance personnel , legal and accounting , insurance , and corporate general and administrative services . general and administrative expenses were $ 3,225,000 and $ 4,363,000 for the three-months ended december 31 , 2013 and 2012 , respectively , decreasing $ 1,138,000 between periods . legal related costs decreased $ 1,756,000. as announced on march 20 , 2013 , the company 's english subsidiary , omega flex limited , had reached an agreement to settle litigation related to a construction project in milton keynes , england , to avoid any potentially prolonged and costly legal conflict . the amount of the settlement equated to approximately $ 1,300,000. inversely , the company recognized a $ 651,000 increase in administrative staffing expenses , mostly related to incentive compensation in conjunction with higher profits . as a percentage of sales , general and administrative expenses decreased to 14.8 % for the three months ended december 31 , 2013 from 23.7 % for the three months ended december 31 , 2012. engineering expense . engineering expenses consist of development expenses associated with the development of new products , and costs related to enhancements of existing products and manufacturing processes . engineering expenses increased $ 74,000 for the quarter . they were $ 741,000 and $ 667,000 for the three months ended december 31 , 2013 and 2012 , respectively . engineering expenses as a percentage of sales were 3.4 % for the three months ended december 31 , 2013 , and 3.6 % for the three months ended december 31 , 2012. operating profit . reflecting all of the factors mentioned above , operating profits increased by $ 3,141,000 , rising 215 % over last year . the company had a profit of $
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in the contrast , the volume of standard loans for the three months ended march 31 , 2017 was the lowest , primarily due to the development , testing and integration of our platform with the system of huaxing bank as well as adjustment of loan product offerings from december 2016 to february 2017. we started to facilitate assignment of loans from creditor partners in the quarter ended june 30 , 2017. however , we discontinued the offering of assigned loan products on our platform to facilitate our record-filing under circular 57 and the interim measures from january 2018. as a result , we did not have any assigned loans for the three months ended march 31 , 2018. the number of borrowers for the three months ended december 31 , 2017 was significantly higher than other quarters , mainly due to a trial launch of small consumer loans to individual borrowers in october 2017 , which attracted large volume of individual borrowers . however , we suspended offering these loans after the trial due to the issues connecting to the systems of our partners who referred these borrowers . regardless of the three months ended december 31 , 2017 , the company had a continuous increase in the number of borrowers from quarter to quarter . we experienced a significant and continuing increase in the average investment amount during the three months ended december 31 , 2017 , primarily due to the completion of our custody arrangement with huaxing bank and adjustment of loan product offerings in the prior quarter . the average investment amount for the three months ended march 31 , 2018 deceased as compared with the three months december 31 , 2017 , primarily caused by a decrease in the number of investors and investment amount during february 2018 when the investors needed funds for chinese new year . caused by increasing number of individual borrowers in the mix of borrowers and the suspension of assigned loans whose average loan amount was higher than individual loans since january 2018 , the average borrowing amount for the three months ended march 31 , 2018 decreased as compared with the three months ended september 30 , 2017. the average borrowing amount for the three months ended march 31 , 2018 increased as compared with the three months ended december 31 , 2017 , primarily due to a trial launch of small consumer loans to individual borrowers in october 2017 which attracted individual borrowers who borrowed lower principals from the platform than smes did . in terms of loan amount and the number of loans facilitated on our platform , there has not been any significant concentration on any borrower , investor , creditor partner or any group of borrowers , investors or creditor partners . therefore , we do not believe that our business operation or financial position is heavily reliant upon any borrower , investor or creditor partner . story_separator_special_tag margin : 0pt 0 ; text-align : justify ; text-indent : 20pt '' > replace_table_token_7_th as compared with the quarter ended march 31 , 2017 , the average customer acquisition cost continuously decreased for the period through june 30 , 2017 , which was primarily due to ( i ) the temporary suspension of marketing activities from december 2016 to february 2017 when we updated and integrated our system with huaxing bank ; ( ii ) the implementation of our cost efficient user acquisition strategy through cooperation with resgreen and ( iii ) a decrease in offline marketing expenses as a result of the interim measures . the average customer acquisition cost for the three months ended december 31 , 2017 and september 30 , 2017 was higher than prior quarters , as we increased our marketing efforts to further expand our borrower and investor base . because our marketing efforts were primarily targeted on maintenance of existing customers during chinese new year , we did not attract as many new customers as the prior quarters , thus the average customer acquisition cost for the three months ended march 31 , 2018 was the highest among all the quarters . we believe that our current acquisition cost is below the average cost per person of the peer-to-peer lending industry in china . as we continue to grow our borrower and investor base , we anticipate such costs will increase , which may go above industry level if our customer acquisition strategy turns out to be inefficient under future market conditions . the regulatory environment for the marketplace lending industry in china is evolving and creating opportunities that could affect our results of operations . most recently , multiple prc governmental authorities have published and promulgated various new laws and rules to further regulate the marketplace lending industry in china . see “ business—regulations. ” we have closely tracked the development and implementation of new rules and regulations likely to affect us . these requirements have created entry barriers for many marketplace lending companies in china and further differentiated us from our competitors . we will continue to ensure timely compliance with new rules , and believe that such timely compliance with these newly promulgated rules will provide us with a competitive advantage in the marketplace lending industry in china . our operations may need to be further modified to comply with relevant prc laws and regulations on marketplace lending as the regulatory regime for this sector continues to evolve . see `` risk factors — risks related to the prc laws regulating our business and industry — our operations may need to be modified to comply with existing and future requirements set forth by the cbrc or laws or regulations promulgated by other prc authorities regulating the marketplace lending industry in china . '' for other factors affecting our results of operations , please refer to “ risk factors. story_separator_special_tag ” results of operations for the year ended march 31 , 2018 compared to the year ended march 31 , 2017 replace_table_token_8_th 80 revenues we generated revenues primarily from transaction fees from borrowers and service fees from investors by providing services in matching investors with borrowers on our platform . for the year ended march 31 , 2018 , we charged borrowers transaction fees ranging from 0.30 % to 2.98 % of the loan amount for standard loans and from 0.32 % to 0.94 % for assigned loans , which fees were paid ( i ) upon disbursement of the proceeds for loans accruing interest on a monthly basis and ( ii ) upon full payment of principal and interest of loans accruing interest on a daily basis . the transaction fee rate charged to borrowers varied based on the amount and term of loan facilitated . we also charge our investors a service fee of 8.00 % of their actual investment return and the service fee is paid when the investors receive their interest payment . the following table sets forth the breakdown of revenues by revenue source for the years ended march 31 , 2018 and 2017 : replace_table_token_9_th since the company started its operations in october 2016 and started facilitating loan assignments on its platform since april 2017 , the company witnessed a dramatic increase in revenues during the year ended march 31 , 2018 as compared with the same period ended march 31 , 2017. transaction fees from borrowers the amount of transaction fees earned is determined by the term and amount of loan facilitated . we generally charge borrowers higher transaction fees for loans with longer terms and higher principals . during the years ended march 31 , 2018 and 2017 , the transactions fees from borrowers averaged 0.41 % and 0.89 % of the total loan amounts , respectively . the decrease in the average transaction fee percentage was primarily a result of increase in number of borrowers with short term loans and low transaction fees due to the company 's trial launch of small consumer loans to individual borrowers in october 2017 and the suspension of assigned loan service since january 2018 , which services involved longer term of loans and higher transaction fee rates . transaction fees from borrowers accounted for 37.5 % and 72.2 % of our total revenue for the years ended march 31 , 2018 and 2017 , respectively . the decreased percentage was due to the additional revenue the company generated through loan assignments since the april 2017. due to the discontinuation of cooperation with our business partners , we expect our transaction fees earned from borrowers to decrease before we can effectively increase the number of borrowers on our own . however , as a result of the cessation of our loan assignment services , we expect transaction fees earned from borrowers as a percentage of total revenue to increase in the next 12 months , in particular when we further grow the number of borrowers and introduce new loan products and services on our platform . transaction fees from creditor partners the company started transactions with creditor partners for assigned loan in april 2017 and discontinued such transactions in january 2018. the transaction fees earned from creditor partners are charged on the total assigned loan amounts , ranging from 0.32 % to 0.94 % . the amount of transaction fees earned is determined by the term and total amount of loans assigned . we generally charge creditor partners higher transaction fees for loans with longer terms and higher principals . during the year ended march 31 , 2018 , the transaction fees from creditor partners averaged 0.57 % of the total assigned loan amounts . transaction fees from creditor partners accounted for 27.8 % of our total revenue for the year ended march 31 , 2018. due to the discontinuation of loan assignment service , we expect that both our transaction fees earned from creditor partners and transaction fees earned from creditor partners as a percentage of total revenue will decrease to zero in the next 12 months 81 service fees from investors service fee charged to investors is equal to 8.00 % of the interest that investors receive , and is paid at the time of each interest payment . service fees from investors accounted for 34.7 % and 22.8 % of our total revenue for the years ended march 31 , 2018 and 2017 , respectively . the increase in percentage was due to the increase in both investment amount per investor and the number of investors resulting from the company 's marketing activities and increased market awareness of the company . we may adjust the interest rates on the loan products based on market rates from time to time , which will likely affect the service fee we receive from investors . however , in light of our business expansion , we generally expect service fees from investors to increase in the next 12 months . selling , general and administrative expenses selling , general and administrative expenses primarily consisted of salary and employee surcharge , office rental expense , travel expenses , and platform maintenance cost . selling , general and administrative expenses increased from $ 258,772 for the year ended march 31 , 2017 to $ 1,517,804 for the year ended march 31 , 2018 , representing an increase of $ 1,259,032. the increase mainly consisted of an increase of salary and employee benefit of $ 524,576 attributable to increase in headcount and bonuses , an increase of rent expenses of $ 94,382 , an increase of promotional conference expense of $ 44,457 , and an increase of expenses of $ 151,926 in connection with the company 's initial public offering and as the company became a public listed company on nasdaq .
| below are key metrics for each quarter reflecting our efforts in retaining current participants and attracting more users : replace_table_token_3_th the table below shows key metrics pertaining to each type of participants on our platform . replace_table_token_4_th based on our management 's review of the above metrics , we believe that we do not overly rely on one type of borrowers/products for generating revenue . assigned loans used to account for a large portion of our revenue and revenue from individual borrowers has increased in the quarter ended march 31 , 2018 due to our arrangement with our business partners . as a result of the cessation of our relationship with our creditor partners and business partners , we expect the revenue from individual borrowers to decrease and fees from sme loans to constitute a larger percentage of our revenue mix in 2018 before we effectively increase the number of individual borrowers on our own . 78 from time to time , our management and stockholders have invested in loans through our platform using their personal funds and may continue to do so in the future . the table below summarizes key metrics pertaining to loans invested in by our management and stockholders . replace_table_token_5_th prior to february 2018 , each loan facilitated or assigned on our platform was guaranteed by unaffiliated third parties who were jointly and severally liable for the loan and or secured by collateral provided by borrowers . none of the loans facilitated through our platform is guaranteed by any affiliate of the company . to our knowledge , the unaffiliated third-party guarantors were not compensated for providing the guaranty to our borrowers . in the case of borrowers referred by our business partners , our business partners would provide the guaranty so that the borrowers could complete the transactions with them . in the case of direct borrowers , the guarantors were affiliates of the borrowers and had the incentive to facilitate the transactions for the benefits of the borrowers without being paid . the table below summarizes loan amounts guaranteed by unaffiliated third
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we anticipate that our expenses will increase substantially as we : · complete the ongoing clinical trials of our lead product candidates ; · maintain , expand and protect our intellectual property portfolio ; · seek to obtain regulatory approvals for our product candidates ; · continue our research and development efforts ; · add operational , financial and management information systems and personnel , including personnel to support our product development and commercialization efforts ; and · operate as a public company . we commenced active operations in june 2008. our operations to date have been primarily limited to organizing and staffing our company , business planning , raising capital , acquiring and developing our technology , identifying potential product candidates and undertaking preclinical and clinical studies of our most advanced product candidates . to date , we have not generated any revenues and have financed our operations with net proceeds from the private placement of our preferred stock , our initial public offering in which we received gross proceeds of $ 27 million , our last public offering that was completed on march 16 , 2015 ( the offering ) of 1,886,000 shares of our common stock at a closing price of $ 6.50 per share for gross proceeds of $ 12.3 million and net proceeds to us of approximately $ 11.1 million and $ 7.5 million received from our debt facility with square 1 bank . our consolidated financial statements for the years ended december 31 , 2015 and 2014 have been prepared on a going concern basis . as of december 31 , 2015 , we had an accumulated deficit of $ 44.4 million . we had net losses of $ 21.1 million and $ 12.2 million for the years ended december 31 , 2015 and 2014 , respectively . we expect to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase in connection with our ongoing activities , particularly as we continue the research and development and initiate and conduct clinical trials of , and seek marketing approval for , our product candidates . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . these factors raise substantial doubt about our ability to continue as a going concern . accordingly , we will need to obtain substantial additional funding in connection with our continuing operations . adequate additional financing may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we would be forced to delay , reduce or eliminate our research and development programs or any future commercialization efforts . to meet its capital needs , we are considering multiple alternatives , including , but not limited to , additional equity financings , debt financings and or funding from partnerships and collaborations . this is based on our current estimates , and we could use our available capital resources sooner than we currently expect . we will need to generate significant revenues to achieve profitability , and we may never do so . hs-410 hs-410 ( vesigenurtacel-l ) is a biologic product candidate comprising a cancer cell line genetically modified using our impact ® technology platform to secrete a wide range of cancer antigens related to bladder cancer bound to gp96 molecules . we believe that hs-410 has the potential to activate a t cell mediated pan-antigen immune response that could be an effective treatment for patients with nmbic . we are currently conducting a phase 2 trial evaluating hs-410 either alone or in combination with intravesical standard of care , bacillus calmette-guérin ( bcg ) , for the treatment of high-risk nmibc . the primary endpoint is one-year disease free survival . heat completed enrollment for the phase 2 trial 's three randomized , combination arms and anticipates reporting topline efficacy , immune-response and safety data in the fourth quarter of 2016 . 57 on february 10 , 2016 , we announced that the u.s. fda had lifted the partial clinical hold on our hs-410 phase 2 clinical trial and that patient enrollment had resumed ; clinical timelines were materially unchanged . on february 3 , 2016 , we announced that we had concluded that the cell line on which hs-410 is based , which is a prostate cancer cell line , had been previously misidentified as a bladder cancer cell line , that we had advised the u.s. fda of this conclusion and that the u.s. fda had placed our hs-410 phase 2 clinical trial on partial clinical hold while they reviewed certain updated documentation provided by us related to the misidentification . the misidentification related to the origin of the cell line and not to the antigen profile or other characteristics of the cell line , which have been accurately characterized throughout the clinical development of hs-410 . the partial clinical hold did not relate to concerns regarding the safety and efficacy of hs-410 . all data generated and reported remained unchanged , including hs-410 's positive safety profile , immune response and shared antigenic profile with patient tumors . upon becoming aware of the misidentification , we amended all of the documentation necessary to correct the error , including the related investigator brochure , study protocol and informed consent form . due to the short duration of the clinical hold , we do not expect any material change in our clinical timelines . in addition , we do not expect that the misidentification will have any adverse effect on the future clinical development of hs-410 . while our rights to the prostate cancer cell line are non-exclusive , we believe that our intellectual property portfolio , which we expect to be unaffected by the misidentification , will provide us with appropriate protection for the development and potential commercialization of hs-410 as described elsewhere in this form . story_separator_special_tag in january 2016 , we reported three-month interim data from the unblinded , monotherapy cohort of the company 's ongoing phase 2 trial of hs-410 for the treatment of nmibc at the phacilitate immunotherapy world conference . in the monotherapy arm , a series of weekly intradermal injections of hs-410 is being dosed as an alternative to bcg . images of the bladder taken from several treated patients showed changes that resemble lymphoid ( t cell rich ) structures that we have observed in biopsy samples , which we believe indicates that hs-410 is generating an immune response as expected . six out of seven patients in the 25-patient arm , who had reached the 3-month timepoint after treatment with hs-410 alone , remained recurrence free . one of those patients had carcinoma in situ ( cis ) the patient population believed to be least responsive to bcg and that patient experienced complete response . in november 2015 , we announced the results from our phase 1 trial , evaluating the safety and immune response of hs-410 , after surgery and treatment with bcg , in patients with high-risk nmibc . in that trial , hs-410 exhibited a positive safety profile and was well-tolerated with no serious adverse events ( saes ) and no patients discontinuing the trial due to adverse events ( aes ) . 7 out of the 10 patients had no documented recurrence of cancer > 1 year after treatment . 3 out of 4 patients with cis did not experience a recurrence one year after treatment . in the study subjects , hs-410 elicited a broad-based ( polyclonal ) expansion of patient t cells and a high level of cd8+ tumor-infiltrating lymphocytes ( tils ) . additionally , based on tissue samples taken from each patient , hs-410 shared 15 or more tumor antigens in common with those expressed on the patients ' cancer cells , which we believe supports our belief that hs-410 has the ability to target a broad range of tumor antigens . these data confirm previous preclinical findings regarding the unique mechanism of action for hs-410 . moreover , third-party analysis of blinded samples from the trial demonstrated a strong correlation between baseline characteristics of tils by t cell receptor ( tcr ) sequencing and clinical outcome . specifically , the 7 patients who remained disease free after one year exhibited the greatest clonal expansion of intratumoral t cells ( p-value 0.0126 ) . in october 2015 , we completed enrollment of our 75-patient , blinded , randomized , placebo-controlled arms of our ongoing phase 2 clinical trial evaluating hs-410 in combination with bcg in patients with high risk nmibc . we are enrolling an additional 25 patients to evaluate hs-410 as a monotherapy in an unblinded , open-label arm of this same trial , and we anticipate completing enrollment of this arm in the first half of 2016. our phase 2 trial will examine safety , tolerability , immune response and preliminary clinical activity of hs-410 . the primary endpoint is one-year disease free survival . we expect to report topline efficacy , immune-response and safety results in the fourth quarter of 2016. in march 2015 , the u.s. food and drug administration ( fda ) granted fast track designation for hs-410 for the treatment of nmibc . the fast track program is designed to facilitate the development and expedite the review of therapies intended to treat serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs . the advantages of fast track designation include actions to expedite development , including opportunities for frequent interactions with the fda review team to discuss all aspects of developments to support approval and eligibility for priority review depending on clinical data at the time of biologics license application ( bla ) submission . we believe that this designation will expedite our development of hs-410 . 58 hs-110 hs-110 ( viagenpumatucel-l ) is a biologic product candidate comprising a cancer cell line that has been genetically modified using our impact ® technology platform to secrete a wide range of cancer associated antigens related to lung cancer bound to gp96 proteins . we believe that hs-110 has the potential to activate a t-cell mediated pan-antigen immune response that could be an effective treatment for patients with nsclc . we are conducting a phase 1b clinical trial evaluating hs-110 in combination with nivolumab ( opdivo ® ) , a bristol-myers squibb pd-1 checkpoint inhibitor , to treat patients with nsclc . the multicenter , open-label trial is expected to initially enroll 18 patients and is designed to accommodate cohort expansion up to 30 patients in total . the purpose of the trial is to evaluate the safety and efficacy of hs-110 in combination with nivolumab , an fda approved anti-pd-1 checkpoint inhibitor , in patients with nsclc whose cancers have progressed after first-line therapy . primary and secondary trial endpoints include safety and tolerability , immune response , overall response rate and progression-free survival . top-line objective response rate and 6-month progression free survival ( pfs ) data are expected by the end of 2016 for these first 18 patients . we also are conducting a phase 2 clinical trial evaluating hs-110 in combination with low dose cyclophosphamide versus chemotherapy alone as a potential third-line or fourth-line treatment in patients with nsclc . we completed enrollment of 66 patients in this study in september 2015. these patients will be followed for immune response and overall survival with data expected to be reported in the fourth quarter of 2016. the inventor of our impact ® technology that we license reported results in february 2013 from a phase 1 open-label , single center clinical trial of hs-110 in patients with advanced nsclc . we believe the results provide clinical evidence that hs-110 is capable of generating anti-cancer immune responses . in the study , 18 patients were vaccinated , and 15 of the 18 vaccinated patients completed the first course of three planned courses of therapy .
| 61 research and development expense research and development expenses decreased by 9 % to $ 2.6 million for the year ended december 31 , 2015 compared to $ 2.9 million for the year ended december 31 , 2014. the $ 0.3 million decrease was attributable to the following : · a decrease of $ 1.1 million in pre-manufacturing costs associated with preparing to produce vaccines for use in our clinical trials ( costs of vaccine production are now included in clinical and regulatory expense ) , · decreases in patent , license and other professional fees of $ 0.2 million , · decreases in consulting costs of $ 0.1 million as we bring more of the research and development function in-house these decreases were offset by increased compensation costs of $ 0.8 million associated with salary increases , headcount additions , and increased non-cash stock-based compensation expense and increased lab supplies and other costs of $ 0.3 million . clinical and regulatory expense clinical and regulatory expense increased by 163 % to $ 14.1 million for the year ended december 31 , 2015 compared to $ 5.3 million for the year ended december 31 , 2014. the $ 8.8 million increase was primarily attributable to the following increases : · $ 5.0 million due to increased clinical trial activity related to the initiation of our phase 1b hs-110 nsclc clinical trial in september 2015 and continuation and increased enrollment in our phase 2 hs-410 nmibc clinical trial ; · $ 2.8 million in costs related to the production of clinical trial material as we advance our clinical trials ; · $ 0.8 million in personnel costs , primarily due to headcount additions to support our clinical trials and manufacturing efforts ; and · $ 0.2 million in travel and other costs . general and administrative expense general and administrative expense increased by 10 % to $ 4.4 million for the year ended december 31 , 2015 compared to $ 4.0 million for the year ended december 31 , 2014. the $ 0.4 million increase was due to an increase of $ 0.4 million in increased professional fees , largely from recruitment fees associated with the search for a permanent cfo as well as an increase in investor relations fees . interest income interest income increased
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the deferred tax asset was primarily related to the net operating loss carry forwards of $ 9.8 million generated by aat prior to the company 's merger in 2007. subsequently , the company generated additional net operating losses and foreign tax credit carry forwards . it was determined in the fourth quarter of 2011 that due to the internal revenue 's section 382 limitations on our ability to utilize the net operating losses and due to three years of cumulative losses , a full valuation allowance was warranted and as such , an expense was recorded . see note 7 to the consolidated financial statements included in this report for further details . year ended december 31 , 2010 compared to year ended december 31 , 2009 consolidated net sales decreased by $ 13.2 million or 25 % for the year ended december 31 , 2010 over the comparable prior year in 2009. the decrease is attributable to the overall decline in the global economy . the tp & s segment recorded a $ 10.5 million decrease in net sales , or 34 % , the e & i segment recorded a $ 3.1 million decrease in net sales , or 21 % , and the aat segment recorded a $ 343,000 increase in net sales , or 5 % . 18 consolidated gross profit decreased $ 3.0 million or 45 % , to $ 3.7 million for the year ended december 31 , 2010. this decrease is mainly attributable to the declining market around the tp & s segment . this was partially offset by the increased performance of the e & i segment mainly attributable to the exit from the unprofitable new school construction business in 2009. segment comparisons the tp & s segment 's net sales decreased by $ 10.5 million to $ 20.6 million for the year ended december 31 , 2010 , a 34 % decrease . this is reflective of the continued weakness in the company 's traditional marine , drilling and industrial businesses that began in 2009 , although the company did see solid business improvement in the second half of the year . gross profit for the segment decreased $ 4.9 million for the year ended december 31 , 2010 , primarily as a result of a 34 % decline in net sales . included in gross profit for this segment is approximately $ 5.1 million of indirect operating costs , primarily supervisory and administrative payroll related costs that the company views as mostly fixed in nature . also included is a more variable component of labor cost resulting from the reduced manufacturing activity levels . a net increase in these costs accounted for approximately $ 500,000 of the $ 4.9 million year over year decrease in gross profit . the e & i segment 's net sales decreased to $ 11.5 million from $ 14.6 million for the year ended december 31 , 2010 , a 21 % decrease . e & i reported a $ 1.3 million profit improvement in spite of the decrease in net sales . direct margins improved to 22 % from 10 % for the years ended december 31 , 2010 and 2009 , respectively , and indirect costs were reduced by 15 % during the same period . performance in 2009 was particularly low , because of the impact of the new school construction business which the company completed its exit from in 2009. gross profit for the e & i segment was $ 834,000 , or 7 % during the year ended december 31 , 2010 , as compared to a loss of $ 483,000 , or negative 3 % , for the year ended 2009. approximately $ 2.3 million of the $ 3.1 million decrease in sales came from reduced sales in the data center market . the segment benefited from $ 700,000 increase in sales from its traditional construction markets , primarily water and waste water facility construction and the exit from the new school construction business projects which were very unprofitable in the 2009 period . the aat segment reported net sales of $ 6.9 million for the year ended december 31 , 2010 , up 5 % as compared to the year ended 2009. gross profit increased $ 649,000 as compared to the $ 1.0 million gross profit for the year ended december 31 , 2009. the primary driver of improvement came from a direct margins increase of 3 % and an indirect manufacturing cost decrease of 17 % and general and administrative costs decreased more than 5 % . research and development costs for the year ended december 31 , 2010 were up to $ 882,000 from $ 262,000 in the previous period , all of which related to continued development of the company 's solar inverter product , the integrated solar inversion station ( isis ) . selling and marketing expenses for the year ended december 31 , 2010 were $ 2.3 million compared to the prior year period ended december 31 , 2009 of $ 2.1 million . the increase in expenses is primarily attributed to the increased renewable marketing costs . these renewable marketing costs are directly related to the recently developed isis products . general and administrative expenses were essentially flat for the year ended december 31 , 2010 over the same period in 2009. net equity income from foreign joint ventures increased for the year ended december 31 , 2010 by $ 145,000 as compared to the prior year period ended december 31 , 2009. equity income from foreign joint ventures for the year ended december 31 , 2010 , benefited from the reversal of a $ 660,000 expense accrual recorded in 2007 associated with the bomay joint venture . consolidated other expense , net was $ 318,000 , an increase of $ 74,000 from the comparable prior year . the ( provision for ) benefit from income taxes increased for the year ended december 31 , 2010 by $ 1.4 million consistent with the increase in loss before income tax . story_separator_special_tag the effective tax rate of 39 % was greater than the prior year and is a result of deemed foreign tax credits in 2010 . 19 liquidity and capital resources replace_table_token_10_th * consolidated tangible net worth includes the borrower 's and its subsidiaries ' assets less the sum of ( i ) the aggregate book value of the consolidated intangible assets , ( ii ) advances to and investments in joint ventures , ( iii ) accounts receivable from the holders of equity interests and borrower 's affiliates , and ( iv ) consolidated total liabilities excluding subordinated debt . aeti 's long-term debt as of december 31 , 2011 was $ 5.1 million on which payments are current . this amount includes the long-term portion of a capitalized lease obligation in the amount of $ 67,000. notes payable the company entered into a credit agreement with jp morgan chase bank , n.a . ( chase ) in october 2007. the credit agreement has a maturity on july 1 , 2013. at december 31 , 2011 , and 2010 there were $ 5.0 million and $ 4.0 million of borrowings outstanding and at december 31 , 2011 , there was additional borrowing capacity of $ 3.7 million . the revolving credit line is $ 10.0 million with a limit of up to $ 6.0 million of borrowing in the event that adjusted net income is less than $ 1.00 for any quarter ( line limit ) . adjusted net income is defined as domestic operating income plus depreciation and amortization . the agreement is collateralized by the company 's real estate in houston and beaumont , texas , trade accounts receivable , equipment , inventories , and work-in-process , and the company 's u.s. subsidiaries are guarantors of the borrowings . under the agreement , the company pays a commitment fee of 0.3 % of the unused portion of the credit limit each quarter . additionally , the terms of the agreement contain covenants which provide for customary restrictions and limitations , the maintenance of certain financial ratios , including maintenance of a minimum current ratio , leverage ratio and tangible net worth and restriction from paying dividends without prior written consent of the bank . on july 27 , 2011 , the company amended its interest rate on the company borrowings to 30 day libor rate ( 0.28 % at december 31 , 2011 ) plus 3.25 % per annum . prior to july 27 , 2011 , the interest rate on the company 's borrowings was 30 day libor rate ( 0.26 % at december 31 , 2010 ) plus 2.75 % per year . at december 31 , 2011 , the company 's tangible net worth was $ 7.88 million , the current ratio was 1.99 times and the leverage ratio was 2.06 times all of which were unfavorably impacted by an increase in customer deposits and the recording of the $ 5.4 million deferred tax asset valuation allowance giving rise to a net deferred tax liability of $ 2.3 million on the face of the company 's consolidated balance sheet . therefore , on march 28 , 2012 , the company amended its agreement with chase with an effective date of december 31 , 2011. in this amendment , chase modified its covenants to a minimum tangible net worth of $ 7.130 million and to remain at this level until the earlier to occur of 1 ) a step up in the minimum tangible net worth of 80 % of any equity or capital raise or 2 ) a step up of an incremental $ 1.0 million as of december 31 , 2012. additionally , the current ratio was modified from a minimum 2.0 times to 1.50 times at december 2011 and then increase back to 2.0 times at june 30 , 2012. the leverage ratio was modified from a maximum of 2.0 times to 2.75 times and then reduces back to 2.0 times at june 30 , 2012. in the definition of total liabilities per the agreement , the deferred tax liability may be excluded ; however , such exclusion has certain exceptions . at december 31 , 2010 the minimum tangible net worth , as defined in the agreement , was $ 11.35 million ; however , the company 's tangible net worth was approximately $ 11.2 million . therefore , on march 28 , 2011 , the company amended its revolving credit agreement with chase , with an effective date of december 31 , 2010. the amendment lowered the minimum required tangible net worth to $ 10.0 million ( from $ 11.35 million ) and increased the line limit to $ 6.0 million ( from $ 4.0 million ) . the revised agreement included the company 's real estate in houston and beaumont , texas as additional collateral for borrowings under the line . effective july 1 , 2010 , the company amended its agreement with chase with a revolving credit line not to exceed the lesser of $ 10.0 million or the sum of ( i ) 80 % of eligible accounts receivable and ( ii ) 40 % of the eligible inventory up to an amount not to exceed $ 1.0 million , less ( iii ) $ 75,000. in addition , the interest rate on borrowings under the agreement was amended , increasing the rate from the 30 day libor rate plus 2.25 % to the 30 day libor rate plus 2.75 % . 20 in the june 11 , 2010 amendment , the maximum borrowing amount under the line was limited to $ 4.0 million in the event that adjusted net income was less than $ 1.00 at any time . subsequent event on march 8 , 2012 , the company acquired the technology of amnor technologies , inc. for cash of $ 100,000 plus 44,000 shares of the company 's common stock , 11,000 to be issued immediately and 33,000 shares of common stock to be issued over the next 3 years .
| the aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends . the company accounts for its investments in foreign joint ventures ' operations using the equity method of accounting . under the equity method , the company 's share of the joint ventures ' operations ' earnings or loss is recognized in the statement of operations as equity income ( loss ) from foreign joint ventures ' operations . joint venture income increases the carrying value of the joint ventures and joint venture losses reduce the carrying value . dividends received from the joint ventures reduce the carrying value . year ended december 31 , 2011 compared to year ended december 31 , 2010 consolidated net sales increased $ 13.0 million or 33 % , to $ 51.9 million for the year ended december 31 , 2011 over the comparable period in 2010. the company 's reporting segments showed strong net sales growth from the comparative period primarily due to increased demand for its technical products related to the u. s. land drilling market . consolidated gross profit increased $ 3.5 million to $ 7.2 million and increased as a percentage of net sales from 9 % to 14 % . this increase was mainly attributable to the tp & s segment 's increased net sales and direct margin compared to the previous period in 2010 , as well as a reduction of the company 's indirect costs of sales expenses of approximately $ 1.4 million for the year 17 ended december 31 , 2011. this performance reflects the improving conditions in the land drilling markets and benefits of the cost reduction efforts implemented in late 2010. the company 's gross profit reported each quarter in 2011 was $ 1.2 million in the first quarter , $ 1.5 million in the second quarter , $ 2.2 million in the third quarter and $ 2.3 million in the fourth quarter which reflected a continued improvement with each quarter . in the four quarter 2011 , the company
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the net retail sales for that location are excluded from comparable store sales calculations until the thirteenth full month of operation after the date of the change . we have a loyalty program with a frequent shopper reward feature , the stuff fur stuff® club . members of the program receive one point for every dollar spent and receive awards after reaching certain point thresholds . on a quarterly basis , an estimate of the obligation related to the program , based on actual points , awards outstanding and historical point conversion and award redemption patterns , is recorded as an adjustment to the deferred revenue liability and net retail sales . as the awards can be earned or redeemed at any of our store locations , we account for changes in the deferred revenue account at the total company level only . therefore , when we refer to net retail sales by location , such as comparable stores or new stores , these amounts do not include any changes in deferred revenue . see “ -critical accounting estimates ” for additional details on the accounting for the deferred revenue related to our customer loyalty program . 19 we use net retail sales per square foot and comparable store sales as performance measures for our business . the following table details net retail sales per square foot for the periods presented : replace_table_token_3_th ( 1 ) net retail sales per gross square foot in north america represents net retail sales from stores open throughout the entire period in north america divided by the total gross square footage of such stores . ( 2 ) excludes our web store and temporary and seasonal locations . ( 3 ) net retail sales per selling square foot in europe represents net retail sales from stores open throughout the entire period in europe divided by the total selling square footage of such stores . the percentage increase ( or decrease ) in comparable store sales for the periods presented below is as follows : replace_table_token_4_th ( 1 ) comparable store sales percentage changes are based on net retail sales and stores are considered comparable beginning in their thirteenth full month of operation . ( 2 ) excludes our web store and temporary and seasonal locations . fiscal 2013 consolidated comparable store sales for the full year are compared to the 52 week period ended december 29 , 2012. we attribute the increase in comparable store sales for the periods presented primarily to the impact of our brand marketing and product strategies which have improved results in our overall store base and our real estate optimization strategies which have driven sales in selective markets impacted by store closures and remodels . ● the growth in our base business accounted for approximately 70 % of the overall comparable store sales increases in 2013 which we believe were driven by : a 30 % reduction in discounts in north america which contributed to higher transaction value in 2013 ; and our brand building marketing initiatives , including national television advertising in the united states , along with a balance of proprietary and licensed product , which we believe increased traffic to our stores and contributed to an increase in transactions . ● we believe that our real estate optimization strategies drove the remaining 30 % of the overall comparable store sales increase in 2013. the real estate optimization plans include selective store closures , primarily in north american multi-store markets , as well as updates and remodels of select other stores . these actions drove a 9 % increase in sales per square foot in north america , reversing a multi-year decline . 20 fiscal 2012 consolidated comparable store sales for the full year are compared to the 52 week period ended december 31 , 2011 we believe the primary drivers of the overall decline in consolidated comparable store sales for the full year were as follows : in the first half of 2012 , we had benefit from higher redemption rates and transaction value of our holiday gift cards and from a promotion in the united states with mcdonald 's happy meals® that drove awareness of our brand and brought traffic to our stores resulting in slightly positive comparable store sales in north american through the first twenty-six weeks . in the fiscal 2012 third quarter , we experienced a decline in the number of transactions compared to the 2011 third quarter which benefitted from a strong product offering that was tied to a major theatrical release supported by studio marketing and advertising . in the fiscal 2012 fourth quarter , we believe our new brand building marketing campaign in the united states along with a return to traditional holiday product offerings resulted in an increase in north american comparable store sales . in the united kingdom , we believe the negative economic conditions contributed to a continued decline in consumer sentiment and a corresponding decline in spending that negatively impacted our comparable store sales throughout the year . franchise fees : we receive an initial , one-time franchise fee for each master franchise agreement which is amortized to revenue over the initial term of the respective franchise agreements , which extend for periods up to 25 years and include a renewal option if certain conditions are met . master franchise rights are typically granted to a franchisee for an entire country or countries . continuing franchise fees are based on a percentage of sales made by the franchisees ' stores and are recognized as revenue at the time of those sales . commercial revenue : commercial revenue includes the company 's transactions with other businesses , mainly through wholesale and licensing transactions . revenue from wholesale product sales includes revenue from merchandise sold at stores operated by third parties under licensing agreements like landry 's restaurants . revenue from licensing activities is generally based on a percentage of sales made by licensees to third parties and is recognized at the time the product is shipped by the licensee or at the point of sale . story_separator_special_tag we have entered into a number of licensing arrangements whereby third parties manufacture merchandise carrying the build-a-bear workshop trademark and sell it to other retailers . costs and expenses cost of merchandise sold and retail gross margin : cost of merchandise sold includes the cost of the merchandise , including royalties paid to licensors of third party branded merchandise ; store occupancy cost , including store depreciation and store asset impairment charges ; cost of warehousing and distribution ; packaging ; stuffing ; damages and shortages ; and shipping and handling costs incurred in shipment to customers . retail gross margin is defined as net retail sales less the cost of retail merchandise sold , which excludes cost of wholesale merchandise sold . selling , general and administrative expense : these expenses include store payroll and benefits , advertising , credit card fees , store supplies and preopening expenses as well as central office general and administrative expenses , including costs for management payroll , benefits , stock-based compensation , normal store closings , travel , information systems , accounting , insurance , legal and public relations . these expenses also include depreciation and amortization of central office leasehold improvements , furniture , fixtures and equipment as well as the amortization of intellectual property costs . in 2009 , we achieved $ 22 million in savings in selling , general and administrative expenses including marketing , central office payroll and outside services . we were able to maintain these savings in 2010 and 2011. in 2012 , we saved an additional $ 4 million in selling , general and administrative expenses that were used to support sales driving marketing initiatives . in 2013 , we continued to reduce expenses as we reduced selling , general and administrative expenses in both dollars and as a percent of revenue . other store expenses such as credit card fees and supplies historically have increased or decreased proportionately with net retail sales . 21 stores company-owned stores : the number of build-a-bear workshop stores in the united states , canada , puerto rico , the united kingdom and ireland for the last two fiscal years along with the projections for fiscal 2014 can be summarized as follows : replace_table_token_5_th replace_table_token_6_th replace_table_token_7_th our long term store real estate goal is to improve our stores ' sales productivity and profitability . we currently intend to close approximately 10 to 15 locations in 2014 , primarily in north america . we also intend to strategically refresh and upgrade stores with select features from the new store design , while driving down the cost of capital required for these improvements . we also expect to open new locations selectively as opportunities arise . 22 non-traditional store locations : as of december 28 , 2013 , we had one location each in a ballpark , a zoo , a science center and an airport . additionally , we had three locations located within other retailers ' stores . we also operate temporary stores , which generally have lease terms of six to eighteen months and are excluded from our traditional store count . these locations are intended to capitalize on short-term opportunities in specific locations . as of december 28 , 2013 , we operated seven temporary stores . international franchise locations : our first franchisee location was opened in november 2003. all franchised stores have similar signage , store layout and merchandise characteristics to our company-owned stores . the number of international , franchised stores opened and closed for the periods presented below are summarized as follows : replace_table_token_8_th as of december 28 , 2013 , we had 12 master franchise agreements , which typically grant franchise rights for a particular country or group of countries , covering an aggregate of 16 countries . the distribution of stores among these countries is as follows : replace_table_token_9_th ( 1 ) gulf states agreement includes kuwait , bahrain , qatar , oman and the united arab emirates in the ordinary course of business , we anticipate signing additional master franchise agreements in the future and terminating other such agreements . we believe there is a market potential for approximately 300 international stores outside of the united states , canada , the united kingdom and ireland , which we expect to be operated primarily by new and existing franchisees . 23 story_separator_special_tag roman , times , serif ; font-size : 10pt '' > interest expense ( income ) , net . interest expense , net of interest income , was $ 3,000 for fiscal 2012 as compared to $ 0.1 million of income for fiscal 2011. provision for income taxes . income tax expense was $ 0.9 million in fiscal 2012 , compared to $ 14.4 million for fiscal 2011. the effective rate was ( 1.8 ) % in 2012 and ( 543.4 ) % in 2011. the fluctuation in the effective rate was primarily attributable to the recording of a valuation allowance in 2011 on the us deferred tax assets . non-gaap financial measures we use the term “ store contribution ” throughout this annual report on form 10-k. store contribution consists of income before income tax expense , interest , store depreciation , amortization and impairment , goodwill impairment , general and administrative expense , excluding franchise fees , income from licensing activities and contribution from our web store and temporary and seasonal locations . this term , as we define it , may not be comparable to similarly titled measures used by other companies and is not a measure of performance presented in accordance with u.s. generally accepted accounting principles ( gaap ) . we use store contribution as a measure of our stores ' operating performance . store contribution should not be considered a substitute for net income , net income per store , cash flows provided by operating activities , cash flows provided by operating activities per store , or other income or cash flow data prepared in accordance with u.s. gaap .
| net retail sales were $ 373.2 million for fiscal 2013 , compared to $ 374.6 million for fiscal 2012 , a decrease of $ 1.4 million . the components of this decrease are as follows : replace_table_token_11_th revenue from international franchise fees were $ 3.6 million for fiscal 2013 and fiscal 2012. commercial revenue was $ 2.3 million in fiscal 2013 compared to $ 2.8 million in fiscal 2012 , a decrease of $ 0.5 million . this decrease was primarily due to an overall decrease in licensing activity in 2013. gross margin . total gross margin , calculated as net retail sales and commercial revenues less cost of merchandise sold , was $ 154.8 million for fiscal 2013 compared to $ 147.2 million for fiscal 2012 , an increase of $ 7.6 million , or 5.2 % . retail gross margin increased to $ 153.5 million in fiscal 2013 compared to $ 145.7 million in fiscal 2012 , an increase of $ 7.8 million , or 5.4 % . as a percentage of net retail sales , retail gross margin increased to 41.1 % for fiscal 2013 from 38.9 % for fiscal 2012 , an increase of 220 basis points as a percentage of net retail sales ( bps ) . this improvement in margin was primarily attributable to 160 basis points in improved leverage on fixed occupancy costs and a 60 basis point improvement in merchandise margin driven primarily by an increase in average transaction value . selling , general and administrative . selling , general and administrative expenses were $ 160.7 million for fiscal 2013 as compared to $ 165.5 million for fiscal 2012 , a decrease of $ 4.8 million , or 2.9 % . as a percentage of total revenues , selling , general and administrative expenses were 42.4 % for fiscal 2013 , compared to 43.4 % in fiscal 2012. fiscal 2013 included $ 5.3 million in management transition , store closing and asset impairment expenses , compared to $ 2.7 million in store closing and asset impairment expenses in fiscal 2012. excluding these costs in both periods , selling ,
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in addition to our focus on organic growth , we are growing through selective acquisitions which expand our presence in current markets or which facilitate our entry into new markets where the home and community business is moving to managed care organizations . we completed five acquisitions in december 2013 , june 2014 january 2015 and november 2015 , respectively , that either expanded our presence in existing markets or provided us with a base of operations in new targeted managed care states . additionally , on april 24 , 2015 , we entered into a purchase agreement to acquire south shore home service , inc. and acaring home care , llc to expand into the state of new york . the transaction was consummated effective february 5 , 2016. effective march 1 , 2013 , we sold substantially all of the assets used in our home health business in arkansas , nevada and south carolina , and 90 % of the home health business in california and illinois , to the purchasers for a cash purchase price of approximately $ 20.0 million . we retained a 10 % ownership interest in the home health business in california and illinois . the assets sold included 19 home health agencies and two hospice agencies in five states . on december 30 , 2013 , we sold one home health agency in pennsylvania for approximately $ 200.0 thousand . the results of the home health business sold are reflected as discontinued operations for all periods presented herein . continuing operations include the results of operations previously included in our home & community segment and three agencies previously included in our home health segment . following the sale of the home health business , we manage and internally report our business in one segment . because regulatory requirements in delaware and indiana require home and community based services to be provided by a licensed home health agency , we will continue to provide limited home health services reimbursable by medicare in these agencies in order to maintain these licenses . in addition , priority home health care maintains enrollment in but does not derive significant revenues from medicare . we believe the sale of the home health business substantially positioned us for future growth . the sale allowed us to focus both management and financial resources to address changes in the home and community 44 based services industry and to address the needs of managed care organizations as they become more responsible for the state sponsored programs . we have improved our financial performance by concentrating our efforts on our home and community business that is growing and profitable . we have improved our overall financial position by eliminating our debt and adding to our cash reserves . business the results of the home health business sold are reflected as discontinued operations for all periods presented herein . continuing operations include the results of operations previously included in our home and community segment and three agencies previously included in our home health segment . following the sale of the home health business , we manage and internally report our business in one segment . as of december 31 , 2015 , we provided our home and community based services through 119 locations across 22 states , including five adult day centers in illinois . our payor clients are principally federal , state and local governmental agencies and , increasingly , managed care organizations . the federal , state and local programs under which the agencies operate are subject to legislative , budgetary and other risks that can influence reimbursement rates . we are experiencing a further transition of business from government payors to managed care organizations with which we are seeking to grow our business given our emphasis on coordinated care and the prevention of acute care . managed care organizations are commercial insurance carriers who are under contract with various federal and state governmental agencies to manage a full continuum of care , improve the quality of care through prevention and provide a network for the delivery of health benefits and additional services . their objective is to lower total health care costs by integrating the provision of home and community based services with those benefit programs responsible for the provision of acute care services to their consumers . we are also seeking to grow our private duty business . our commercial insurance carrier payor clients are typically for-profit companies and are continuously seeking opportunities to control costs . for the years ended december 31 , 2015 , 2014 and 2013 , our payor revenue mix for continuing operations was : replace_table_token_11_th we derive a significant amount of our net service revenues from our continuing operations in illinois , which represented 59.5 % , 60.6 % and 65.5 % of our total net service revenues from continuing operations for the years ended december 31 , 2015 , 2014 and 2013 , respectively . a significant amount of our net service revenues from continuing operations are derived from one payor client , the illinois department on aging , which accounted for 48.8 % , 53.2 % and 58.8 % of our total net service revenues from continuing operations for the years ended december 31 , 2015 , 2014 and 2013 , respectively . we also measure the performance of our business using a number of different metrics . we consider billable hours , billable hours per business day , revenues per billable hour and the number of consumers , or census . components of our statements of income net service revenues we generate net service revenues from continuing operations by providing our services directly to consumers primarily on an hourly basis . we receive payment for providing such services from our payor 45 clients , including federal , state and local governmental agencies , managed care organizations , commercial insurers and private consumers . story_separator_special_tag net service revenues from continuing operations are principally provided based on authorized hours , determined by the relevant agency , at an hourly rate which is either contractual or fixed by legislation or contract , and recognized as net service revenues from continuing operations at the time services are rendered . cost of service revenues we incur direct care wages , payroll taxes and benefit-related costs from continuing operations in connection with providing our services . we also provide workers ' compensation and general liability coverage for these employees . employees are also reimbursed for their travel time and related travel costs . general and administrative expenses our general and administrative expenses from continuing operations include our costs for operating our network of local agencies and our centralized support center . our agency expenses from continuing operations consist of costs for supervisory personnel , our community care supervisors and office administrative costs . personnel costs include wages , payroll taxes , and employee benefits . facility costs including rents , utilities , postage , telephone and office expenses . our centralized support center includes costs for accounting , information systems including software development , human resources , billing and collections , contracting , marketing , our contact center and executive leadership . these expenses consist of compensation , including stock-based compensation , payroll taxes , employee benefits , legal , accounting and other professional fees , travel , general insurance , rents and related facility costs . depreciation and amortization expenses we amortize our intangible assets with finite lives , consisting of customer and referral relationships , trade names , trademarks and non-compete agreements , principally using accelerated methods based upon their estimated useful lives . depreciable assets consist principally of furniture and equipment , network administration and telephone equipment , and operating system software . depreciable and leasehold assets are depreciated or amortized on a straight-line method over their useful lives or , if less and if applicable , their lease terms . interest income legislation enacted in illinois entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for payment that remain unpaid after a designated period of time . as the amount and timing of the receipt of these payments are not certain , the interest income from continuing operations is recognized when received and reported in the statement of income as interest income . interest expense interest expense from continuing operations consists of interest costs on our credit facility , capital lease obligations and other debt instruments and is reported in the statement of income when incurred . income tax expense all of our income from continuing operations is from domestic sources . we incur state and local taxes in states in which we operate . for 2015 and 2014 , our federal statutory rate is 34.5 % . the effective income tax rate is 26.1 % and 31.2 % for 2015 and 2014 , respectively . the difference between federal statutory and effective income tax rates are principally due to the inclusion of state taxes and the use of federal employment tax credits that lower our effective tax rate . 46 discontinued operations discontinued operations consists of the results of operations , net of tax for our home health business that was sold effective march 1 , 2013 and the results of operations for an agency in pennsylvania that was sold on december 30 , 2013. story_separator_special_tag size= '' 2 '' style= '' font-family : times new roman '' > gross profit , expressed as a percentage of net service revenues , increased to 26.8 % for 2014 , from 25.5 % in 2013. the increase was primarily due to lower than anticipated workers ' compensation expense and recent acquisitions with higher margins . 50 general and administrative expenses , expressed as a percentage of net service revenues , increased to 19.8 % for 2014 , from 18.8 % in 2013. general and administrative expenses increased to $ 61.8 million in 2014 as compared to $ 50.1 million in 2013. the increase in general and administrative expenses was due to an increase in expenses related to our acquisitions , transaction costs for acquisitions and increased expenditures related to information technology , sarbanes-oxley compliance efforts and legal and consulting fees for the year ended december 31 , 2014 as compared to 2013. depreciation and amortization , expressed as a percentage of net service revenues , increased to 1.2 % from 0.8 % for the year ended december 31 , 2014 and 2013 , respectively . amortization of intangibles which are principally amortized using accelerated methods , totaled $ 2.4 million and $ 1.3 million for the year ended december 31 , 2014 and 2013 , respectively . interest income legislation enacted in illinois entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for payment that remain unpaid after a designated period of time . as the amount and timing of the receipt of these payments are not certain , the interest income is recognized when received and reported in the income statement caption , interest income. we received no prompt payment interest in 2014 and $ 185.0 thousand in 2013. we are not anticipating being owed additional prompt payment interest for the state 's fiscal year ending june 30 , 2014. while we may be owed additional prompt payment interest in the future , the amount and timing of receipt of such payments remains uncertain and we have determined that we will continue to recognize prompt payment interest income when received . the state amended its prompt payment interest terms , effective july 1 , 2011 , which changed the measurement period for outstanding invoices from a 60-day to a 90-day outstanding period .
| general and administrative expenses , expressed as a percentage of net service revenues increased to 21.0 % for 2015 , from 19.8 % in 2014. general and administrative expenses increased to $ 70.6 million in 2015 as compared to $ 61.8 million in 2014. the increase in general and administrative expenses as compared to 2014 was due to an increase in costs related to wages , payroll taxes , stock compensation expenses , and increased expenditures related to legal , consulting , temporary office personnel and the ongoing installation of our new human resources and payroll information system for the year ended december 31 , 2015. depreciation and amortization , expressed as a percentage of net service revenues , increased to 1.4 % from 1.2 % for the year ended december 31 , 2015 and 2014 , respectively . amortization of intangibles , which are principally amortized using accelerated methods , totaled $ 3.0 million and $ 2.4 million for the years ended december 31 , 2015 and 2014 , respectively . interest income legislation enacted in illinois entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for payment that remain unpaid after a designated period of time . as the amount and timing of the receipt of these payments are not certain , the interest income is recognized when received and reported in the income statement caption , interest income. we received no prompt payment interest in 2015 and 2014 and $ 185.0 thousand in 2013. we are not anticipating being owed additional prompt payment interest for the state 's fiscal year ending june 30 , 2015. interest expense , net interest expense , net , increased to $ 739.0 thousand from $ 680.0 thousand for the year ended december 31 , 2015 as compared to december 31 , 2014. the increase is primarily as a result of the capital lease agreements entered into on july 12 , 2014 , september 11 , 2014 and april 13 , 2015 and interest on the new senior credit facility entered into on november 10 , 2015 , as described in note 7 to the consolidated financial statements . income tax expense our effective tax rates from continuing operations for 2015 and 2014 were 26.1 % and 31.2 % , respectively . the principal difference between the federal and state statutory rates and our effective tax rate is the use of federal employment opportunity tax credits . discontinued operations effective march 1 , 2013 , we sold substantially all of the assets used in our home health business as described in item 1. therefore , we have segregated the home health business
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this growth was driven primarily by the revere acquisition and , to a lesser extent , the ppp program . borrowings increased by 23 % during the year driven by the federal funds purchased during december 2020 as a result of funding requirements at the end of 2020. liquidity continues to remain strong due to borrowing lines with the fhlb and the federal reserve bank and the size and composition of the investment portfolio . stockholders ' equity at december 31 , 2020 increased 30 % to $ 1.5 billion , as compared to $ 1.1 billion at december 31 , 2019 as a result of the equity issuance in the revere acquisition , in addition to net earnings during 2020. the year-over-year increase is net of the repurchase of $ 25.7 million of common stock , which occurred in the first quarter of the current year . at december 31 , 2020 , the bank remained above all “ well-capitalized ” regulatory requirement levels . tangible book value per common share remained relatively stable at $ 22.28 at december 31 , 2020 , compared to $ 22.37 at december 31 , 2019 , despite the two acquisitions executed in the current year . net income for the year ended december 31 , 2020 was $ 97.0 million , compared to $ 116.4 million for the year ended december 31 , 2019. the results from 2020 included the effect on the provision for credit losses from the adoption of the expected credit loss accounting standard , merger and acquisition expense and the operational impact of the revere bank and rpj acquisitions in 2020. operating earnings for the current year , which exclude the after-tax impact of the provision for credit losses , the effects from the ppp program and merger and acquisition expense , were $ 165.4 million compared to $ 120.9 million for the year ended december 31 , 2019. net interest income increased 37 % to $ 363.2 million compared to $ 265.3 million in 2019. the income generated by the ppp program , net of its associated funding costs , contributed a net of $ 19.0 million to the growth in net interest income year-over-year . the net interest margin declined to 3.35 % for the ended december 31 , 2020 , compared to 3.51 % for the prior year . excluding the net $ 12.7 million impact of the amortization of the fair value marks derived from acquisitions , the net interest margin for the current year would have been 3.23 % . the amortization of the fair value marks recognized during the current year included a benefit realized from the accelerated amortization of the $ 5.9 million purchase premium on acquired fhlb advances , as a result of the prepayment of those borrowings . the net interest margin for 2019 , excluding the fair value marks , would have been 3.46 % . non-interest income increased 44 % to $ 102.7 million for 2020 , compared to $ 71.3 million for 2019. during the current year , income from mortgage banking activities increased $ 25.3 million as favorable residential lending rates during the year resulted in a significant increase in mortgage loan originations , and wealth management income increased $ 7.9 million as a result of the first quarter acquisition of rpj . these increases more than exceeded the declines in deposit service fees and income from bank owned life insurance ( `` boli '' ) . non-interest expense increased 43 % to $ 255.8 million for 2020 , compared to $ 179.1 million for 2019. merger and acquisition expense accounted for $ 23.9 million of the growth of non-interest expense . non-interest expense growth also included $ 5.9 million in prepayment penalties resulting from the liquidation of acquired fhlb advances . excluding the impact of these items results in a year-over-year expense growth rate of 26 % . this growth rate was driven by operational and compensation costs associated with the revere and rpj acquisitions , increased incentive expense related to the significant level of mortgage loan originations , intangible asset amortization , fdic insurance premiums and annual employee salary increases . acquisition of revere bank revere was acquired on april 1 , 2020 ( `` acquisition date '' ) and had assets of $ 2.8 billion , loans of $ 2.5 billion and deposits of $ 2.3 billion . this acquisition resulted in the growth of the balance sheet , net interest income , and non-interest income and expense from the prior year . the company identified $ 974.8 million of acquired loans that were classified as purchased credit deteriorated loans ( “ pcd ” or “ pcd loans ” ) . an initial allowance for credit losses of $ 18.6 million was recorded through a gross up adjustment to fair values of pcd loans . a fair value premium related to other factors totaled $ 4.5 million and will amortize to interest income over the remaining life of each loan . as a result of these fair value marks , total fair value of pcd loans as of the acquisition date was $ 960.7 million . of the pcd loans , $ 11.3 million were non-accruing at the time of acquisition . the amount of pcd loans was directly attributable to the existing market conditions in the economy as of the acquisition date . refer to note 1 - significant accounting policies in the notes to the consolidated financial statements for more details on factors considered in the pcd assessment . acquired loans that had not experienced a more-than-insignificant credit deterioration since origination totaled $ 1.5 billion . the company recorded a net fair value premium of $ 2.1 million on non-pcd loans , which will amortize to interest income over the remaining life of each loan . in addition , the acquired assets included a core deposit intangible asset valued at approximately $ 18.4 million . the 36 determination of the fair value of interest-bearing liabilities resulted in a $ 20.8 million premium . story_separator_special_tag the provisional amount of goodwill recognized as of the acquisition date was approximately $ 0.8 million . after immaterial adjustments to the provisional amount , goodwill recognized as of december 31 , 2020 was $ 0.5 million . see note 2 - acquisition of revere bank in the notes to the consolidated financial statements for further details . the change in estimated goodwill from the time of announcement to the provisional amount at december 31 , 2020 is presented in the following table : ( in thousands ) amount preliminary goodwill at transaction announcement $ 157,344 changes in consideration paid due to : change in sandy spring share price ( 151,614 ) change in revere shares 1,123 change in fair value of revere options ( 7,863 ) cash paid for fractional shares 11 net change in consideration paid ( 158,343 ) changes in fair value of assets acquired due to : cash and cash equivalents ( 140,150 ) investments available-for-sale ( 1,944 ) loans 139,873 fair value of loans 2,656 net change in loans 142,529 core deposit intangible asset ( 4,370 ) other assets 12,301 net change in assets 8,366 changes in fair value of liabilities assumed due to : deposits ( 29,739 ) fair value of deposits 13,742 net change in deposits ( 15,997 ) advances from fhlb 19,973 fair value of advances from fhlb 2,820 net change in advances from fhlb 22,793 fair value of subordinated debt 449 other liabilities 2,635 net change in liabilities 9,880 net change in fair value of assets acquired and liabilities assumed ( 1,514 ) net change in preliminary goodwill ( 156,829 ) provisional goodwill at december 31 , 2020 $ 515 critical accounting policies the company 's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) and follow general practices within the banking industry . application of these principles requires management to make estimates , assumptions , and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions , and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements may reflect different estimates , assumptions , and judgments . certain policies inherently rely more extensively on the use of estimates , assumptions , and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions , and judgments are necessary for assets and liabilities that are required to be recorded at fair value . a decline in the value of assets required 37 to be recorded at fair value may warrant an impairment write-down or valuation allowance to be established . carrying assets and liabilities at fair value inherently results in greater financial statement volatility . the fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources , when readily available . management believes the following accounting policies are the most critical to aid in fully understanding and evaluating the reported financial results : allowance for credit losses ; goodwill and other intangible asset impairment ; accounting for income taxes ; fair value measurements ; defined benefit pension plan . allowance for credit losses the allowance for credit losses ( “ allowance ” or “ acl ” ) represents an amount which , in management 's judgment , represents the lifetime expected losses that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio , past events , current conditions , reasonable and supportable forecasts of future economic conditions and prepayment experience . the allowance is measured and recorded upon the initial recognition of a financial asset . the allowance is reduced by charge-offs , net of recoveries of previous losses , and is increased or decreased by a provision or credit for credit losses , which is recorded as a current period expense . determination of the appropriateness of the allowance is inherently complex and requires the use of significant and highly subjective estimates . the reasonableness of the allowance is reviewed periodically by the risk committee of the board of directors and formally approved quarterly by that same committee of the board . the company 's methodology for estimating the allowance includes : ( 1 ) a collective quantified reserve that reflects the company 's historical default and loss experience adjusted for expected economic conditions throughout a reasonable and supportable period and the company 's prepayment and curtailment rates ; ( 2 ) collective qualitative factors that consider concentrations of the loan portfolio , expected changes to the economic forecasts , large relationships , early delinquencies , and factors related to credit administrations , including , among others , loan-to-value ratios , borrowers ' risk rating and credit score migrations ; and ( 3 ) individual allowances on collateral-dependent loans where borrowers are experiencing financial difficulty or when the company determines that the foreclosure is probable . the company excludes accrued interest receivable from the measurement of the allowance as the company has a non-accrual policy to reverse any accrued , uncollected interest income as loans are moved to non-accrual status . loans are pooled into segments based on the similar risk characteristics of the underlying borrowers , in addition to consideration of collateral type , industry and business purpose of the loans . portfolio segments used to estimate the allowance are the same as portfolio segments used for general credit risk management purposes . refer to note 5 - loans in the notes to the consolidated financial statements for more details on the company 's portfolio segments . the company applies two calculation methodologies to estimate the collective quantified component of the allowance : discounted cash flows method and weighted average remaining life method .
| as a combined result of the acquisition and the strategic migration , at december 31 , 2020 , mortgage and asset-backed securities comprised 64 % of the investment portfolio compared to 51 % at december 31 , 2019. at december 31 , 2020 , 93 % of the investment portfolio was invested in aa/aa or aaa/aaa rated securities . the duration of the portfolio increased to 4.2 years at december 31 , 2020 compared to 3.5 years at december 31 , 2019 , as a result of the re-investing cash flows from the portfolio in the lower interest rate environment experienced in 2020 . the composition and duration of the investment portfolio has resulted in a portfolio with low credit risk that is expected to provide the liquidity needed to meet lending and other funding demands . the portfolio is monitored on a continual basis with consideration given to interest rate trends and the structure of the yield curve and with constant assessment of economic projections and analysis . 53 maturity of investment securities maturities and weighted average yields for investment securities available-for-sale at december 31 , 2020 are presented in the following table . amounts appear in the table at amortized cost , without market value adjustments , by stated maturity . years to maturity at december 31 , 2020 within one year or less after one year through five years after five years through ten tears over ten years ( dollars in thousands ) amount yield amount yield amount yield amount yield total yield available-for-sale securities ( 1 ) : u. s. treasuries and government agencies $ 33,833 0.63 % $ 8,917 2.36 % $ — — % $ — — % $ 42,750 0.99 % state and municipal ( 2 ) 16,458 3.29 43,857 2.77 56,130 2.32 260,663 2.08 377,108 2.25 mortgage-backed 1 4.41 < td
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the advanced materials handling , or amh , segment develops solutions to monitor , protect , transport , and deliver critical liquid chemistries , wafers and other substrates for a broad set of applications in the semiconductor industry and other high-technology industries . while these segments have separate products and technical know-how , they share common business systems and processes , technology centers , and strategic and technology roadmaps . we leverage our 31 expertise from these three segments and complementary product portfolios to create new and increasingly integrated solutions for our customers . key operating factors key factors , which management believes have the largest impact on the overall results of operations of the company , include : level of sales since a significant portion of the company 's product costs ( except for raw materials , purchased components and direct labor ) are largely fixed in the short-to-medium term , an increase or decrease in sales affects gross profits and overall profitability significantly . also , increases or decreases in sales and operating profitability affect certain costs such as incentive compensation and commissions , which are highly variable in nature . the company 's sales are subject to the effects of industry cyclicality , technological change , substantial competition , pricing pressures and foreign currency fluctuation . variable margin on sales the company 's variable margin on sales is determined by selling prices and the costs of manufacturing and raw materials . this is affected by a number of factors , which include the company 's sales mix , purchase prices of raw material ( especially polymers , membranes , stainless steel and purchased components ) , domestic and international competition , direct labor costs , and the efficiency of the company 's production operations , among others . fixed cost structure the company 's operations include a number of large fixed or semi-fixed cost components , which include salaries , indirect labor and benefits , facility costs , lease expenses , and depreciation and amortization . it is not possible to vary these costs easily in the short-term as volumes fluctuate . accordingly , increases or decreases in sales volume can have a large effect on the usage and productivity of these cost components , resulting in a large impact on the company 's profitability . overall summary of financial results for the year ended december 31 , 2019 total net sales for the year ended december 31 , 2019 were $ 1,591.1 million , up $ 40.6 million , or 3 % , from sales of $ 1,550.5 million for the year ended december 31 , 2018 . exclusive of net sales associated with acquisitions and divestitures of $ 87.6 million and unfavorable foreign currency translation effects of $ 4.5 million , the company 's sales decreased by $ 42.6 million to $ 1,507.9 million , or 3 % , reflecting a decrease in overall demand for the company 's products from semiconductor industry customers , particularly in the sale of fluid handling products , liquid chemistry filtration solutions and certain specialty materials products . the company announced organizational changes in the third quarter of 2019 intended to enable us to be more responsive to our customers , increase our competitiveness , allow for scalable growth and result in cost savings . these changes were primarily focused on optimizing our customer-facing organization . as a result of this announcement , the company recorded restructuring charges within cost of goods sold , selling , general and administrative ( sg & a ) and engineering , research and development of $ 1.0 million , $ 6.1 million and $ 1.4 million , respectively , for the twelve months ended december 31 , 2019. the actions associated with the restructuring plan , including employee separations , were completed by the end of 2019 , and the company does not anticipate any additional material charges for the following year relating to the restructuring costs . the company 's gross profit declined by $ 8.2 million for the year ended december 31 , 2019 , to $ 711.7 million , down from $ 719.8 million for the year ended december 31 , 2018 . accordingly , the company reported a 44.7 % gross margin rate compared to 46.4 % in 2018 . the gross profit and gross margin decrease reflects lower factory utilization associated with weaker sales levels and an unfavorable sales mix . the company 's selling , general and administrative ( sg & a ) and engineering , research and development ( er & d ) expenses increased in 2019 , mainly reflecting higher deal costs , the cost of integration activities and restructuring charges . on january 28 , 2019 , the company and versum announced that they had entered into an agreement and plan of merger , dated as of january 27 , 2019 ( the “ merger agreement ” ) , pursuant to which they agreed to combine in a merger of equals . on april 8 , 2019 , versum announced that its board of directors had received a proposal from merck kgaa to acquire versum and that its board of directors had deemed such proposal as a “ superior proposal ” defined in the merger agreement . on april 12 , 2019 , the company received a termination notice from versum terminating the merger agreement . in accordance with the terms of the merger agreement , entegris received a $ 140.0 million termination fee from versum in the second quarter of 2019. also in the second quarter of 2019 , the company paid a fee of $ 18.0 million to the third-party financial adviser it had engaged to assist with the transaction . as a result of the aforementioned and other factors discussed below , net income for 2019 was $ 254.9 million , or $ 1.87 per diluted share , compared to net income of $ 240.8 million , or $ 1.69 per diluted share , in 2018 . story_separator_special_tag 32 on march 8 , 2019 , the company acquired digital specialty chemicals limited ( dsc ) , which provides advanced materials to the specialty chemical , technology and pharmaceutical industries . the total purchase price of the acquisition was $ 64.1 million , net of cash acquired . the company funded the acquisition from its available cash . on july 15 , 2019 , the company acquired mpd chemicals , a provider of advanced materials to the specialty chemical , technology , and life sciences industries . the company acquired mpd chemicals for approximately $ 161.0 million , net of cash acquired , subject to revision for customary working capital adjustments . the company funded the acquisition from its available cash . on september 17 , 2019 , the company acquired hangzhou anow microfiltration co. , ltd. , ( anow ) a filtration company for diverse industries including semiconductor , pharmaceutical , and medical . the company acquired anow for $ 72.8 million , net of cash acquired . the company funded the acquisition from its available cash . during 2019 , the company 's operating activities provided cash flow of $ 382.3 million . cash and cash equivalents , and short-term investments were $ 351.9 million at december 31 , 2019 compared with $ 482.1 million at december 31 , 2018 . the company had long-term borrowings , including current maturities , of $ 936.5 million at december 31 , 2019 compared with $ 938.9 million at december 31 , 2018 . critical accounting policies management 's discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires the company to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . at each balance sheet date , management evaluates its estimates , including , but not limited to , those related to long-lived assets ( property , plant and equipment , and identified intangible assets ) , goodwill , income taxes and business combinations . the company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . if management made different judgments or utilized different estimates , this could result in material differences in the amount and timing of the company 's results of operations for any period . in addition , actual results could be different from the company 's current estimates , possibly resulting in increased future charges to earnings . the critical accounting policies that are most significantly affected by estimates , assumptions and judgments used in the preparation of the company 's consolidated financial statements are discussed below . impairment of long-lived assets as of december 31 , 2019 , the company had $ 479.5 million of net property , plant and equipment and $ 334.0 million of net intangible assets . the company routinely considers whether indicators of impairment of the value of its long-lived assets , particularly its manufacturing equipment , and its intangible assets , are present . a long-lived asset ( or asset group ) must be tested for recoverability whenever events or changes in circumstances ( triggering events ) indicate that its carrying amount may not be recoverable . the following are examples of such events or changes in circumstances : a. a significant decrease in the market price of a long-lived asset ( or asset group ) ; b. a significant adverse change in the extent or manner in which a long-lived asset ( or asset group ) is being used or in its physical condition ; c. a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset ( or asset group ) , including an adverse action or assessment by a regulator ; d. an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ( or asset group ) ; e. a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset ( or asset group ) ; and f. a current expectation that , more likely than not , a long-lived asset ( or asset group ) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . if any such indicators are present , it is determined whether the sum of the estimated undiscounted cash flows attributable to the asset group in question is less than its carrying value . if less , an impairment loss is recognized based on the excess of the carrying amount of the assets in the group over its respective fair value . fair value is determined by discounting estimated future cash flows , appraisals or other methods deemed appropriate . if the asset groups determined to be impaired are to be held and used , the company recognizes an impairment charge to the extent the fair value attributable to the asset group is less than the assets ' carrying value . the fair value of the assets then becomes the assets ' new carrying value , which is depreciated or amortized over the remaining estimated useful life of the assets . 33 the company 's long-lived assets are grouped with other assets and liabilities at the lowest level ( asset groups ) for which the identifiable cash flows are largely independent of the cash flows of other assets and liabilities . as described above , the evaluation of the recoverability of long-lived assets requires the company to make significant estimates and assumptions .
| in 2017 , total sales to taiwan were 22 % , to north america were 21 % , to south korea were 16 % , to japan were 13 % , to china were 11 % , to europe were 9 % , and to southeast asia were 8 % . from 2017 to 2018 , net sales to customers in south korea , china , europe , north america , japan and southeast asia increased 12 % , 37 % , 15 % , 21 % , 24 % , and 7 % , respectively , while net sales to customers in taiwan were flat . demand drivers for the company 's business primarily consist of semiconductor fab utilization and production ( unit-driven ) as well as capital spending for new or upgraded semiconductor fabrication equipment and facilities ( capital-driven ) . the company 39 analyzes sales of its products by these two key drivers . sales of unit-driven products represented 70 % of total sales and sales of capital-driven products represented 30 % of total sales in 2018. this compares to a unit-driven to capital-driven ratio of 74 % :26 % for 2017 as a result of the acquisition of the pure gas business in 2018. gross profit gross profit for 2018 increased by $ 110.8 million , to $ 719.8 million , an increase of 18 % from $ 609.0 million for 2017. the gross margin rate for 2018 was 46.4 % versus 45.4 % for 2017. the gross profit and gross margin improvements reflect the improved factory utilization associated with strong sales levels and a slightly favorable sales mix . these factors were partly offset by an incremental cost of sales charge of $ 6.9 million associated with the sale of inventory acquired in the saes pure gas business acquisition and price erosion for certain products in response to normal competitive pressures . in addition , the gross profit and gross margin figures include impairment charges of $ 0.4 million and $ 6.1 million for the year ended december 31 , 2018 and 2017 , respectively , related
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against the united states dollar . the $ 127.4 million increase in net sales of transcatheter heart valves in 2011 was primarily due to : the edwards sapien xt transcatheter heart valve , which increased net sales by $ 185.6 million , primarily due to an increase in international sales ; and foreign currency exchange rate fluctuations , which increased net sales by $ 11.0 million , primarily due to the strengthening of the euro and the japanese yen against the united states dollar ; partially offset by : decreased international sales of the edwards sapien transcatheter heart valve due to the adoption of the sapien xt valve . the company expects that sales of its transcatheter heart valves will continue to grow during 2013. in november 2011 , the company received approval from the fda for the transfemoral delivery of the edwards sapien transcatheter heart valve for treatment of certain inoperable patients with severe symptomatic aortic stenosis ( cohort b of the partner trial ) . in october 2012 , the company received approval from the fda for the transfemoral and transapical delivery of the edwards sapien transcatheter heart valve for treatment of patients with severe , symptomatic aortic stenosis deemed at high risk for traditional open-heart surgery ( cohort a of the partner trial ) . the company is continuing to conduct the partner ii trial , which is evaluating the edwards sapien xt transcatheter heart valve for the united states market . in september 2012 , the company received fda approval to add to the trial its larger 29 millimeter sapien xt valve with the novaflex+ delivery system and the ascendra+ delivery system for both the transapical and new transaortic approach . in early 2013 , the company began enrollment in the ce mark trial for its sapien 3 valve , designed to reduce paravalvular leak . critical care the $ 0.4 million decrease in net sales of critical care products in 2012 was primarily due to : foreign currency exchange rate fluctuations , which decreased net sales by $ 10.4 million , primarily due to the weakening of the euro against the united states dollar ; and the discontinuation of distributed sales of certain oximetry products and reduced sales of the company 's central venous access products , which decreased net sales by $ 6.7 million ; partially offset by : advanced monitoring products , which increased net sales by $ 16.7 million , driven by flotrac systems . the $ 51.9 million increase in net sales of critical care products in 2011 was primarily due to : pressure monitoring products , which increased net sales by $ 15.4 million ; advanced monitoring products , led by flotrac systems , which increased net sales by $ 13.1 million , and the ev1000 clinical platform , which increased net sales by $ 5.7 million ; and foreign currency exchange rate fluctuations , which increased net sales by $ 21.6 million , primarily due to the strengthening of the euro and japanese yen against the united states dollar . 27 gross profit replace_table_token_7_th the 3.2 percentage point increase in gross profit as a percentage of net sales in 2012 was driven by : a 2.3 percentage point increase due to the impact of foreign currency exchange rate fluctuations , including the settlement of foreign currency hedging contracts ; and a 2.3 percentage point increase in the united states due to a more profitable product mix , primarily higher sales of transcatheter heart valves ; partially offset by : the voluntary recalls in the second quarter of 2012 of certain of the company 's heart valves and critical care catheters , and manufacturing inefficiencies . the 1.0 percentage point decrease in gross profit as a percentage of net sales in 2011 was driven by : a 1.3 percentage point decrease due to the impact of foreign currency exchange rate fluctuations , including the settlement of foreign currency hedging contracts ; and investments in the expansion of the company 's international manufacturing capacity in preparation for its transcatheter heart valve launch in the united states ; partially offset by : a 0.5 percentage point increase in international markets due to a more profitable international product mix , primarily higher sales of transcatheter heart valves ; and a 0.3 percentage point increase in the united states due to a more profitable product mix , primarily higher sales across all product lines . selling , general and administrative ( `` sg & a '' ) expenses ( dollars in millions ) replace_table_token_8_th the $ 62.9 million increase in sg & a expenses in 2012 was due primarily to higher sales and marketing expenses in the united states , mainly to support the launch of the transcatheter heart valve program . the decrease in sg & a expenses as a percentage of net sales in 2012 was primarily due to the impact of foreign currency and lower sales and marketing expenses in europe as a percentage of net sales . the impact of foreign currency reduced sg & a expenses by $ 17.0 million due primarily to the weakening of the euro against the united states dollar . the $ 92.4 million increase in sg & a expenses in 2011 was due primarily to higher sales and marketing expenses in the united states and europe , mainly to support the launch of the transcatheter heart valve program . the impact of foreign currency increased sg & a expenses by $ 21.3 million due to the strengthening of various currencies against the united states dollar , primarily the euro and the japanese yen . in 2010 , significant reforms to the health care system were adopted as law in the united states . the law requires the medical device industry to subsidize health care reform in the form of a 2.3 % excise tax on 28 united states sales of most medical devices beginning in 2013 , which will increase the company 's sg & a expenses . story_separator_special_tag research and development expenses ( dollars in millions ) replace_table_token_9_th the increase in research and development expenses in 2012 and 2011 was primarily due to additional investments in clinical studies and new product development efforts in the transcatheter heart valve program . special charges ( in millions ) replace_table_token_10_th realignment expenses in december 2012 , the company recorded a $ 9.0 million charge related primarily to severance expenses associated with a global workforce realignment impacting 92 employees . as of december 31 , 2012 , the company 's remaining severance obligations of $ 8.5 million are expected to be substantially paid by the end of 2013. in december 2011 , the company recorded a $ 5.5 million charge related primarily to severance expenses associated with a global workforce realignment impacting 49 employees . as of december 31 , 2012 , payments related to the realignment were substantially complete . in december 2010 , the company recorded a $ 7.2 million charge related primarily to severance expenses associated with a global workforce realignment impacting 84 employees . as of december 31 , 2012 , payments related to the realignment were complete . licensing of intellectual property in april 2012 , the company obtained an exclusive license to a suturing device for minimally invasive surgery applications . the intellectual property is under development and there is uncertainty as to whether the product will ultimately be approved . the company recorded a charge of $ 2.0 million related to the upfront licensing and royalty fees . 29 in june 2012 , the company obtained a co-exclusive sublicense to intellectual property related to processing tissue and implanting cardiovascular valves . the intellectual property is under development and there is uncertainty as to whether the product will ultimately be approved . the company recorded a charge of $ 5.0 million related to the upfront licensing fee . european receivables reserve during 2011 , the company recorded a $ 12.8 million charge to reflect the increased risk associated with its southern european receivables , primarily greece . settlements and litigation in december 2011 , the company recorded a $ 3.3 million charge related to a litigation settlement . monarc program discontinuation during the second quarter of 2010 , the company decided to discontinue its monarc transcatheter mitral valve program due to slow enrollment in the evolution ii trial . as a result , the company recorded an $ 8.3 million charge primarily related to the impairment of intangible assets associated with the program . investment impairment during 2010 , the company recorded a $ 7.2 million charge related to the other-than-temporary impairment of certain of its investments in unconsolidated affiliates . the company concluded that the impairment of these investments was other-than-temporary based upon the continuing duration and severity of the impairment . interest expense interest expense was $ 4.4 million , $ 3.1 million and $ 2.4 million in 2012 , 2011 and 2010 , respectively . the $ 1.3 million increase in interest expense for 2012 resulted primarily from higher average interest rates and a higher average debt balance as compared to the prior year . the $ 0.7 million increase in interest expense for 2011 resulted primarily from a higher average debt balance as compared to the prior year . interest income interest income was $ 4.8 million , $ 3.4 million and $ 0.9 million in 2012 , 2011 and 2010 , respectively . the $ 1.4 million increase in interest income for 2012 resulted primarily from the recognition of interest income on discounted accounts receivables in southern europe , partially offset by lower average interest rates . the $ 2.5 million increase in interest income for 2011 resulted primarily from higher investment returns . other expense ( income ) , net ( in millions ) replace_table_token_11_th 30 the foreign exchange losses ( gains ) relate to the foreign currency fluctuations in the company 's global trade and intercompany receivable and payable balances , offset by the gains and losses on derivative instruments intended as an economic hedge of those exposures . foreign exchange fluctuations ( primarily related to united states dollar payables in non-united states dollar functional currency locations ) resulted in a net loss in 2012. the losses ( gains ) on investments in unconsolidated affiliates primarily represents the company 's net share of gains and losses in investments accounted for under the equity method , and realized gains and losses on the company 's available-for-sale and cost method investments . in september 2009 , the company sold its hemofiltration product line . in connection with the transaction , the company was entitled to earn-out payments up to $ 9.0 million based on certain revenue objectives to be achieved by the buyer over the two years following the sale . as of march 31 , 2011 , all earn-out payments had been earned . provision for income taxes the company 's effective income tax rates for 2012 , 2011 and 2010 were impacted as follows ( in millions ) : replace_table_token_12_th reserve for uncertain tax positions as of december 31 , 2012 and 2011 , the liability for income taxes associated with uncertain tax positions was $ 113.6 million and $ 78.0 million , respectively . the company estimates that these liabilities would be reduced by $ 26.1 million and $ 6.8 million , respectively , from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments , state income taxes and timing adjustments . the net amounts of $ 87.5 million and $ 71.2 million , respectively , if not required , would favorably affect the company 's effective tax rate . 31 a reconciliation of the beginning and ending amount of unrecognized tax benefits , excluding interest , penalties and foreign exchange , is as follows ( in millions ) : replace_table_token_13_th the company recognizes interest and penalties , if any , related to uncertain tax positions in the provision for income taxes .
| the $ 193.6 million increase in international net sales in 2011 was due primarily to : transcatheter heart valves , which increased net sales by $ 88.2 million , driven primarily by sales of the edwards sapien xt transcatheter heart valve ; surgical heart valve therapy products , which increased net sales by $ 20.2 million , driven primarily by the carpentier-edwards perimount magna aortic ease valve ; critical care products , which increased net sales by $ 18.6 million , driven primarily by pressure monitoring products and the flotrac minimally invasive monitoring system ; and foreign currency exchange rate fluctuations , which increased net sales by $ 58.0 million , due to the strengthening of various currencies against the united states dollar , primarily the euro and the japanese yen . the impact of foreign currency exchange rate fluctuations on net sales is not necessarily indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on international manufacturing and operating costs and the company 's hedging activities . for more information see `` quantitative and qualitative disclosures about market risk . '' 25 net sales by product line ( dollars in millions ) replace_table_token_6_th surgical heart valve therapy the $ 3.1 million increase in net sales of surgical heart valve therapy products in 2012 was primarily due to : surgical heart valve products , which increased net sales by $ 12.5 million , driven by sales of the carpentier-edwards perimount magna aortic ease valve ; and cardiac surgery systems , which increased net sales by $ 6.0 million , driven by specialty cannula products and minimally invasive surgical products ; partially offset by : foreign currency exchange rate fluctuations , which decreased net sales by $ 15.3 million , primarily due to the weakening of the euro against the united states dollar . the $ 52.3 million increase in net sales of surgical heart valve therapy products in 2011 was primarily due to : surgical heart valve products , which increased net sales by $ 21.1 million , driven by sales of the carpentier-edwards perimount magna aortic ease and magna mitral ease valves ; and
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the allowance represents an amount that , in our judgment , will be adequate to absorb probable losses inherent in the loan portfolio . our judgment in determining the level of the allowance is based on evaluations of the collectibility of loans while taking into consideration such factors as trends in delinquencies and charge-offs , changes in the nature and volume of the loan portfolio , current economic conditions that may affect a borrower 's ability to repay and the value of collateral , overall portfolio quality and review of specific potential losses . this evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available . for more information see the section titled “ asset quality ” within item 7. allowance for indemnifications : the allowance for indemnifications is established through charges to earnings in the form of a provision for indemnifications , which is included in other noninterest expenses . a loss is charged against the allowance for indemnifications under certain conditions when a purchaser of a loan ( investor ) sold by c & f mortgage incurs a loss due to borrower misrepresentation , fraud , early default , or underwriting error . the allowance represents an amount that , in management 's judgment , will be adequate to absorb any losses arising from indemnification requests . management 's judgment in determining the level of the allowance is based on the volume of loans sold , historical experience , current economic conditions and information provided by investors . this evaluation is inherently subjective , as it requires estimates that are susceptible to significant revision as more information becomes available . impairment of loans : we consider a loan impaired when it is probable that the corporation will be unable to collect all interest and principal payments as scheduled in the loan agreement . we do not consider a loan impaired during a period of delay in payment if we expect the ultimate collection of all amounts due . we measure impairment on a loan-by-loan basis for commercial , construction and residential loans in excess of $ 500,000 by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . large groups of smaller balance homogeneous loans are collectively evaluated for impairment . we maintain a valuation allowance to the extent that the measure of the impaired loan is less than the recorded investment . troubled debt restructurings ( tdrs ) are also considered impaired loans , even if the loan balance is less than $ 500,000. a tdr occurs when we agree to significantly modify the original terms of a loan by granting a concession due to the deterioration in the financial condition of the borrower . for more information see the section titled “ asset quality ” within item 7. loans acquired in a business combination : the corporation has accounted for the loans acquired in the acquisition of cvbk and its subsidiary cvb in accordance with fasb accounting standards codification ( asc ) topic 805 , business combinations . accordingly , as of the acquisition , cvb 's loans were segregated between ( i ) purchased credit-impaired ( pci ) loans and ( ii ) purchased performing loans and were recorded at estimated fair value without the carryover of the related allowance for loan losses . pci loans are those for which there is evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the corporation will not collect all contractually required principal and interest payments . when determining fair market value , pci loans were aggregated into pools of loans based on common risk characteristics as of the date of acquisition such as loan type , date of origination , and evidence of credit quality deterioration such as internal risk grades and past due and nonaccrual status . the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the “ nonaccretable difference , ” is not recorded and is available to absorb future credit loss on those loans . any excess of cash flows expected at acquisition over the estimated fair value is referred to as the “ accretable ” yield and is recognized as interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows . 29 subsequent to acquisition , we evaluate on a quarterly basis our estimate of cash flows expected to be collected . estimates of cash flows for pci loans require significant judgment . subsequent decreases to the expected cash flows will generally result in a provision for loan losses resulting in an increase to the allowance for loan losses . subsequent significant increases in cash flows may result in a reversal of post-acquisition provision for loan losses or a transfer from nonaccretable difference to accretable yield that increases interest income over the remaining life of the loan , or pool ( s ) of loans . disposals of loans , which may include sale of loans to third parties , receipt of payments in full or part from the borrower or foreclosure of the collateral , result in removal of the loan from the pci loan portfolio at its carrying amount . the corporation 's pci loans currently consist of loans acquired in connection with the acquisition of cvb . pci loans that were classified as nonperforming loans by cvb are no longer classified as nonperforming so long as , at acquisition and quarterly re-estimation periods , we believe we will fully collect the new carrying value of the pools of loans . purchased performing loans are recorded at fair value as of the acquisition using the contractual cash flows method of recognizing discount accretion based on the acquired loans ' contractual cash flows . story_separator_special_tag purchased performing loans are recorded at fair value , including a credit discount . the fair value discount is accreted as an adjustment to yield over the estimated lives of the loans . there is no allowance for loan losses established at the acquisition date for purchased performing loans . a provision for loan losses may be required in future periods for any deterioration in these loans subsequent to the acquisition . impairment of securities : impairment of securities occurs when the fair value of a security is less than its amortized cost . for debt securities , impairment is considered other-than-temporary and recognized in its entirety in net income if either ( i ) we intend to sell the security or ( ii ) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis . if , however , we do not intend to sell the security and it is not more-likely-than-not that we will be required to sell the security before recovery , we must determine what portion of the impairment is attributable to a credit loss , which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security . if there is no credit loss , there is no other-than-temporary impairment . if there is a credit loss , other-than-temporary impairment exists , and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income . for equity securities , impairment is considered to be other-than-temporary based on our ability and intent to hold the investment until a recovery of fair value . other-than-temporary impairment of an equity security results in a write-down that must be included in net income . we regularly review each investment security for other-than-temporary impairment based on criteria that includes the extent to which cost exceeds market price , the duration of that market decline , the financial health of and specific prospects for the issuer , our best estimate of the present value of cash flows expected to be collected from debt securities , our intention with regard to holding the security to maturity and the likelihood that we would be required to sell the security before recovery . other real estate owned ( oreo ) : assets acquired through , or in lieu of , loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure . subsequent to foreclosure , management periodically performs valuations of the foreclosed assets based on updated appraisals , general market conditions , recent sales of similar properties , length of time the properties have been held , and our ability and intention with regard to continued ownership of the properties . the corporation may incur additional write-downs of foreclosed assets to fair value less costs to sell if valuations indicate a further deterioration in market conditions . goodwill : the corporation 's goodwill was recognized in connection with the corporation 's acquisition of cvbk in october 2013 and c & f bank 's acquisition of c & f finance company in september 2002. with the adoption of accounting standards update ( asu ) 2011-08 , intangible-goodwill and other-testing goodwill for impairment , in 2012 , the corporation may first assess qualitative factors to determine if it is more likely than not that the fair value of goodwill is less than the carrying amount , which determines if the two-step goodwill impairment test is necessary . if the likelihood of impairment is more than 50 percent , the corporation must perform a test for impairment and we may be required to record impairment charges . in assessing the recoverability of the corporation 's goodwill , major assumptions used in determining impairment are increases in future income , sales multiples in determining terminal value and the discount rate applied to future cash flows . if an impairment test is performed , we will prepare a sensitivity analysis by increasing the discount rate , lowering sales multiples and reducing increases in future income . 30 retirement plan : c & f bank maintains a non-contributory , defined benefit pension plan for eligible full-time employees as specified by the plan . plan assets , which consist primarily of mutual funds invested in marketable equity securities and corporate and government fixed income securities , are valued using market quotations . c & f bank 's actuary determines plan obligations and annual pension expense using a number of key assumptions . key assumptions may include the discount rate , the interest crediting rate , the estimated future return on plan assets and the anticipated rate of future salary increases . changes in these assumptions in the future , if any , or in the method under which benefits are calculated may impact pension assets , liabilities or expense . derivative financial instruments : the corporation recognizes derivative financial instruments at fair value as either an other asset or other liability in the consolidated balance sheet . the corporation 's derivative financial instruments consist of ( 1 ) interest rate lock commitments ( irlcs ) on mortgage loans that will be held for sale and related forward sales commitments and ( 2 ) interest rate swaps that qualify as cash flow hedges of the corporation 's trust preferred capital notes . because the irlcs and forward sale commitments are not designated as hedging instruments , adjustments to reflect unrealized gains and losses resulting from changes in fair value of the corporation 's irlcs and forward sales commitments and realized gains and losses upon ultimate sale of the loans are reported as noninterest income . the effective portion of the gain or loss on the corporation 's cash flow hedges is reported as a component of other comprehensive income , net of deferred taxes , and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings .
| rate/volume variances , the third element in the calculation , are not shown separately in the table , but are allocated to the rate and volume variances in proportion to the relationship of the absolute dollar amounts of the change in each . 36 table 2 : rate-volume recap replace_table_token_4_th 2015 compared to 2014 net interest income , on a taxable-equivalent basis , for the year ended december 31 , 2015 was $ 80.6 million , compared to $ 80.3 million for the year ended december 31 , 2014. the increase in net interest income for 2015 , compared to 2014 , was a result of an increase in average earning assets , offset in part by a decrease in net interest margin . net interest margin decreased 20 basis points t o 6.35 percent for 2015 as compared to 2014. the decrease resulted from a decline in the yield on interest-earning assets of 20 basis points , which was primarily attributable to decreases in the yields on the loan and investment securities portfolios , as described below . while the cost of interest-bearing liabilities in 2015 remained level with 2014 , deposits continued to shift from higher-cost term deposits to lower-cost deposits , including interest-bearing demand deposits and money market accounts and noninterest-bearing demand deposits . average loans , which includes both loans held for investment and loans held for sale , increased $ 50.7 million to $ 905.6 million for the year ended december 31 , 2015 , compared to 2014. average loans held for sale increased $ 12.2 million , or 42.1 percent , during 2015 , compared to 2014 , due to a 14.8 percent increase in loan originations from 2014 to 2015 and fluctuations in the period of time between mortgage loan origination and sales to third-party investors . average loans held for investment for the retail banking segment increased $ 37.1 million , or 7.0 percent , for 2015 due to growth in commercial real estate lending , commercial business lending and real estate mortgage segments of the loan portfolio , which was driven by investing in experienced commercial lending personnel and the resurgence in the real
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while we offer a diversified mix of managed care products and services through our managed care plans , our aggregate cost of care can fluctuate based on a change in the overall mix of these products and services . our managed care plans include : preferred provider organizations ; health maintenance organizations , or hmos ; point-of-service plans ; traditional indemnity plans and other hybrid plans , including consumer-driven health plans ; and hospital only and limited benefit products . we classify certain claims-related costs as benefit expense to reflect costs incurred for our members ' traditional medical care , as well as those expenses which improve our members ' health and medical outcomes . these claims-related costs may be comprised of expenses incurred for : ( i ) medical management , including case and prospective utilization management ; ( ii ) health and wellness , including disease management services for such conditions as diabetes , high-risk pregnancies , congestive heart failure and asthma management and wellness initiatives like weight-loss programs and smoking cessation treatments ; and ( iii ) clinical health policy , such as identification and use of best clinical practices to avoid harm , identifying clinical errors and safety concerns , and identifying potential adverse drug interactions . these types of claims-related costs are designed to ultimately lower our members ' cost of care . our cost of products sold represents the cost of prescription drugs dispensed by ingeniorx to unaffiliated pbm customers ( net of rebates or discounts ) , including any co-payments made by or on behalf of the customer , per-claim administrative fees for prescription fulfillment and certain direct costs related to sales and administration of customer contracts . our selling , general and administrative expenses consist of fixed and variable costs . examples of fixed costs are depreciation , amortization and certain facilities expenses . certain variable costs , such as premium taxes , vary directly with premium volume . commission expense generally varies with premium or membership volume . other variable costs , such as salaries and benefits , do not vary directly with changes in premium but are more aligned with changes in membership . the acquisition or loss of a significant block of business would likely impact staffing levels and thus , associated compensation expense . other variable costs include professional and consulting expenses and advertising . other factors can impact our administrative cost structure , including systems efficiencies , inflation and changes in productivity . our results of operations depend in large part on our ability to accurately predict and effectively manage healthcare costs through effective contracting with providers of care to our members and our medical management and health and wellness programs . several economic factors related to healthcare costs , such as regulatory mandates of coverage as well as direct-to-consumer advertising by providers and pharmaceutical companies , have a direct impact on the volume of care consumed by our members . the potential effect of escalating healthcare costs , any changes in our ability to negotiate competitive rates with our providers and any regulatory or market-driven restrictions on our ability to obtain adequate premium rates to offset overall inflation in healthcare costs , including increases in unit costs and utilization resulting from the aging of the population and other demographics , as well as advances in medical technology , may impose further risks to our ability to profitably underwrite our business , and may have a material adverse impact on our results of operations . for additional information about our business and reportable segments , see part i , item 1 , “ business ” and note 19 , “ segment information ” of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. business trends the patient protection and affordable care act and the health care and education reconciliation act of 2010 , as amended , or collectively , the aca , has changed and may continue to make broad-based changes to the u.s. healthcare system . we expect the aca will continue to impact our business model and strategy . also , the legal challenges regarding the aca , including a federal district court decision invalidating the aca , or the “ 2018 aca decision ” , which judgment has been stayed pending appeal , could significantly disrupt our business . during 2019 , we modestly expanded our participation in the individual aca-compliant market . our strategy has been , and will continue to be , to only participate in rating regions where we have an appropriate level of confidence that these markets are on a path toward sustainability , including , but not limited to , factors such as expected financial performance , regulatory environment , and underlying market characteristics . we - 45 - currently offer individual aca-compliant products in 91 of the 143 rating regions in which we operate . in addition , the continuing growth in our government-sponsored business exposes us to increased regulatory oversight . in the second quarter of 2019 , we began using our new pharmacy benefits manager called ingeniorx to market and sell a pbm product to fully-insured and self-funded anthem health plan customers throughout the country , as well as to customers outside of the health plans we own . this comprehensive product portfolio includes features such as drug formularies , a pharmacy network , prescription drug database , member services and mail order capabilities . in july 2019 , we announced our first contract win with a third-party health insurer , blue cross of idaho , and we began providing pbm services under that contract beginning on january 1 , 2020. also beginning in the second quarter of 2019 , we began delegating certain pbm administrative functions , such as claims processing and prescription fulfillment , to caremarkpcs health , l.l.c. , or cvs health , which is a subsidiary of cvs health corporation , pursuant to a five-year agreement with cvs health , or the cvs pbm agreement . story_separator_special_tag we intend to retain the responsibilities for ingeniorx 's clinical and formulary strategy and development , member and employer experiences , operations , sales , marketing , account management and retail network strategy . from december 2009 through december 2019 , we delegated certain pbm functions and administrative services to express scripts , inc. , or express scripts , pursuant to our pbm agreement with express scripts , or the esi pbm agreement . in january 2019 , we exercised our contractual right to terminate the esi pbm agreement earlier than the original expiration date of december 31 , 2019 due to the acquisition of express scripts by cigna corporation , or cigna . we began transitioning existing members from express scripts to ingeniorx in the second quarter of 2019 , and completed the transition of all of our members on january 1 , 2020. prior to the termination of the esi pbm agreement , express scripts managed the network of pharmacy providers , operated mail order pharmacies and processed prescription drug claims on our behalf , while we sold and supported the product for our members , made formulary decisions , sold drug benefit design strategy and provided front line members support . we expect ingeniorx to provide our members with more cost-effective solutions and improve our ability to integrate pharmacy benefits within our medical and specialty platform . pricing trends : we strive to price our healthcare benefit products consistent with anticipated underlying medical trends . we frequently make adjustments to respond to legislative and regulatory changes as well as pricing and other actions taken by existing competitors and new market entrants . product pricing in our commercial & specialty business segment , including our individual and small group lines of business , remains competitive . revenues from the medicare and medicaid programs are dependent , in whole or in part , upon annual funding from the federal government and or applicable state governments . the aca imposed an annual health insurance provider fee , or hip fee , on health insurers that write certain types of health insurance on u.s. risks . we price our affected products to cover the impact of the hip fee when applicable . the hip fee was suspended for 2019 , has resumed for 2020 and has been permanently repealed beginning in 2021. medical cost trends : our medical cost trends are primarily driven by increases in the utilization of services across all provider types and the unit cost increases of these services . we work to mitigate these trends through various medical management programs such as utilization management , condition management , program integrity and specialty pharmacy management , as well as benefit design changes . there are many drivers of medical cost trends that can cause variance from our estimates , such as changes in the level and mix of services utilized , regulatory changes , aging of the population , health status and other demographic characteristics of our members , epidemics , advances in medical technology , new high cost prescription drugs , and healthcare provider or member fraud . our underlying local group medical cost trends reflect the “ allowed amount , ” or contractual rate , paid to providers . we estimate that our aggregate cost of care trend for the full year of 2019 was approximately 6.0 % , at the midpoint of our 5.5 % to 6.5 % estimated range for the year . we anticipate the local group medical cost trend in 2020 will be in the range of 3.5 % to 4.5 % , including the benefit of lower pharmacy cost from the launch of ingeniorx and other medical cost management initiatives . for additional discussion regarding business trends , see part i , item 1 “ business ” of this annual report on form 10-k. regulatory trends and uncertainties the aca presented us with new growth opportunities , but also introduced new risks , regulatory challenges and uncertainties , and required changes in the way products are designed , underwritten , priced , distributed and administered . changes to our business environment are likely to continue as elected officials at the national and state levels continue to enact , and both elected officials and candidates for election continue to propose , significant modifications to existing laws and regulations , including changes to taxes and fees . in addition , the legal challenges regarding the aca , including the 2018 - 46 - aca decision , which judgment has been stayed pending appeal , continue to contribute to this uncertainty . we will continue to evaluate the impact of the aca as any further developments or judicial rulings occur . the annual hip fee is allocated to health insurers based on the ratio of the amount of an insurer 's net premium revenues written during the preceding calendar year to the amount of health insurance premium for all u.s. health risk for those certain lines of business written during the preceding calendar year . we record our estimated liability for the hip fee in full at the beginning of the year with a corresponding deferred asset that is amortized on a straight-line basis to selling , general and administrative expense . the final calculation and payment of the annual hip fee is due by september 30 th of each fee year . the hip fee is non-deductible for federal income tax purposes . our affected products are priced to cover the increased selling , general and administrative and income tax expenses associated with the hip fee . the total amount due from allocations to health insurers was $ 14,300 for 2018 , and we recognized $ 1,544 as selling , general and administrative expense related to the hip fee .
| - 53 - we recognized net realized gains on financial instruments in 2019 compared to net realized losses on financial instruments in 2018. this change was primarily due to a decrease in the net losses recognized for changes in the fair values of our equity securities . benefit expense increased primarily due to membership growth across our reportable business segments and higher medical cost experience in our medicaid business . our benefit expense ratio increased largely due to the loss of revenue associated with the hip fee suspension for 2019 , and , to a lesser extent , less favorable prior year reserve development in our commercial & specialty business segment during 2019 and margin normalization in our individual business . cost of products sold reflects the cost of pharmaceuticals dispensed by ingeniorx for our self-funded customers . ingeniorx began operations during the second quarter of 2019 , so there was no cost of products sold recognized in 2018. selling , general and administrative expense decreased primarily due to the suspension of the hip fee for 2019. this decrease was partially offset by a net increase in spend to support growth in our businesses . our selling , general and administrative expense ratio decreased due to the growth in total operating revenue and the suspension of the hip fee for 2019. our effective tax rate decreased primarily due to the suspension of the non-tax deductible hip fee for 2019. our net income as a percentage of total revenue increased as a result of all factors discussed above . reportable segments results of operations we use operating gain to evaluate the performance of our reportable segments , which are commercial & specialty business , government business , and other . operating gain is calculated as total operating revenue less benefit expense , cost of products sold and selling , general and administrative expense . it does not include net investment income , net realized gains ( losses ) on financial instruments , other-than-temporary impairment losses recognized in income , interest expense , amortization of other intangible assets , loss ( gain ) on extinguishment of debt or income taxes , as these items are managed in a corporate shared service environment and are
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the tax cuts and jobs act the tax cuts and jobs act was signed into law on december 22 , 2017 and includes provisions that will have an impact on our federal taxable income . the most significant of these are 100 % bonus depreciation on qualifying assets ( which is scheduled to phase down ratably to 0 % between 2023 and 2027 ) and a reduction in the federal corporate tax rate from 35 % to 21 % . the tax cuts and jobs act also includes a new limitation on the deductibility of net interest expense that generally limits the deduction to 30 % of adjusted taxable income . for years before 2022 , adjusted taxable income is defined as taxable income computed without regard to certain items , including net business interest expense , the amount of any nol deduction , tax depreciation and tax amortization . we do not expect to incur net interest expense that is greater than adjusted taxable income prior to 2022. year ended december 31 , 2016 compared with year ended december 31 , 2015 revenue consolidated revenues increased for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 primarily reflecting improved results at cp , principally our renewables business , and contribution from acquisitions at atlantic aviation and within mic hawaii . in addition , consolidated revenues increased for the year ended december 31 , 2016 due to the full year contribution from bec . these increases were partially offset by a decrease in revenue from imtt and a decline in the wholesale cost of fuel at atlantic aviation and wholesale cost of gas at mic hawaii . cost of services and product sales consolidated cost of services and product sales decreased for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 primarily due to a decline in the wholesale cost of fuel at atlantic aviation , lower costs at imtt and unrealized gains on commodity hedges and a decline in wholesale cost of gas at hawaii gas . these decreases were partially offset by the full year contribution from bec and acquisitions at atlantic aviation and within mic hawaii . selling , general and administrative expenses selling , general and administrative expenses decreased slightly for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 primarily due to absence of transaction costs related to the bec acquisition , costs associated with the conversion and a decrease in costs at imtt . the decrease was partially offset by incremental expenses associated with bec for the first quarter of 2016 , transactional and incremental costs from new acquisitions at both atlantic aviation and mic hawaii and professional fees associated with the implementation of a shared service center . 62 results of operations : consolidated ( continued ) fees to manager for the years ended december 31 , 2016 and 2015 , we incurred base management fees of $ 68.5 million and $ 70.6 million , respectively , and performance fees of $ 284.4 million for the year ended december 31 , 2015. no performance fees were incurred for the year ended december 31 , 2016. depreciation depreciation expense increased for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 primarily due to the full year depreciation at bec , the write-off of damaged tanks and docks at imtt and the depreciation associated with fbos acquired at atlantic aviation . the increase in depreciation expense was partially offset by the absence of non-cash impairments at atlantic aviation . amortization of intangibles amortization of intangibles decreased for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 primarily due to the absence of non-cash impairments at atlantic aviation . interest expense and losses on derivative instruments interest expense includes losses on derivative instruments of $ 5.0 million and $ 28.5 million for the years ended december 31 , 2016 and 2015 , respectively . for the year ended december 31 , 2016 , interest expense also included the non-cash write-off of deferred financing costs at atlantic aviation related to the october 2016 refinancing of its term loan and revolving credit facility and at hawaii gas related to the february 2016 refinancing of its $ 80.0 million term loan and its $ 60.0 million revolving credit facility . for the year ended december 31 , 2015 , interest expense also included the non-cash write-off of deferred financing costs at imtt related to the may 2015 refinancing . excluding the derivative adjustments and deferred financing cost write-offs , interest expense decreased for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 primarily due to an overall lower weighted average interest rate , partially offset by a higher average debt balance . cash interest expense was $ 107.9 million and $ 112.4 million for the years ended december 31 , 2016 and 2015 , respectively . as part of the refinancing of imtt 's debt in may 2015 , imtt paid $ 31.4 million in interest rate swap breakage fees related to the termination of out-of-the-money interest rate swap contracts related to prior debt facilities . in july 2015 , the company fully repaid the outstanding debt balance at bec and paid $ 19.2 million in interest rate swap breakage fees . other income , net other income , net , increased for the year ended december 31 , 2016 compared with year ended december 31 , 2015 primarily due to insurance recoveries on damaged docks at imtt and escrow proceeds received during the year related to our acquisition of bec . story_separator_special_tag income taxes the change from income tax benefit for the year ended december 31 , 2015 to income tax expense for the year ended december 31 , 2016 is primarily due to the absence of any tax benefit associated with the performance fees incurred during the first half of 2015. for the years ended december 31 , 2016 and 2015 , we did not have any federal alternative minimum tax liability . valuation allowance : at december 31 , 2016 and 2015 , we did not have a valuation allowance for our consolidated federal nol carryforwards . in calculating our consolidated state income tax provision , we provided a valuation allowance for certain state income tax nol carryforwards , the utilization of which is not assured beyond a reasonable doubt . during the year ended december 31 , 2016 , a significant portion of the state valuation allowance was reversed primarily due to the change in new york state tax law regarding consolidated filing requirements . as such , we decreased the valuation allowance by $ 14.7 million . 63 results of operations : consolidated ( continued ) earnings before interest , taxes , depreciation and amortization ( ebitda ) excluding non-cash items , free cash flow and proportionately combined metrics in addition to our results under u.s. gaap , we use certain non-gaap measures to assess the performance and prospects of our businesses . in particular , we use ebitda excluding non-cash items , free cash flow and certain proportionately combined financial metrics . proportionately combined financial metrics reflect our proportionate interest in our wind and solar facilities . we measure ebitda excluding non-cash items as it reflects our businesses ' ability to effectively manage the volume of products sold or services provided , the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of those businesses . we believe investors use ebitda excluding non-cash items primarily as a measure of the operating performance of mic 's businesses and to make comparisons with the operating performance of other businesses whose depreciation and amortization expense may vary widely from ours , particularly where acquisitions and other non-operating factors are involved . we define ebitda excluding non-cash items as net income ( loss ) or earnings the most comparable gaap measure before interest , taxes , depreciation and amortization and non-cash items including impairments , unrealized derivative gains and losses , adjustments for other non-cash items and pension expense reflected in the statements of operations . ebitda excluding non-cash items also excludes base management fees and performance fees , if any , whether paid in cash or stock . given our varied ownership levels in our cp and mic hawaii segments , together with our obligations to report the results of these businesses on a consolidated basis , gaap measures such as net income ( loss ) do not fully reflect all of the items we consider in assessing the amount of cash generated based on our proportionate interest in our wind and solar facilities . we note that the proportionately combined metrics used may be calculated in a different manner by other companies and may limit their usefulness as a comparative measure . therefore , proportionately combined metrics should be used as a supplemental measure and not in lieu of our financial results reported under gaap . our businesses are characteristically owners of high-value , long-lived assets capable of generating substantial free cash flow . we define free cash flow as cash from operating activities the most comparable gaap measure which includes cash paid for interest , taxes and pension contributions , less maintenance capital expenditures , which includes principal repayments on capital lease obligations used to fund maintenance capital expenditures , and excluding changes in working capital . we use free cash flow as a measure of our ability to provide investors with an attractive risk-adjusted total return by sustaining and potentially increasing our quarterly cash dividend and funding a portion of our growth . gaap metrics such as net income ( loss ) do not provide us with the same level of visibility into the performance and prospects of the business as a result of : ( i ) the capital intensive nature of our businesses and the generation of non-cash depreciation and amortization ; ( ii ) shares issued to our external manager under the management services agreement ; ( iii ) our ability to defer all or a portion of current federal income taxes ; ( iv ) non-cash unrealized gains or losses on derivative instruments ; ( v ) amortization of tolling liabilities ; ( vi ) gains ( losses ) on disposal of assets ; and ( vii ) pension expenses . pension expenses primarily consist of interest cost , expected return on plan assets and amortization of actuarial and performance gains and losses . any cash contributions to pension plans are reflected as a reduction to free cash flow . we believe that external consumers of our financial statements , including investors and research analysts , use free cash flow both to assess mic 's performance and as an indicator of its success in generating an attractive risk-adjusted total return . in this annual report on form 10-k , we have disclosed free cash flow on a consolidated basis and for each of our operating segments and mic corporate . we believe that both ebitda excluding non-cash items and free cash flow support a more complete and accurate understanding of the financial and operating performance of our businesses than would otherwise be achieved using gaap results alone . 64 results of operations : consolidated ( continued ) free cash flow does not take into consideration required payments on indebtedness and other fixed obligations or other cash items that are excluded from our definition of free cash flow . we note that free cash flow may be calculated differently by other companies thereby limiting its usefulness as a comparative measure .
| 58 results of operations : consolidated ( continued ) replace_table_token_12_th nm not meaningful ( 1 ) interest expense includes gains on derivative instruments of $ 3.0 million and losses on derivative instruments of $ 5.0 million and $ 28.5 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . year ended december 31 , 2017 compared with year ended december 31 , 2016 revenue consolidated revenues increased for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 primarily as a result of an increase in the wholesale cost and the volume of jet fuel sold at atlantic aviation , contributions from acquisitions and an increase in the wholesale cost and volume of gas sold at mic hawaii . the increase in the consolidated revenue for the year ended december 31 , 2017 also includes a contribution from imtt from the recognition of deferred revenue resulting from termination of a construction project by a customer . these increases were partially offset by reduced revenue from bec as a result of lower capacity prices and lower energy margins . cost of services and product sales consolidated cost of services and product sales increased for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 primarily due to an increase in the wholesale cost of jet fuel at atlantic aviation , the wholesale cost of gas at mic hawaii and contributions from acquisitions . the changes in consolidated cost of services and product sales were also attributable to unrealized losses on commodity hedges at hawaii gas in 2017 compared with unrealized gains in 2016 ( see results of operations mic hawaii below ) . 59 results of operations : consolidated ( continued ) selling , general and administrative expenses selling , general and administrative expenses increased for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 primarily due to ( i ) $ 9.3 million of costs incurred in connection with the evaluation of various investment and acquisition
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organic net sales , which excludes the impact of acquisitions and divestitures in the last 12 months , increased $ 254.1 million , or 10.7 % in fiscal 2020. the growth occurred in the second half of our fiscal year reflecting a rapid increase in consumer demand of a magnitude that continues to stress our supply chain . in the first six months of fiscal 2020 our organic net sales were relatively flat at 0.2 % reflecting , among other things , the initial impact of the pandemic and shelter-in-place mandates and the negative retail impact of reduced or eliminated foot traffic associated with covid-19 . in the second half of fiscal 2020 , with the reduction of shelter-in-place restrictions , listing gains and favorable garden season weather , our organic net sales increased 20.2 % . our branded product sales increased $ 216.3 million , and sales of other manufacturers ' products increased $ 96.2 million . branded product sales include products we produce under central brand names and products we produce under third-party brands . sales of our branded products represented 77.7 % of our total sales in fiscal 2020 compared with 78.8 % in fiscal 2019. private label sales represented approximately 15 % of consolidated net sales . the following table indicates each class of similar products which represented approximately 10 % or more of our consolidated net sales in the fiscal years presented : replace_table_token_7_th pet net sales for fiscal 2020 increased $ 177.5 million , or 12.8 % , to $ 1,562.2 million from $ 1,384.7 million in fiscal 2019. the increase in net sales was due primarily to organic sales growth and secondarily to non-organic sales from c & s products which was acquired in may 2019. organic net sales increased $ 147.9 million , or 10.7 % , impacted by covid-19 related increased consumption , as more consumers were at home , and increased pet ownership . the sales increase was broad-based across our pet segment portfolio led by increased sales in our dog and cat , third-party , wild bird feed and animal health businesses . these increases were partially offset by lower sales of live fish due to a major retailer 's decision in 2019 to exit the live fish business and the negative retail impact of reduced foot traffic resulting from covid-19 restrictions . pet branded sales increased $ 141.8 million and sales of other manufacturers ' products increased $ 35.7 million . 28 garden net sales for fiscal 2020 increased $ 135.0 million , or 13.5 % , to $ 1,133.3 million from $ 998.3 million in fiscal 2019. the increase in net sales was due primarily to organic sales growth and secondarily to non-organic sales from arden , which became 100 % owned upon our acquisition of the remaining equity interest in february 2019. organic sales increased $ 106.2 million , or 10.6 % , impacted by the increased consumer demand in the second half of the fiscal year . the organic sales increase was broad-based across our garden segment portfolio driven by increased sales of third-party products , control and fertilizer products and wild bird feed . garden segment sales benefited from increased home gardening and yard care due to covid-19 restrictions , new listings and favorable garden weather . the increase in sales was partially offset by our exit of the fashion décor pottery product line in mid-2019 and lower grass seed sales which were negatively impacted by competitive pressures , reduced promotional activity and commodity price pressure . garden branded sales increased $ 74.5 million and sales of other manufacturers ' products increased $ 60.5 million . gross profit gross profit for fiscal 2020 increased $ 92.5 million , or 13.1 % , to $ 796.6 million from $ 704.0 million in fiscal 2019 , and gross margin increased 10 basis points to 29.6 % in fiscal 2020 from 29.5 % in fiscal 2019. both operating segments contributed to the increase in gross profit , while the garden segment was the driver of the increase in gross margin . overall , increased sales resulted in improved overhead leverage partially offset by a negative sales mix impacted by the sales growth in our distribution businesses . in the pet segment , gross profit increased due to increased segment sales while gross margin was flat as compared to the prior year . increased sales and volume-related efficiencies , cost improvements and a positive sales mix within the animal health and dog and cat businesses were offset by lower margins in our live fish , impacted by a large retailers decision to exit the live fish business , and aquatics businesses due primarily to lower sales and the related under absorption of overhead . in the garden segment , gross profit increased due to increased sales and a slightly improved gross margin . garden 's gross margin was aided by the increased sales and the resulting overhead leverage partially offset by an unfavorable sales mix . gross margin improved in most of our garden businesses , including our controls and fertilizers business and vendor partner business , but was negatively impacted by a lower gross margin in our grass seed business , impacted by lower sales , and our wild bird feed business , impacted by customer mix and higher commodity costs . although the gross margin of the vendor partner business improved , its higher sales negatively impacted the garden segments overall margin due the lower margins associated with the distribution business . selling , general and administrative selling , general and administrative expenses increased $ 46.6 million , or 8.4 % , from $ 552.0 million in fiscal 2019 to $ 598.6 million in fiscal 2020. as a percentage of net sales , selling , general and administrative expenses decreased from 23.2 % in fiscal 2019 to 22.2 % in fiscal 2020. the increase in selling , general and administrative expense dollars , and the decline as a percentage of net sales occurred in both operating segments and in corporate . story_separator_special_tag corporate expenses are included within administrative expense and relate to the costs of unallocated executive , administrative , finance , legal , human resource , and information technology functions . selling and delivery expense increased $ 19.8 million , or 7.0 % , from $ 282.3 million in fiscal 2019 to $ 302.1 million in fiscal 2020 but as a percentage of net sales decreased from 11.8 % in fiscal 2019 to 11.2 % in fiscal 2020. the increase in selling and delivery expense was due primarily to our recent acquisitions , increased marketing expense which includes our increased spend in ecommerce and digital marketing , and increased delivery expense due to the sales volume increase and higher freight costs . the decline in selling and delivery expense as a percentage of net sales was due primarily to improved overhead absorption and reduced travel and entertainment expense . warehouse and administrative expense increased $ 26.9 million , or 10.0 % , from $ 269.6 million in fiscal 2019 to $ 296.5 million in fiscal 2020 and decreased as a percentage of net sales to 11.0 % in fiscal 2020 from 11.3 % in fiscal 2019. in our operating segments , the increase was due primarily to our two recent acquisitions , increased labor expense , front-line worker bonuses , and increased variable compensation expense partially offset by the impact of our exit of the fashion décor pottery product line in mid-2019 . corporate expense increased due primarily to variable compensation expense due to improved results , third-party expense , which includes costs related to the development of our vison 2025 plan , equity compensation expense and personal protection equipment ( ppe ) costs . also , we incurred additional expense for ppe in both operating segments and at corporate . operating income operating income increased $ 45.9 million , or 30.2 % , to $ 198.0 million in fiscal 2020 from $ 152.1 million in fiscal 2019. our operating margin was 7.3 % in fiscal 2020 , increasing from 6.4 % in fiscal 2019. increased sales of $ 312.5 million , a 10 basis point improvement in gross margin and a 100 basis point improvement in selling , general and administrative expense as a percentage of net sales all contributed to the operating margin improvement . pet operating income increased $ 31.5 million , or 25.6 % , to $ 154.2 million in fiscal 2020 from $ 122.7 million for fiscal 2019. the increase was due to increased sales partially offset by increased selling , general and administrative expenses . our pet operating margin 29 improved to 9.9 % in fiscal 2020 from 8.9 % in fiscal 2019 due to lower selling , general and administrative expense as a percentage of net sales . both operating income and margin were favorably impacted by significant pandemic-related increases in demand for our products . garden operating income increased $ 30.4 million , or 29.8 % , to $ 132.6 million for fiscal 2020 from $ 102.2 million for fiscal 2019. the increase was due to increased sales and higher gross margin partially offset by higher selling , general and administrative expenses . both operating income and margin were favorably impacted by significant pandemic-related increases in demand for our products . corporate expense increased due primarily to higher variable compensation expense due to improved results , third-party expense , which includes costs related to the development of our vision 2025 plan , equity compensation expense and ppe costs . net interest expense net interest expense increased $ 6.9 million , or 21.0 % , from $ 33.1 million in fiscal 2019 to $ 40.0 million in fiscal 2020. the increase in net interest expense was due primarily to lower interest income due to the lower rates available on our cash balance during fiscal 2020. debt outstanding on september 26 , 2020 was $ 694.1 million compared to $ 693.2 million as of september 28 , 2019. our average borrowing rate for fiscal 2020 was 5.6 % and for fiscal 2019 was 5.8 % . other income ( expense ) other income ( expense ) is comprised of income or loss from investments accounted for under the equity method of accounting , including any associated impairments of equity method investments and foreign currency exchange gains and losses . other expense was $ 4.3 million for the fiscal year ended september 26 , 2020 compared to income of $ 0.2 million for the fiscal year ended september 28 , 2019 , due primarily to a $ 3.6 million impairment of two investments in private companies impacted by the covid-19 pandemic during fiscal 2020. income taxes our effective income tax rate was 21.0 % for fiscal 2020 compared to 22.3 % for fiscal 2019. the decrease in our effective income tax rate in fiscal 2020 compared to fiscal 2019 was due primarily to both lower state tax rates and the use of state net operating losses . net income and earnings per share our net income for fiscal 2020 was $ 120.7 million , or $ 2.20 per diluted share , compared to $ 92.8 million , or $ 1.61 per diluted share , for fiscal 2019. the fiscal 2020 36.6 % improvement in earnings per diluted share was due to strong revenue and operating income growth and a 5 % reduction in fully diluted shares . the reduction in outstanding shares reflected shares repurchased in the first half of fiscal 2020 offset by issuances of stock from our 401k and equity plans . fiscal 2019 compared to fiscal 2018 for a discussion of our results of operations in fiscal 2019 compared to fiscal 2018 , please see item 7 of our annual report on form 10-k for the fiscal year ended september 28 , 2019 filed with the sec . use of non-gaap financial measures we report our financial results in accordance with accounting principles generally accepted in the united states ( gaap ) .
| the impact of covid-19 and measures to prevent its spread are affecting our business in a number of ways . central is considered an essential business in most jurisdictions and almost all of our employees continue to work to meet essential needs . we have been actively addressing the covid-19 situation and its impact on our employees , customers and business . from the beginning , our priority has been the safety of our employees , customers and consumers . our employees have prioritized the health and safety of fellow team members while collaborating across our business to ensure we operate as safely and seamlessly as possible in order to provide a steady supply of product to our customers . in the beginning of the pandemic , we mobilized a cross-functional task force focused on understanding and communicating the critical issues related to the covid-19 pandemic to mitigate the potential impacts to our people and business . our facility maintenance of health and safety standards remains paramount . our teams have worked hard to do the following : ensure constant communication and regularly share pertinent information around health , safety and benefits ; take extra precautions in our manufacturing facilities , distribution centers and offices with guidance from health authorities including social distancing , staggering shifts , procuring necessary personal protection equipment , partitions , sanitation supplies and investing in regular deep cleanings of our facilities ; implement travel restrictions and work-from-home policies for employees who have the ability to work from home in accordance with shelter-in-place orders ; and adhere to all local , state and federal requirements . 26 central is seeing varying impacts to our garden and pet businesses due to covid-19 . in march and april , we experienced increased demand in pet consumables due to consumers stocking up on products as the covid-19 shelter-in-place mandates were implemented . we also saw reduced consumption on other items , such as live fish and live plants , due to in-store curtailments of foot traffic and limited access
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if an entity believes , as a result of its qualitative assessment , that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount including goodwill , the quantitative impairment test is required . otherwise , no further testing is required . the decision to perform a qualitative assessment or perform a complete step 1 analysis is an annual decision made by management based on several factors including budget to actual performance , economic , market and industry considerations such as automotive production rates in the geographic markets we serve and cash flow from operations . u.s. gaap prescribes a quantitative two-step process of testing for goodwill impairments . the first step is to determine if the carrying value of the reporting unit with goodwill is less than the related fair value of the reporting unit . we determine the fair value of the reporting unit through use of discounted cash flow methods and market based multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies . we believe this methodology of valuation is consistent with how market participants would value reporting units . the discount rate and market based multiples used are specifically developed for the units tested regarding the level of risk and end markets served . even though we do use other observable inputs ( level 2 inputs under the u.s. gaap hierarchy ) the calculation of fair value for goodwill would be most consistent with level 3 under the u.s. gaap hierarchy . if the carrying value of the reporting unit , including goodwill , is less than fair value of the reporting unit , the goodwill is not considered impaired . if the carrying value is greater than fair value then the potential for impairment of goodwill exists . the potential impairment is determined by allocating the fair value of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in a business combination . the fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognized if the carrying value is greater than the implied fair value . our indefinite lived intangible asset is accounted for similarly to goodwill . this asset is tested for impairment at least annually by comparing the fair value to the carrying value , using the relief from royalty rate method , and if the fair value is less than the carrying value , an impairment charge is recognized for the difference . the indefinite lived intangible asset was impaired during the year ended december 31 , 2014 , as management is in the process of phasing out the use of the trade name as a result of the autocam acquisition . income taxes . income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . the calculation of tax assets , liabilities , and expenses under u.s. gaap is largely dependent on management judgment of the current and future deductibility and utilization of taxable expenses and benefits using a more likely than not threshold . specifically , the realization of deferred tax assets and the certainty of tax positions taken are largely dependent upon management weighting the current positive and negative evidence for recording tax benefits and expenses . additionally , many of our positions are based on future estimates of taxable income and deductibility of tax positions . particularly , our assertion of permanent reinvestment of foreign undistributed earnings is largely based on management 's future estimates of domestic and foreign cash flows and current strategic foreign investment plans . in the event that the actual outcome from future tax consequences differs from management estimates and assumptions or management plans and positions are amended , the resulting change to the provision for income taxes could have a material impact on the consolidated results of operations and statement of financial position . ( see notes 1 and 13 of the notes to consolidated financial statements ) . 21 the company does not record a u.s. deferred tax liability for the excess of the book basis over the tax basis of its investments in foreign subsidiaries to the extent the foreign earnings meet the indefinite reversal criteria . as of the year ended december 31 , 2014 , we consider the unremitted foreign earnings of our foreign subsidiaries to be reinvested indefinitely . we base this assertion on two factors . first , our intention to invest in foreign countries that are strategically important to our metal bearing components segment and our autocam precision components segment and our customers . with the acquisitions completed in 2014 , we have significantly expanded our international base of operations adding subsidiaries in mexico , bosnia and herzegovina , brazil , poland , france and china which will require more foreign investment . second , we have sufficient access to funds in the u.s. through projected free cash flows and the availability of our credit facilities to fund currently anticipated domestic operational and investment needs . as such , we do not expect unrepatriated foreign earnings to become subject to u.s. taxation . impairment of long-lived assets . our long-lived assets include property , plant and equipment . story_separator_special_tag the recoverability of the long-term assets is dependent on the performance of the companies which we have acquired or built , as well as the performance of the markets in which these companies operate . in assessing potential impairment for these assets , we will consider these factors as well as forecasted financial performance based , in large part , on management business plans and projected financial information which are subject to a high degree of management judgment and complexity . future adverse changes in market conditions or adverse operating results of the underlying assets could result in having to record additional impairment charges not previously recognized . results of operations the following table sets forth for the periods indicated selected financial data and the percentage of our net sales represented by each income statement line item presented . replace_table_token_6_th 22 sales concentration sales to various u.s. and foreign divisions of skf , one of the largest bearing manufacturers in the world , accounted for approximately 26 % of consolidated net sales in 2014. during 2014 , sales to various u.s. and foreign divisions of our ten largest customers accounted for approximately 66 % of our consolidated net sales . none of our other customers individually accounted for more than 10 % of our consolidated net sales for 2014. the loss of all or a substantial portion of sales to these customers would cause us to lose a substantial portion of our revenue and have a corresponding negative impact on our operating profit margin due to the operational leverage these customers provide . this could lead to sales volumes not being high enough to cover our current cost structure or to provide adequate operating cash flows or cause us to incur additional restructuring and or impairment costs . due to a limit on the amount of excess bearing component production capacity in the markets we serve , we believe it would be difficult for any of our top ten customers to take a significant portion of our business away in the short term . year ended december 31 , 2014 compared to the year ended december 31 , 2013. the year ended december 31 , 2014 , was significantly impacted by certain costs related to the autocam acquisition and to a lesser extent the three other acquisitions completed in 2014. the net after tax impact of these costs was $ 13,553. the following is a summary of these costs : 8,534 reported in acquisition related costs excluded from selling , general and administrative are third party legal , accounting , valuation consulting and investment banking advisory fees . 1,384 reported in cost of products sold , the fair value step-up in autocam inventory sold in september . 1,398 reported in interest expense , writing off debt issuance costs from our former credit facilities refinanced as part of the autocam acquisition 1,576 reported in interest expense , make whole interest costs for our former credit facilities refinanced as part of the autocam acquisition 1,939 integration costs related to the four acquisitions reported in cost of products sold , selling , general and administrative and other expense ( income ) , net . ( 2,580 ) tax benefits of above expenses that are tax deductible 1,302 foreign tax credits expired unutilized due to mergers and acquisition costs noted above 13,553 total we have provided a reconciliation of net income to adjusted net income ( a non-gaap measure used by management ) and income from operations to adjusted income from operations ( a non-gaap measure used by management ) to provide supplementary information about the impacts of acquisition related expenses . we believe that the presentation of adjusted income from operations and adjusted net income provides useful information to investors in assessing our results of operations and potential future results in light of the high level of acquisition expenses incurred during the period . these measures should not be considered as an alternative to gaap income from operations or net income . you should not consider adjusted income from operations or adjusted net income in isolation or as a substitute for analysis of our results as reported under gaap . additionally , because adjusted income from operations and adjusted net income may be defined differently by other companies in our industry , our definitions may not be comparable to similarly titled measures of other companies , thereby diminishing their utility . 23 overall results replace_table_token_7_th 24 net sales . net sales increased during 2014 compared to 2013 principally due to sales from the four companies acquired in 2014. net sales reported for 2014 includes four month of autocam , six months of rfk , five months of chelsea , and 11 months of vs. additionally , net sales increased due to greater demand for our products in the european , north american and asian automotive markets . the growth with our customers over the prior year was generally consistent with the overall growth in automotive production in those geographic regions . additionally , we have continued to benefit from improved market share with certain customers and adjacent market expansion . the reduction in price and raw material pass-through ( in 2014 compared to 2013 ) was driven mainly by lower levels of material inflation in our businesses which led to lower pass-through to our customers and due to contractual price decreases for certain long-term sales programs . the unfavorable sales impact related to mix was due to experiencing higher volumes of certain products that have lower prices than our average product assortment sold during the comparable period . the majority of the unfavorable mix occurred in the first six months of 2014. cost of products sold ( exclusive of depreciation and amortization shown separately below ) . cost of products sold was primarily impacted by the addition of production costs added with the four companies acquired in 2014 as discussed above . additionally , we experienced increased production costs at those units with higher sales volumes , as discussed above .
| the reduction in segment net income was primarily due to recording $ 3.0 million in u.s. tax expense during 2013 versus not recognizing tax expense for the segment during 2012 as all the deferred tax assets of our u.s. units were offset by full valuation allowances . additionally , in 2012 the segment net income included $ 1.8 million of net tax benefits related to the reversal of valuation allowances on segment deferred tax assets at december 31 , 2012. beyond the tax effects , segment pre-tax income was $ 2.2 million higher in 2013 compared to 2012. the segment net income benefitted from profits of $ 0.6 million after-tax from the higher sales volumes and through cost reduction projects and operational improvements of $ 0.9 million after-tax . plastic and rubber components segment replace_table_token_14_th sales were down due to lower volume from certain sales programs ending , deemphasizing certain low margin platforms and the timing of demand at certain industrial product customers . segment net income decreased $ 1.7 million after-tax due to the negative effects of lower sales volumes and not being able to fully offset fixed production costs as sales declined . additionally , 2012 segment net income was favorably impacted by $ 2.2 million of net tax benefits related to the reversal of valuation allowances on segment deferred tax assets at december 31 , 2012 . 29 changes in financial condition from december 31 , 2013 to december 31 , 2014. from december 31 , 2013 to december 31 , 2014 , our total assets increased $ 450.3 million and our current assets increased $ 117.1 million . the vast majority of these increases were due to total assets and current assets acquired of $ 433.9 million and $ 92.9 million , respectively , and the related preliminary fair value step-ups for the four acquisitions completed in 2014. foreign exchange translation impacted the balance sheet
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we entered into a new joint venture named echo financing , llc to buy and sell homes , as well as to offer another financing option to purchasers of homes at our properties . chattel financing options available today include community owner funded programs or third party lender programs which provide subsidized financing to customers and require the community owner to guarantee customer defaults . third party lender programs have stringent underwriting criteria , sizable down payment requirements , short loan amortization and high interest rates . in this environment , we believe that customer demand for rentals , which do not require a down payment , is high . we are responding to this by renting our vacant new and used homes . this may represent an attractive source of occupancy as we transition from renters to new home buyers in the future . we are also focusing on sales of homes within our manufactured home properties . our core portfolio ( as defined below ) used home sales in our manufactured home communities during the year ended december 31 , 2013 increased 29 % over the same period of the prior year . as of december 31 , 2013 , we had 5,471 occupied manufactured home rentals . for the year ended december 31 , 2013 and 2012 , rental program net operating income was approximately $ 39.0 million and $ 32.4 million , respectively , net of rental asset depreciation expense of approximately $ 6.5 million and $ 5.6 million , respectively . approximately $ 38.7 million and $ 32.7 million of rental operations revenue was included in community base rental income for the year ended december 31 , 2013 and 2012 , respectively . we believe that , unlike the new home sales business , at this time we compete effectively with other types of rentals ( i.e. , apartments ) . we continue to evaluate home rental operations and may continue to invest in additional units . in our resort properties , we are focused on engaging with our existing customers and providing them the lifestyle they seek as well as attracting additional customers interested in our properties . we continue to see growth in our annual revenues . 2013 core annual revenues were 3.9 % higher than 2012. our customer base is loyal and engaged in the lifestyle we offer at our properties . we have annual customers who have stayed ten years with us and our member base includes members who have camped with us for more than twenty years . our social media presence has increased within this member base . in the spring of 2010 , we introduced low-cost membership products that focus on the installed base of approximately nine million rv owners . such products include right-to-use contracts that entitle the customer to use certain properties . we are offering a zone park pass ( “ zpp ” ) , which can be purchased for one to five zones of the united states and requires annual payments . beginning on february 1 , 2013 , the required annual payments increased from $ 499 to $ 525. the zpp replaces high cost products that were typically entered into at properties after tours and lengthy sales presentations . prior to 2010 , we incurred significant costs to generate leads , conduct tours and make sales presentations . a single zone zpp requires no additional upfront payment while additional zones may be purchased for modest additional upfront payments . since inception we have entered into approximately 37,700 zpps . for the year ended december 31 , 2013 , we entered into approximately 15,500 zpps , or a 53.5 % increase from approximately 10,100 zpps for the year ended december 31 , 2012 . of the 15,500 zpp 's activated during the year ended december 31 , 2013 , 8,800 were sold to dues paying members . in 2012 , we initiated a program with rv dealers to feature our zpp as part of the dealers ' sales and marketing efforts . in return , we provide the dealer with a zpp membership to give to their customers in connection with the purchase of an rv . since the inception of the zpp program with the rv dealers , we have activated 7,607 zpps . while certain rv dealers make up-front cash payments in exchange for the zpp they bundle with an rv sale , no cash is received from the members during the first year of membership for memberships activated through the rv dealer program . through the year ended december 31 , 2013 , memberships activated through the rv dealer program have contributed approximately $ 2.2 million of non-cash revenue which was offset by non-cash expense related to the sales and marketing activity . going forward , we will no longer recognize non-cash revenue or expenses related to these memberships . 32 existing customers are eligible to upgrade their right-to-use contract from time-to-time . an upgrade is currently distinguishable from a new right-to-use contract that a customer would enter into by , depending on the type of upgrade , offering ( 1 ) increased length of consecutive stay by 50 % ( i.e. , up to 21 days ) ; ( 2 ) ability to make earlier advance reservations ; ( 3 ) discounts on rental units ; ( 4 ) access to additional properties , which may include use of sites at non-membership rv properties and ( 5 ) membership in discount travel programs . each upgrade contract requires a nonrefundable upfront payment . we may finance the nonrefundable upfront payment . we actively seek to acquire additional properties and currently are engaged in negotiations relating to the possible acquisition of a number of properties . at any time these negotiations are at varying stages , which may include contracts outstanding to acquire certain properties , which are subject to satisfactory completion of our due diligence review . story_separator_special_tag property acquisitions , joint ventures and dispositions the following chart lists the properties or portfolios acquired , invested in , or sold since january 1 , 2012 through december 31 , 2013. replace_table_token_17_th the gross investment in real estate has increased approximately $ 183 million to $ 4,228 million as of december 31 , 2013 from $ 4,045 million as of december 31 , 2012 primarily due to the aforementioned acquisitions of properties during the period . 33 markets the following table identifies our largest markets by number of sites and provides information regarding our properties ( excluding five properties owned through joint ventures ) . replace_table_token_18_th _ ( 1 ) property operating revenues for this calculation excludes approximately $ 13.7 million of property operating revenue not allocated to properties , which consists primarily of upfront payments from right-to-use contracts . qualification as a reit we believe that we have qualified for taxation as a real estate investment trust ( “ reit ” ) for u.s. federal income tax purposes since our taxable year ended december 31 , 1993. we plan to continue to meet the requirements for taxation as a reit . many of these requirements , however , are highly technical and complex . for example , to qualify as a reit , at least 95 % of our gross income must come from sources that are itemized in the reit tax laws . we are also required to distribute to stockholders at least 90 % of our reit taxable income computed without regard to our deduction for dividends paid and our net capital gain.the fact that we hold our assets through the operating partnership and our subsidiaries further complicates the application of the reit requirements . if we fail to qualify as a reit , we would be subject to u.s. federal income tax at regular corporate rates . also , unless the irs granted us relief under certain statutory provisions , we would remain disqualified as a reit for four years following the year we first failed to qualify . even if we qualify for taxation as a reit , we are subject to certain foreign , state and local taxes on our income and property and u.s. federal income and excise taxes on our undistributed income . story_separator_special_tag style= '' line-height:120 % ; padding-top:6px ; text-align : justify ; text-indent:36px ; font-size:10pt ; '' > the following tables for the comparison of the year ended december 31 , 2012 to the year ended december 31 , 2011 exclude the results from the 11 properties that have been reclassified to “ discontinued operations ” on the consolidated statements of income and comprehensive income . income from property operations the following table summarizes certain financial and statistical data for the property operations for all properties owned and operated for the same period in both years ( “ core portfolio ” ) and the total portfolio for the years ended december 31 , 2012 and 2011 ( amounts in thousands ) . the core portfolio may change from time-to-time depending on acquisitions , dispositions and significant transactions or unique situations . the core portfolio in this comparison of the year ended december 31 , 2012 to december 31 , 2011 includes all properties acquired on or prior to december 31 , 2010 and which we have owned and operated continuously since january 1 , 2011. core portfolio growth percentages exclude the impact of gaap deferrals of upfront payments from right-to-use contracts entered and related commissions . replace_table_token_25_th the 2.9 % increase in core portfolio community base rental income primarily reflects a 2.3 % increase in rates and a 0.6 % increase in occupancy . the average monthly base rent per site increased to $ 567 in 2012 from $ 554 in 2011. the average occupancy increased to 91.5 % in 2012 from 90.9 % in 2011 . 38 resort base rental income is comprised of the following ( amounts in thousands ) : replace_table_token_26_th the increase in rental home income and rental home operating and maintenance are discussed in further detail in the rental operations table below . during the year ended december 31 , 2012 , utility and other income includes the accelerated recognition of $ 2.1 million of revenue related to the early termination of a multi-year cable service agreement . the core portfolio and total portfolio property operating revenues for the year ended december 31 , 2012 were negatively impacted by the temporary cessation of the entry of right-to-use contracts ( membership upgrades ) in connection with third party sales force training and the roll out of new membership upgrade products during the year ended december 31 , 2012. as a result , membership upgrade sales , which are included in right-to-use contracts current period , gross , were down $ 4.4 million compared to the year ended december 31 , 2011. the decrease in right-to-use contracts for the year ended december 31 , 2012 was offset by a $ 0.4 million decrease in sales and marketing expenses , resulting in a net decline of $ 4.0 million from these activities compared to the year ended december 31 , 2011. the following growth rate percentages exclude property management expense ( amounts in thousands ) : replace_table_token_27_th the increase in total portfolio income from property operations is primarily due to the acquisition of the 2011 acquisition properties on various dates during the six months ended december 31 , 2011 . 39 home sales operations the following table summarizes certain financial and statistical data for the home sales operations for the years ended december 31 , 2012 and 2011 ( amounts in thousands , except home sales volumes ) . replace_table_token_28_th _ ( 1 ) includes three third-party dealer sales for the year ended december 31 , 2011 . ( 2 ) includes one third-party dealer sale for the year ended december 31 , 2011 . income from home sales operations decreased primarily as a result of decreased profit on used home sales and a decrease in ancillary revenues .
| resort base rental income is comprised of the following ( amounts in thousands ) : replace_table_token_20_th the increase in rental home income and rental home operating and maintenance are discussed in further detail in the rental operations table below . the 0.6 % increase in right-to-use annual payments is primarily due to an increase in member count . during the year ending december 31 , 2013 , our member count increased by 1,590 members compared to the same period in 2012 . right-to-use contracts current period , gross , net of sales and marketing , gross , decreased primarily due to an increase in sales and marketing expenses . 35 the following growth rate percentages exclude property management expense ( amounts in thousands ) : replace_table_token_21_th the increase in total portfolio income from property operations is primarily due an increase in rates and occupancy in community base rental income and resort base rental income due to increases in annual , seasonal , and transient revenues partially offset by the property operating and maintenance increases described above . home sales operations the following table summarizes certain financial and statistical data for the home sales operations for the years ended december 31 , 2013 and 2012 ( amounts in thousands , except home sales volumes ) . replace_table_token_22_th _ ( 1 ) includes 26 home sales through our echo joint venture and one third-party dealer sale for the year ended december 31 , 2013 . includes one third-party home sale for the year ended december 31 , 2012. the increase in income from home sales operations and other is primarily due to an increase in home sales volume at generally higher prices resulting in higher gross profits on used home sales as well as ancillary operations throughout our portfolio . 36 rental operations the following table summarizes certain financial and statistical data for manufactured home rental operations for the years ended december 31 , 2013 and 2012 ( amounts in thousands , except rental unit volumes ) . replace_table_token_23_th _ ( 1 ) approximately $ 38.7 million and $ 32.7 million as of december 31 , 2013 and 2012 , respectively , of site rental income are included in
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( a ) evaluation of disclosure controls and procedures we carried out an evaluation , under the supervision and with the participation of our management including our chief executive officer and our chief financial officer , of story_separator_special_tag general overview on january 15 , 2010 , we completed the five star sale , in which we sold to merit all of the issued and outstanding shares of five star stock for cash pursuant to the terms and subject to the conditions of the five star stock purchase agreement ( see note 3 to the consolidated financial statements ) . see “ item 1. business – general development of business ” . upon the consummation of the five star sale , we became a “ shell company ” , as defined in rule 12b-2 of the exchange act . on december 19 , 2012 ( the “ closing date ” ) the company , completed the acquisition of winthrop , an investment management , financial advisory and investment research firm , pursuant to the merger agreement dated june 18 , 2012. in accordance with the merger agreement , a wholly-owned newly formed subsidiary of the company , was merged with and into winthrop and winthrop became a wholly-owned subsidiary of the company ( see note 1 to the consolidated financial statements ) . as a result of the completion of the merger described above , the company is no longer a “ shell company ” as that term is defined in rule 405 under the securities act , and rule 12b-2 under the exchange act . as more fully described below , substantially all of the company 's business operations are carried out through winthrop and its subsidiaries , the wright companies . on the closing date , 881,206 shares of the company 's common stock were issued by the company as merger consideration to those holders of winthrop common stock who elected to receive company common stock as merger consideration and the company paid cash totaling $ 4,852,000 to those holders of winthrop common stock who elected to receive cash as merger consideration . pursuant to the merger agreement and an investors ' rights agreement , holders of winthrop common stock who elected to receive company common stock as merger consideration were subject to a three-year transfer restriction on such company common stock . further , the company agreed to pay contingent consideration in cash to a holder of winthrop common stock who received 852,228 shares of company common stock to the extent that such shares have a value of less than $ 1,900,000 on the expiration of the three year period based on the average closing price of the company 's common stock for the ten trading days prior to such date . the contingent cash consideration paid in december 2015 was $ 236,000. pursuant to the merger agreement , the company has entered into employment agreements with four key winthrop employees having initial terms of five years for one employee and three years for three employees which provide for compensation in the form of base salary , various bonuses and restricted stock units , representing company common stock ( “ rsus ” ) . the employment agreements provide for automatic annual renewals unless notice of non-renewal is given at least six months prior to the applicable employment period . on june 16 , 2015 , the three key executives with three year contracts were informed that their contracts would not be automatically renewed . see notes 14 and 16 ( b ) to the consolidated financial statements . legal proceedings on or about may 17 , 2011 , the merit group , inc. ( “ merit ” ) filed for chapter 11 bankruptcy protection in the united states bankruptcy court for the district of south carolina . on or about december 14 , 2011 , the official committee of unsecured creditors of tmg liquidation company ( formerly known as the merit group , inc. ) filed in that court an adversary proceeding against the company ( the “ avoidance action ” ) now captioned cohnresnick llp , as plan administrator v. national patent development corp. ( in re tmg liquidation co. ) . the avoidance action sought , among other things , to avoid and recover the consideration paid by merit to the company for the purchase of five star products , inc. ( “ five star ” ) from the company under the stock purchase agreement , dated november 24 , 2009 ( the “ agreement ” ) , as a constructive fraudulent transfer under sections 548 , 550 , and 551 of the bankruptcy code . 19 on august 2 , 2013 , the company entered into a settlement agreement and release ( the “ settlement agreement ” ) with cohnreznick llp ( the “ plan administrator ” ) to settle the avoidance action . under the terms of the settlement agreement , the plan administrator was required to file with the bankruptcy court , no later than august 9 , 2013 , a motion to approve the settlement agreement ( the “ settlement motion ” ) and a proposed order approving relief to be requested in the settlement motion ( the “ proposed order ” ) . pursuant to the settlement agreement , the company agreed to make a settlement payment of $ 2,375,000 ( the “ settlement payment ” ) to the plan administrator conditioned upon the entry of an order ( the “ approval order ” ) by the bankruptcy court approving the settlement motion , that is in a form acceptable to the company and in substantially the same form as the proposed order . story_separator_special_tag the bankruptcy court entered an order approving the settlement agreement on september 4 , 2013 , and the settlement agreement required the company to make the settlement payment within fifteen days of the approval order becoming a final , non-appealable order ( a “ final order ” ) . on october 3 , 2013 , the company made a payment of $ 2,375,000 to the plan administrator pursuant to the terms of the settlement agreement . the settlement agreement also provides for general mutual releases by each of the parties , including a general release in favor of the company and its affiliates , and the company 's and its affiliates ' officers , directors , employees , agents , and professionals . the mutual releases became effective upon entry of the final order and receipt of the settlement payment by the plan administrator . in addition , pursuant to the terms of the settlement agreement , on october 9 , 2013 the plan administrator made the requisite filings to dismiss , with prejudice , the avoidance action and a second pending adversary complaint against the company . upon entry of the final order by the bankruptcy court , the company resolved all claims and causes of action that have been or could have been asserted against it by the plan administrator . as a result of entering into the settlement agreement , during the second quarter ended june 30 , 2013 , the company recorded a loss in discontinued operations of $ 2,375,000 in connection with the avoidance action . in april 2014 , the company agreed to a settlement of its insurance claim related to this matter , and received a net payment of $ 525,000 , which was recorded as income in discontinued operations in 2014. on september 26 , 2014 , the connecticut department of energy and environmental protection ( “ deep ” ) issued two orders requiring the investigation and repair of two dams in which the company and its subsidiaries have certain ownership interests . the first order requires that the company investigate and make specified repairs to the acme pond dam located in killingly , connecticut . the second order , as subsequently revised by deep on october 10 , 2014 , requires that the company investigate and make specified repairs to the killingly pond dam located in killingly , connecticut . the company has administratively appealed and contested the allegations in both orders . as the administrative appeal of both orders is in its early stages , it is not possible at this time to evaluate the likelihood of , or to estimate the range of loss from , an unfavorable outcome . investments investment in undeveloped lands the company owns certain non-strategic assets , including an investment and interests in land and flowage rights in undeveloped property in killingly , connecticut . the company monitors this investment for impairment by considering current factors , including the economic environment , market conditions , operational performance and other specific factors relating to the business underlying the investment , and records impairments in carrying values when necessary . investment in mxl operation the company had a 19.9 % interest in mxl carried at its cost of $ 275,000. on february 3 , 2014 mxl exercised its right to purchase the company 's 19.9 % interest . the company received $ 994,000 for its 19.9 % interest on march 26 , 2014 , resulting in a gain of $ 719,000. management discussion of critical accounting policies the following discussion and analysis of the financial condition and results of operations are based on the consolidated financial statements and notes to consolidated financial statements contained in this report that have been prepared in accordance with the rules and regulations of the sec and include all the disclosures normally required in annual consolidated financial statements 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 that affect the reported amounts of assets , liabilities , sales and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on historical results and various other assumptions believed to be reasonable , all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates . 20 certain of our accounting policies require higher degrees of judgment than others in their application . these include stock based compensation and accounting for income taxes which are summarized below . employees ' stock based compensation . stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period , which is generally the vesting period . the valuation provisions of asc 718 apply to new grants and to grants that were outstanding as of the effective date of asc 718 and are subsequently modified . see note 14 to the consolidated financial statements for further information regarding our stock-based compensation assumptions and expense . income taxes income taxes are provided for based on the asset and liability method of accounting . deferred tax assets and liabilities are recognized for the estimated 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 in effect for the year in which those temporary differences are expected to be recovered or settled .
| at december 31 , 2015 and 2014 , aum was $ 1.45 billion . for the year ended december 31 , 2015 the company had deposits of $ 208 million and increased market value of $ 7 million , offset by redemptions and withdrawals of $ 216 million . revenue winthrop markets its investment management products and services to plan sponsors , trade unions , endowments , corporations , state and local governments , municipalities and foundations . the winthrop products include equity , fixed income and balanced portfolios for various plan types , including defined benefit , annuity , self-directed and 401 ( k ) , health and welfare and education and training plans . in addition , winthrop helps bank trust departments and trust companies satisfy part or all of their investment management functions . winthrop delivers fiduciary level investment management services to these institutions ' clients by providing active oversight of each account 's asset allocation and security selection . its offerings include investment management solutions utilizing individual securities or mutual funds . mutual fund models developed by winthrop utilize a combination of wright mutual funds as well as mutual funds from other investment managers . wpam offers programs to support high net worth investors and other individual investors . wpam manages a variety of accounts including : discretionary investment accounts , individual retirement accounts ( iras ) , 401k plans and accounts for non-corporate fiduciaries , such as trustees , executors , guardians , personal representatives , attorneys and other professionals who are responsible for the assets of others and must manage those assets in accordance with the prudent investor act . this investment process , developed and monitored by the wright investment committee , and related investment strategies , are utilized to address the objectives of wpam clients . winthrop , through its wisdi affiliate , offers a diversified family of mutual funds . wright mutual funds are utilized by the wright companies and others to build or supplement managed investment portfolios designed to address clients ' financial objectives . revenue from investment management services was
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we generated minimal revenue and we do not generate adequate cash flows to support our existing operations . moreover , the historical and existing capital structure is not adequate to fund our planned growth . our operations to date have primarily been funded by advances , private “ family and friends ” capital contributions , equity and debt financings , subsequent equity conversions by the majority stockholders . our working and growth capital is dependent on more significant future funding expected to be provided in part by equity investments from other accredited investors including institutional investors . future cash flows are subject to a number of variables , including the level of production , economic conditions and maintaining cost controls . there can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures . for the year ended december 31 , 2013 , we had a net loss of $ 6,402,638 as compared to a net loss of $ 2,362,922 for the year ended december 31 , 2012. in 2011 , we shifted from our previous business plan of marketing carbon credits and entered into a new business model of the development of technology that allows commercial vehicle fleets to reduce their overall fuel expense . 27 key factors affecting our results of operations include revenues , cost of revenues , operating expenses and income and taxation . comparison of the year ended december 31 , 2013 to the year ended december 31 , 2012 revenues net revenues 2013 2012 change percent year ended december 31 , $ 3,100 $ 6,100 $ ( 3,000 ) ( 49 ) % we are in the research and development phase and currently have no customers . revenues for the years ended december 31 , 2013 and 2012 are attributable to the sales of carbon credits and consulting services we performed . general and administrative expenses story_separator_special_tag we received $ 1,500,000 under this private placement and issued 3,409,093 warrants . as of december 31 , 2013 the company has not issued any shares of its common stock related to this agreement . on june 20 , 2013 , we entered into a financing and security agreement and a secured convertible promissory note ( the “ emerald note ” ) in the amount of $ 200,000 with emerald private equity fund , llc ( “ emerald ” ) . pursuant to the terms of the emerald note , emerald agreed to provide us with $ 200,000 upon execution . in connection with this financing , emerald received a warrant to purchase 714,286 shares of our common stock at an exercise price of $ 0.65 per share , exercisable over a five ( 5 ) year term . the emerald note has a maturity date of five ( 5 ) years and bears interest at eight percent ( 8 % ) annually . the unpaid outstanding balance on the emerald note may be converted at the option of either party a rate of two ( 2 ) shares of our restricted common stock for each $ 0.70. as of december 31 , 2013 we received $ 200,000 under this private placement and issued the related warrants . subsequent to december 31 , 2013 , we issued 1,142,858 shares of our common stock to emerald to reduce the balance due under the emerald note . the emerald note was in default because the s-1 was not cleared within the time frame required in the emerald note so in response the parties agreed to a revised due date for the emerald note of june 1 , 2014 , and increasing the number of the shares under the warrant by 285,714 to 1,000,000. on december 31 , 2013 , we entered into two promissory note agreements in the amount of $ 40,000 and $ 60,000 with uff . pursuant to the terms and conditions of these agreements , uff provided us with $ 100,000 and uff received a warrant to purchase 800,000 shares of our common stock at an exercise price of $ 0.55 per share , exercisable over a five ( 5 ) year term . the promissory notes have a maturity date of february 28 , 2014. the stated interest rate is equal to 15 % per annum . subsequent to the year ended december 31 , 2013 , on january 9 , 2014 , we received gross proceeds of $ 250,000 via a financing arrangement with hanover holdings i , llc . the terms of this financing arrangement bears interest at twelve percent ( 12 % ) annually , and has a maturity date of july 3 , 2014. the unpaid outstanding balance may be converted at the option of the investor at a rate of one ( 1 ) share of our restricted common stock for each $ 0.15223 . 30 subsequent to the year ended december 31 , 2013 , on january 28 , 2014 , we received gross proceeds of $ 110,000 via a financing arrangement with united fleet financing , llc , of which the sole member is a related party . the terms of this financing arrangement bears interest at fifteen percent ( 15 % ) annually , and has a maturity date of february 28 , 2014. in connection with this financing arrangement , we issued warrants to purchase 800,000 shares of our common stock at an exercise price of $ 0.55 per share , exercisable over a five ( 5 ) year term . this note agreement is in default as of the date of this filing and we are currently negotiating an extension . subsequent to the year ended december 31 , 2013 , on february 6 , 2014 , we received gross proceeds of $ 150,000 via a financing arrangement with jmj financial . story_separator_special_tag the terms of this financing arrangement bears interest at ten percent ( 10 % ) annually , and has a maturity date of february 6 , 2016. the unpaid outstanding balance may be converted at the option of the investor at the lessor of ( i ) a rate of one ( 1 ) share of our restricted common stock for each $ 0.23 , or ( ii ) sixty percent ( 60 % ) of the lowest trade price in the twenty-five ( 25 ) days prior to conversion . subsequent to the year ended december 31 , 2013 , on february 12 , 2014 , we received gross proceeds of $ 55,000 via a financing arrangement with vista capital investments , llc . the terms of this financing arrangement bears interest at ten percent ( 10 % ) annually , and has a maturity date of february 11 , 2015. the unpaid outstanding balance may be converted at the option of the investor at the lessor of ( i ) a rate of one ( 1 ) share of our restricted common stock for each $ 0.35 , or ( ii ) seventy percent ( 70 % ) of the lowest trade price in the twenty ( 20 ) days prior to conversion . subsequent to the year ended december 31 , 2013 , on february 21 , 2014 , we received gross proceeds of $ 50,000 via a financing arrangement with lg capital funding , llc ( “ lg capital ” ) . the terms of this financing arrangement bears interest at eight percent ( 8 % ) annually , and has a maturity date of february 20 , 2015. the unpaid outstanding balance may be converted at fifty-five percent ( 55 % ) of the lowest trade price in the ten ( 10 ) days prior to conversion . also on february 21 , 2014 , lg capital paid off the 21 percent note payable issued july 13 , 2012 totaling $ 65,000 on the company 's behalf , and , accordingly , we agreed to repay lg capital a total of $ 65,000 via a replacement note bearing interest at eight percent ( 8 % ) annually , with a maturity date of february 20 , 2015. the replacement note unpaid outstanding balance may be converted at fifty-five percent ( 55 % ) of the lowest trade price in the ten ( 10 ) days prior to conversion . subsequent to the year ended december 31 , 2013 , on february 28 , 2014 , we received gross proceeds of $ 200,000 via a financing arrangement with typenex co-investment , llc . the terms of this financing arrangement bears interest at ten percent ( 10 % ) annually , and has a maturity date of october 27 , 2015. the unpaid outstanding balance may be converted at the option of the investor at the lessor of ( i ) a rate of one ( 1 ) share of our restricted common stock for each $ 0.27 , or ( ii ) seventy percent ( 70 % ) of the lowest trade price in the fifteen ( 15 ) days prior to conversion . subsequent to the year ended december 31 , 2013 , on march 6 , 2014 , we received gross proceeds of $ 50,000 via a financing arrangement with union capital , llc ( “ union ” ) . the terms of this financing arrangement bears interest at eight percent ( 8 % ) annually , and has a maturity date of february 20 , 2015. the unpaid outstanding balance may be converted at fifty-five percent ( 55 % ) of the lowest trade price in the ten ( 10 ) days prior to conversion . also on march 6 , 2014 union paid off the 12 percent note payable issued may 30 , 2012 totaling $ 60,000 , on the company 's behalf , and , accordingly , we agreed to repay union a total of $ 67,800 via a replacement note bearing interest at eight percent ( 8 % ) annually , with a maturity date of march 7 , 2015. the replacement note unpaid outstanding balance may be converted at fifty-five percent ( 55 % ) of the lowest trade price in the ten ( 10 ) days prior to conversion . subsequent to the year ended december 31 , 2013 , on march 10 , 2014 , we received gross proceeds of $ 50,000 via a financing arrangement with gel properties , llc ( “ gel properties ” ) . the terms of this financing arrangement bears interest at eight percent ( 8 % ) annually , and has a maturity date of february 20 , 2015. the unpaid outstanding balance may be converted at fifty-five percent ( 55 % ) of the lowest trade price in the ten ( 10 ) days prior to conversion . also on march 10 , 2014 , gel properties paid off the 7 percent note payable with a related party issued march 31 , 2012 totaling $ 50,000 , on the company 's behalf , and , accordingly , we agreed to repay gel properties a total of $ 52,500 via a replacement note bearing interest at eight percent ( 8 % ) annually , with a maturity date of february 20 , 2015. the replacement note unpaid outstanding balance may be converted at fifty-five percent ( 55 % ) of the lowest trade price in the ten ( 10 ) days prior to conversion . 31 subsequent to the year ended december 31 , 2013 , on march 11 , 2014 , we received gross proceeds of $ 110,000 via a financing arrangement with william w. kennedy , of whom mr. william d. kennedy , our ceo , is an immediate family member .
| 28 interest expense interest expense 2013 2012 change percent year ended december 31 , $ 237,045 $ 85,187 $ 151,858 178 % in the year ended december 31 , 2013 , the increase in interest expense is primarily due to a corresponding increase in notes payable ; the company largely funded its operations during 2013 through debt funding , as notes payable increased from $ 741,000 at december 31 , 2012 to $ 2,485,000 at december 31 , 2013 ( excluding debt discount ) . net loss net loss 2013 2012 change percent year ended december 31 , $ 6,402,638 $ 2,362,922 $ 4,039,716 171 % changes in net loss are attributable to our changes in operating loss and other expense , each of which we have described above . from inception ( november 25 , 2009 ) to december 31 , 2013 we have generated $ 133,456 of revenue since inception . we are in the research and development phase and currently have no customers . revenues from inception ( november 25 , 2009 ) to december 31 , 2013 is attributable to the sales of carbon credits and consulting services . we have incurred $ 8,913,578 of operating expenses from inception through december 31 , 2013. these expenses are comprised of $ 8,788,186 of general and administrative expenses and $ 125,392 of selling and marketing expenses . the general and administrative expenses consist of payroll , consulting , legal , rent , research and development , and miscellaneous expenses . we also incurred $ 330,135 of interest expense . our net loss from inception through december 31 , 2013 is $ 9,110,257. liquidity and capital resources sources and uses of funds net cash used in operating activities was $ 4,308,523 and $ 1,840,542 for the years ended december 31 , 2013 and 2012 , respectively . the increase of $ 2,467,981 is attributable to increases in net loss of approximately $ 4,040,000 offset by non-cash depreciation , amortization , accretion of debt discount , stock compensation , and stock issued for services of approximately $ 811,000 and changes in working capital and other assets totaling approximately $ 760,000. as of december 31 , 2013 and 2012 , we had cash
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we have relied upon our ssp technology to develop our proprietary ophthalmic formulations , which we market as our dropless therapy® and lessdrops® formulations . we also package multiple ophthalmic compounded formulations , which may include our proprietary dropless therapy or lessdrops formulations and other non-proprietary formulations , as kits and dispense these kits to patients with needs for multiple ocular therapies . our dropless therapy formulations , which we developed based on our ssp technology , are used as an injectable during ocular surgery . ophthalmologists have reported that use of our dropless therapy formulations has substantially reduced or eliminated the need for patient-administered eye drops following ocular surgeries they have performed , thereby largely eliminating patient non-compliance and dosing errors with post-operative self-administered eye drop care regimens . since launching these formulations in april 2014 , more than 450 ophthalmologists have adopted our dropless therapy formulations and a growing number of high-volume cataract surgery practices , hospitals and ambulatory surgery centers throughout the u.s. have become dropless therapy customers . our lessdrops topical compounded formulations , which we developed based on our ssp technology , were initially formulated and dispensed during the first quarter of 2015 as combination eye drop formulations for patients following laser refractive surgery , including lasik and photorefractive keratectomy ( prk ) , and cataract and other ocular surgeries . we estimate that our lessdrops combination eye drop formulations may require the administration of up to 50 % fewer drops by patients post-surgery and may cost up to 75 % less than other currently available post-surgery drops regimens . we plan to add to our portfolio of lessdrops combination eye drop formulations in order to deliver additional eye drop choices for our customers . otolaryngology formulations in october 2015 , we acquired the assets of a leading u.s. provider of topical compounded sinus formulations , delivery systems and patented packaging . our topical delivery platform delivers sinusitis medications locally to the sinonasal mucosa , which is typically the direct site and probable source of the problem . urologic formulations our first available urologic compounded formulation consists of a patented combination of heparin and alkalinized lidocaine ( hla ) . we acquired non-exclusive development and commercialization rights in the u.s. for hla in october 2014 , and acquired exclusive development and commercialization rights in the u.s. for this formulation in april 2015 , pursuant to a license agreement with a third party . this license agreement obligates us to pay royalties to the licensor upon our sales of our hla formulation . hla is delivered directly to the bladder for the treatment of interstitial cystitis ( ic ) , also known as painful bladder syndrome . during the first quarter of 2015 , we launched our defeat ic © national education campaign designed to help increase awareness among medical practitioners and patients about ic and our hla treatment option . we also offer customizable compounded formulations of pps-dr oral medication that may be prescribed by physicians as a lower-cost therapeutic alternative to an off-patent oral drug , elmiron ® , for the treatment of symptoms associated with ic . our pps-dr compounded formulations are customized to an individual patient and feature time delayed release that may allow for reduced daily dosing requirements . our other commercially available urologic compounded formulations consist of lyophilized ( freeze-dried ) formulations for the treatment of erectile dysfunction ( ed ) . our ed compounded formulations are provided in a sterile powder and dispensed in single-dose vials that can be conveniently transported and stored up to six months prior to reconstitution , and once reconstituted should be used within 30 days . imprimis cares compounded therapeutic alternatives as part of our imprimis cares initiative , we recently introduced customizable compounded formulations of pyrimethamine and leucovorin , which are available for physicians to consider prescribing for their patients as a lower-cost therapeutic alternative to daraprim ® . the fda-approved label for daraprim indicates that it is prescribed for toxoplasmosis , which can be of major concern for patients with weakened immune systems such as patients with hiv/aids , pregnant women and children . our formulations of pyrimethamine and leucovorin are now offered by express scripts , the largest pharmacy benefit manager in the u.s. , and by many other hospitals and healthcare organizations . we also recently announced plans to introduce new patent-pending tiopronin and potassium citrate delayed release compounded formulations that may be prescribed by physicians as a lower-cost therapeutic alternative to fda-approved thiola ® for cystinuria patients . cystinuria is an inherited disease that causes stones made of the amino acid cystine to form in the kidneys , bladder and or urethra . our compounded alternative containing tiopronin , the active drug ingredient in thiola , and potassium citrate , is expected to be available in april 2016 . 25 custom compounding choice formulations our custom compounding choice business is focused on marketing a portfolio of non-proprietary customizable compounded drugs for humans and animals , including sterile injectable and non-sterile integrative therapies , in therapeutic areas that may be overlooked by commercial pharmaceutical companies , such as oncology , autoimmunity , chronic infectious diseases , and endocrine and metabolic diseases . we also offer customizable hormone replacement therapies and a variety of weight loss and dermatology compounded formulations . many of these formulations are offered in different formats than other available alternatives , such as in suspension or lyophilized , which we believe may provide differentiating and potentially beneficial factors as compared to competing therapies . compounding facilities one of our key strategies is the use of compounding pharmacies to formulate our proprietary compounded drug formulations and distribute them to physicians and patients . generally , compounding pharmacies combine different ingredients , most of which may be fda-approved , to create specialized preparations prescribed by a physician to treat an individually identified patient . often this is because a standard medication approved by the fda is not appropriate for a particular patient 's needs . story_separator_special_tag examples of compounded formulations include medications with alternative dosage strengths or unique dosage forms , such as topical creams or gels , suspensions , or solutions with more tolerable drug delivery vehicles . a compounding pharmacy is only permitted to compound or prepare a patient-specific formulation upon receipt of a physician prescription for an individual patient . our imprimisrx compounding pharmacies , make , dispense and sell our proprietary ophthalmology and urology compounded formulations , our topical sinus compounded formulations , delivery systems and patented packaging , complementary compounded formulations within the ophthalmology , urology and otolaryngology therapeutic areas , and other non-proprietary compounded formulations in other therapeutic areas . our compounding pharmacies are collectively licensed to distribute compounded formulations in 50 states . in february 2015 , we entered into a lease agreement for space in new jersey and began construction efforts to build the majority of this space into an outsourcing facility , which is a new form of entity permitted to compound large quantities of certain drug formulations without a prescription and distribute them out of state without limitation , and is required to comply with certain additional requirements that do not apply to compounding pharmacies , including adherence to current good manufacturing practices ( cgmp ) . the remaining space in the facility will be completely separate and secured and will be constructed as a compounding pharmacy to replace our current new jersey pharmacy location . from time to time during the construction process , we have experienced temporary and intermittent delays in developing and outfitting this facility . as a result , we have extended our estimated completion date and now expect the facility to be completed and registered as an outsourcing facility near the end of the second quarter of 2016. in addition , we are near completion of our construction efforts to our texas compounding pharmacy and intend to register it with the fda as a section 503b outsourcing facility during the second quarter of 2016. we estimate that our capital expenditures to build and equip these new facilities will be approximately $ 4,000. factors affecting our performance we believe the primary factors affecting our performance are our ability to increase sales of our proprietary compounded formulations and certain non-proprietary products , grow and gain operating efficiencies in our pharmacy operations , optimize pricing and obtain reimbursement options for our proprietary compounded formulations , and continue to pursue development and commercialization opportunities for certain of our ophthalmology , urology and other assets that we have not yet made commercially available as compounded formulations . all of these activities will require significant costs and other resources , which we may not have or be able to obtain from operations or other sources . see “ —liquidity and capital resources ” below . selection and development of formulations we plan to pursue the development of new proprietary compounded formulations in the ophthalmology , urology , otolaryngology and or other therapeutic areas , which may include continued activities to develop and commercialize current assets or , if and as opportunities arise , potential acquisitions of new intellectual property rights and assets . we also intend to seek opportunities to introduce new lower-cost compounded formulation alternatives to higher-priced fda-approved drugs , as part of our imprimis cares initiative . our product development strategy is to focus on a select few therapeutic areas in which we believe there is broad market potential , large unmet needs and or unique value to physicians and patients and to develop and offer formulations within these therapeutic areas that could afford us with gross margins . however , our expectations and assumptions about market potential and patient needs may prove to be wrong and we may invest capital and other resources on formulations that do not generate sufficient revenues for us to recoup our investment . additionally , we will need to rely on relationships with third parties , including pharmacists , physicians and other inventors , to assist in the identification , research , development and assessment of such formulations , which exposes us to risks . moreover , we may be unable to identify attractive acquisition opportunities and negotiate agreements with their owners that are acceptable to us , particularly if such assets involve competition among several purchasers , and we have limited resources to invest in or acquire additional potential product development assets and integrate them into our business . 26 compounding strategy we currently make , dispense and sell our commercially available proprietary compounded formulations and certain other non-proprietary products through our compounding pharmacies pursuant to a prescription for an individually identified patient . additionally , we are in the process of developing and registering two of our facilities as outsourcing facilities . we are working to expand our pharmacy operations and personnel and develop our facilities into a unified compounding pharmacy network . for instance , we have begun developing “ imprimisrx ” as a uniform brand for our compounding facilities , with the intent of renaming all of our compounding facilities under this name . these efforts may also entail seeking to acquire new pharmacies or outsourcing facilities to add to our existing infrastructure , as opportunities arise . however , we have limited experience acquiring , building or operating compounding pharmacies or other prescription dispensing facilities or commercializing our formulations through ownership of or licensing arrangements with pharmacies . as a result , we may experience difficulties implementing our compounding pharmacy network strategy , including difficulties that arise as a result of our lack of experience , and we may be unsuccessful .
| 2015. the increase in license revenues between years was primarily attributable to license revenues provided under our urigen license agreement . cost of sales our cost of sales includes direct and indirect costs to manufacture formulations and sell products , including active pharmaceutical ingredients , personnel costs , packaging , storage , royalties , shipping and handling costs , the write-off of obsolete inventory and other related expenses . the following presents our cost of sales for the years ended december 31 , 2015 and 2014 : for the year ended december 31 , $ 2015 2014 variance cost of sales $ 5,206 $ 1,093 $ 4,113 we began selling our proprietary compounded formulations and other non-proprietary pharmacy products and formulations and incurring the associated costs of such sales following the acquisition of pharmacy creations , our first imprimisrx compounding pharmacy , on april 1 , 2014. the increase in our cost of sales between years was largely attributable to our acquisition or commencement of operations at our three other imprimisrx compounding pharmacies in 2015 , which increased our sales of proprietary and non-proprietary compounded formulations and our associated costs of such sales . park , imprimisrx tx and imprimisrx pa , each of which we acquired in 2015 , collectively contributed $ 3,403 of our total $ 5,206 cost of sales recognized in 2015 . 29 selling and marketing expenses our selling and marketing expenses consist of costs associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy products and formulations , which include associated personnel costs , including wages and stock-based compensation . the following presents our selling and marketing expenses for the years ended december 31 , 2015 and 2014 : for the year ended december 31 , $ 2015 2014 variance selling and marketing $ 6,496 $ 2,390 $ 4,106 we began implementing commercialization efforts in the fourth quarter of 2013 and , following the acquisition
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comparability of our results and our relationship with cellectis we are a majority-owned subsidiary of cellectis . as a result , our historical financial information does not reflect the financial condition , results of operations or cash flows we would have achieved as a stand-alone company and not a subsidiary of cellectis during the periods presented or those we will achieve in the future . this is primarily the result of the following factors : our historical financial information reflects expense allocations for certain support functions that are provided on a centralized basis within cellectis , such as expenses for business technology , facilities , legal , finance , human resources and business development that may be higher or lower than the comparable expenses we would have actually incurred , or will incur in the future , as a stand-alone company and not a subsidiary of cellectis ; and significant increases in our cost structure as a result of becoming a public company , including costs related to public company reporting , investor relations and compliance with the sarbanes-oxley act , which expenses may increase at such time as we operate as a stand-alone company and not a subsidiary of cellectis . in the future , we expect to incur internal costs to implement certain new systems , including infrastructure and an enterprise resource planning system . see certain relationships and related party transactionsrelationship with cellectis for a description of certain agreements that we have entered into with cellectis that provide a framework for our ongoing relationship following our initial public offering in july 2017. financial operations overview revenue we recognized approximately $ 0.5 million , $ 0.4 million and $ 1.3 million of revenue for the years ended december 31 , 2017 , 2016 and 2015 , respectively , from payments we received pursuant to our r & d agreements under which we conduct research activities for a number of companies . our r & d agreements provide for non-refundable upfront payments that we receive upon execution of the relevant agreement ; milestone payments upon the achievement of certain scientific , regulatory or commercial milestones ; license payments from licenses that we grant to third parties ; and r & d cost reimbursements that are recognized over the period of these services and royalty payments . our reliance on revenue from our r & d agreements has been systematically diminishing as we purposely reduce the number of r & d contracts we enter into with other companies and focus on in-house product development . 66 to date , we have not generated any product revenue . our ability to generate future product revenue depends upon our r & d partners ' ability to assist us in successfully developing and commercializing our products . if we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval if necessary , our ability to generate future revenue would be compromised . research and development expenses r & d expenses consist of expenses incurred while performing r & d activities to discover and develop potential product candidates . we recognize r & d expenses as they are incurred . our r & d expenses consist primarily of : personnel costs , including salaries and related benefits , for our employees engaged in scientific r & d functions ; cost of third-party contractors , such as contract research organizations , or cros , and third-party contractors who support our product candidate development ; seed increases ( small-scale and large-scale testing ) for trait validation ; purchases and manufacturing of biological materials , real-estate leasing costs , as well as conferences and travel costs ; certain other expenses , such as expenses for use of laboratories and facilities for our r & d activities ; and costs of in-licensing or acquiring technology from third parties . our r & d efforts are focused on our existing product candidates and in broadening our pipeline with new product candidates . we use our employee and infrastructure resources across multiple r & d programs directed toward identifying and developing product candidates . we manage certain activities such as field trials and the manufacture of product candidates through third-party vendors . due to the number of ongoing projects and our ability to use resources across several projects , we do not record or maintain information regarding the costs incurred for our r & d programs on a program-specific basis . our r & d efforts are central to our business and account for a significant portion of our operating expenses . we expect that our r & d expenses will increase for the foreseeable future as we expand our r & d and process development efforts , access and develop additional technologies and hire additional personnel to support our r & d efforts . product candidates in later stages of product development generally have higher development costs than those in earlier stages of development , primarily due to the increased size of field trials and commercial scale product testing . cellectis provides us r & d services , which include use of database software we use for recording and tracking our research . we have a management agreement in which cellectis charges us in euros at cost plus a markup ranging from 0 % to 10 % . r & d expenses , including licensing fees , are expensed as incurred , due to the uncertainty of future commercial value . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the development of our current product candidates or any new product candidates we may identify and develop . selling , general and administrative expenses selling , general and administrative expenses consist primarily of employee-related expenses for executive , business development , intellectual property , finance and human resource functions . story_separator_special_tag other selling , general and 67 administrative expenses include facility-related costs not otherwise allocated to r & d expense , professional fees for auditing , tax and legal services , expenses associated with obtaining and maintaining patents , consulting costs , management fees and costs of our information systems . cellectis provides us services , which include general sales and administration functions , accounting and finance functions , legal advice , human resources , and information technology . we have a management agreement in which cellectis charges us in euros at cost plus a markup ranging from 0 % to 10 % . amounts due to cellectis pursuant to intercompany transactions bear interest at a rate of 12-month euribor plus 5 % per annum . we expect that our selling , general and administrative expense will increase as we continue to operate as a public reporting company and continue to develop and commercialize our product candidates . we also expect to incur increased costs in order to comply with auditing requirements , corporate governance , internal controls , investor relations , disclosure and similar requirements applicable to public reporting companies . story_separator_special_tag cash and cash equivalents of $ 56.7 million . sources of liquidity until the completion of our ipo , we funded our operations primarily through cash infusions provided by cellectis . on july 25 , 2017 , we completed our initial public offering of common stock . in the aggregate , we received net proceeds from the ipo and exercise of the underwriters ' option to purchase additional shares of approximately $ 58.0 million , after deducting underwriting discounts and commissions of $ 3.1 million and offering expenses totaling approximately $ 3.3 million . during the years ended december 31 , 2017 , 2016 and 2015 , we incurred losses from operations of $ 26.0 million , $ 12.1 million and $ 5.9 million , respectively , and net cash used in operating activities of $ 9.7 million , $ 9.2 million and $ 6.7 million , respectively . as of december 31 , 2017 , we had an accumulated deficit of $ 54.5 million and we expect to incur losses for the foreseeable future . although we believe that we will be able to successfully fund our operations with our cash and cash equivalents as of december 31 , 2017 through at least mid-2019 , there can be no assurance we will be able to do so or that we will ever operate profitably . 70 taking into account our anticipated cash burn rate , we believe our cash and cash equivalents will be sufficient to fund our operations through at least mid-2019 . cellectis has guaranteed funding for our operations through august 2018 , which guarantee was not released , modified or otherwise affected by the timing of , or amount raised in , our initial public offering . historical changes in cash flows year ended december 31 , 2017 compared to year ended december 31 , 2016 the table below summarizes our sources and uses of cash for the year ended december 31 , 2017 and 2016 : replace_table_token_6_th net cash used in operating activities was $ 12.8 million and $ 9.2 million in the years ended december 31 , 2017 and 2016 , respectively . the increase was due to expenses related to head count increase and legal professional costs for becoming a publicly traded company partially offset by a reduction in management fees . the net loss was $ 26.0 million and $ 12.1 million in the years ended december 31 , 2017 and 2016 , respectively . the majority of non-cash offsetting the 2017 loss was stock-based compensation of $ 12.1 million , an increase of $ 11.1 million from 2016. net cash used in investing activities was $ 0.8 million and $ 10.4 million in the years ended december 31 , 2017 and 2016 , respectively . the majority of cash used in investing activities in the year ended december 31 , 2017 was related to site improvements and architect fees for the design of our headquarters in roseville , minnesota , and equipment purchases . the majority of the cash used in investing in the year ended december 31 , 2016 was related to a land purchase and construction of a greenhouse in roseville , minnesota . net cash provided by financing activities was $ 65.2 million and $ 0 in the years ended december 31 , 2017 and 2016 , respectively , the majority of which was related to net cash proceeds from the ipo and the proceeds from land sale as part of the sale-leaseback transaction . year ended december 31 , 2016 compared to year ended december 31 , 2015 the table below summarizes our sources and uses of cash for the years ended december 31 , 2016 and 2015 : replace_table_token_7_th net cash used in operating activities was $ 9.2 million and $ 6.7 million in the years ended december 31 , 2016 and 2015 , respectively . the net cash used in each of these periods primarily reflects the net loss for those periods , offset in part by depreciation , stock-based compensation and the effects of changes in operating assets and liabilities . net cash used in investing activities was $ 10.4 million and $ 0.7 million in the years ended december 31 , 2016 and 2015 , respectively . the majority of cash used in investing activities in 2016 was related to the purchase 71 of the land for our headquarters and the construction of our r & d greenhouses . the majority of the cash used in investing in 2015 was for office furniture and equipment associated with our current r & d laboratories and office space . net cash provided by financing activities was $ 0 and $ 31.7 million in the years ended december 31 , 2016 and 2015 , respectively . net cash provided by financing activities in 2015 was attributable to a capital contribution from cellectis .
| selling , general , and administrative expenses selling , general , and administrative expenses increased $ 8.1 million , or 121.0 % , from $ 6.7 million for the year ended december 31 , 2016 to $ 14.7 million for the year ended december 31 , 2017. the increase was primarily attributable to non-cash stock compensation expense of $ 6.0 million , increased personnel expenses and increased legal and professional fees , partially offset by reduced management fees . interest expense , net interest expense decreased $ 4 thousand , or 80.0 % , from $ 5 thousand for the year ended december 31 , 2016 to $ 1 thousand for the year ended december 31 , 2017. the decrease in expense was attributable to the interest earned on the investment of ipo proceeds , partially offset by interest expense on the finance lease obligation and a decrease in our accounts payable balance owed to cellectis . foreign currency transaction ( loss ) gain foreign currency transaction ( loss ) gain decreased $ 218 thousand compared to the prior year from a gain of $ 28 thousand to a loss of $ 190 thousand . the decrease was primarily attributable to changes in accounts payable balances owed to cellectis and foreign exchange rates . year ended december 31 , 2016 compared to year ended december 31 , 2015 the following table summarizes key components of our results of operations for the periods indicated : replace_table_token_5_th revenue revenue decreased $ 0.9 million , or 68.6 % , from $ 1.3 million for the year ended december 31 , 2015 to $ 0.4 million for the year ended december 31 , 2016. the decrease was primarily attributable to a strategic decision to focus on in-house development of product candidates and to reduce the amount of r & d we were performing for third parties . 69 cost of revenue cost of revenue decreased $ 0.6 million or 73.4 % , from $ 0.8 million for the year ended december 31 , 2015 to $ 0.2 million for the year ended december 31 , 2016. the decrease was a result of lower r & d expense associated with fulfilling the contractual obligations of our r & d contracts . research and development expenses r & d expenses increased by $ 2.9 million , or 103.8 % , from $ 2.8 million for the year ended december 31 , 2015 to $ 5.6 million for the year
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35 group purchasing organizations ( gpos ) negotiate volume purchase prices for member hospitals , group practices , and other clinics . our agreements with gpos typically contain preferential terms for the gpo and its members , including provisions for some , if not all , of the following : payment of marketing fees by natus to the gpo , usually based on purchasing experience of group members ; and non-recourse cancellation provisions . we do not sell products to gpos . hospitals , group practices , and other clinics that are members of a gpo purchase products directly from us under the terms negotiated by the gpo . negotiated pricing and discounts are recognized as a reduction of the selling price of products at the time of the sale . revenue from sales to members of gpos is otherwise consistent with general revenue recognition policies as previously described . inventory inventories are carried at the lower of standard cost ( which approximates actual cost , determined by the first-in-first-out method ) or market . the carrying value of our inventories is reduced for any difference between cost and estimated market value of inventories that is determined to be obsolete or unmarketable , based upon assumptions about future demand and market conditions . adjustments to the value of our inventory establish a new cost basis and are considered permanent even if circumstances later suggest that increased carrying amounts are recoverable . if demand is higher than expected , we may sell inventory that had previously been written down . carrying value of intangible assets and goodwill we amortize intangible assets with finite lives over their useful lives ; any future changes that would limit their useful lives or any determination that these assets are carried at amounts greater than their estimated fair value could result in additional charges . we carry goodwill and any other intangible assets with indefinite lives at original cost but do not amortize them . goodwill and indefinite-lived intangible assets are tested for impairment at least annually as of october 1st ; this assessment is also performed whenever there is a change in circumstances that indicates the carrying value of these assets may be impaired . in 2014 , we performed qualitative assessments to test our reporting units ' goodwill for impairment . qualitative factors considered in this assessment include industry and market considerations , overall financial performance and other relevant events and factors affecting each reporting unit . based on our qualitative assessment , we determined that the fair value of each reporting unit was more likely than not to be greater than its carrying amount , and no impairment was recognized . in 2013 and 2012 we performed a two-step impairment test on our goodwill . the goodwill impairment test consists of a two-step process . the first step of the goodwill impairment test , used to identify potential impairment , compares the fair value of a reporting unit to its carrying value , including goodwill . we use a projected discounted cash flow model to determine the fair value of a reporting unit . if the fair value of the reporting unit exceeds its carrying amount , goodwill of the reporting unit is considered not impaired , and the second step of the impairment test is not required . the second step , if required , compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill . the fair value of a reporting unit is allocated to all of the assets and liabilities of that unit ( including any unrecognized intangible assets ) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit . if the carrying amount of the reporting unit 's goodwill exceeds its implied fair value , an impairment charge is recognized in an amount equal to that excess . 36 we test indefinite lived intangibles for impairment by comparing the carrying value of those assets to the fair value as of the assessment date . to determine the fair value of the assets , the company uses the relief from royalty method . this analysis is dependent upon a number of quantitative and qualitative factors including estimates of forecasted revenue , royalty rate , and taxes . the discount rate applied also has an impact on the estimates of fair value , as use of a higher rate will result in a lower estimate of fair value . as of the october 1 , 2014 testing date , we determined that certain trade names were impaired and we recorded an impairment charge of $ 0.6 million . goodwill impairment analysis and measurement is a process that requires significant judgment . future changes in the judgments and estimates underlying our analysis of goodwill for possible impairment , including expected future cash flows and discount rate , could result in a significantly different estimate of the fair value of the reporting units and could result in additional impairment of goodwill . long lived assets the company continually monitors events and changes in circumstances that could indicate that carrying amounts of its long-lived assets , including property and equipment and intangible assets may not be recoverable . when such events or changes in circumstances occur , the company assesses the recoverability by determining whether the carrying value of such assets will be recovered through their undiscounted expected future cash flows . if the future undiscounted cash flows are less than the carrying amount of these assets , the company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets . liability for product warranties our medical device products are generally covered by a standard one-year product warranty . a liability has been established for the expected cost of servicing our medical device products during this service period . story_separator_special_tag we base the liability on actual warranty costs incurred to service those products , actual service department costs , and other judgments , such as the degree to which the product incorporates new technology . actual material usage costs and service department costs that differ from our estimates result in revisions to the estimated warranty liability . the estimates we use in projecting future product warranty costs may prove to be incorrect . any future determination that our product warranty reserves are understated could result in increases to our cost of sales and reductions in our operating profits and results of operations . share-based compensation we recognize share-based compensation expense associated with employee stock options under the single-option straight line method over the requisite service period , which is generally a four-year vesting period pursuant to asc topic 718 , compensation-stock compensation . see note 12 of our consolidated financial statements . for employee stock options , the value of each option is estimated on the date of grant using the black-scholes option pricing model , which was developed for use in estimating the value of freely traded options . similar to other option pricing models , the black-scholes method requires the input of highly subjective assumptions , including stock price volatility . changes in the subjective input assumptions can materially affect the estimated fair value of our employee stock options . the company issues new shares of its common stock upon the exercise of stock options and the vesting of restricted stock and rsus . 37 forfeitures of employee stock options are estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from initial estimates . share-based compensation expense is recorded net of estimated forfeitures , such that expense is recorded only for those share-based awards that are expected to vest . the cash flow from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for employee options ( excess tax benefits ) is classified as a cash inflow from financing activities and a cash outflow from operating activities in our statements of cash flows . we treat tax deductions from certain stock option exercises as being realized when they reduce taxes payable in accordance with relevant tax law . we recognize share-based compensation associated with restricted stock awards and restricted stock units . rsas and rsus vest ratably over a three-year period for employees . for executives rsas and rsus vest over a four-year period ; 50 % on the second anniversary of the vesting start date and 25 % on each of the third and fourth anniversaries of the vesting date . the value is estimated based on the market value of the company 's stock on the date of grant pursuant to asc topic 718 , compensation-stock compensation . story_separator_special_tag 2013 and 2012 revenue replace_table_token_16_th for the year ended december 31 , 2013 , our consolidated revenue increased by $ 51.8 million compared to the same period in 2012. the increase was attributable to our acquisition of grass , acquired in february 2013 , which contributed $ 12.8 million of revenue in 2013. nicolet , acquired in july 2012 , contributed $ 41.8 million of incremental revenue in 2013. revenue from our products other than grass and nicolet experienced a decrease of $ 2.7 million from the prior year , driven by newborn care . revenue from our neurology products increased $ 55.6 million for the year ended december 31 , 2013 , compared to the same period in 2012. revenue from our neurology products , other than grass and nicolet products , increased by $ 1.1 million in 2013 compared to 2012 , primarily attributable to an increase in sales of our eeg products . revenue from our newborn care products decreased by $ 3.8 million in 2013 , compared to 2012. this decline was primarily attributed to lower sales of newborn and diagnostic hearing , balance monitoring and devices in europe and north america . no single customer accounted for more than 10 % of our revenue in either 2013 or 2012. revenue from domestic sales increased 22.5 % to $ 199.6 million in 2013 , from $ 163.0 million in 2012. revenue from international sales increased 11.8 % to $ 144.5 million in 2013 , compared to $ 129.3 million in 2012. revenue from domestic sales was 58 % of total revenue in 2013 compared to 56 % of total revenue in 2012 , and revenue from international sales was 42 % of total revenue in 2013 compared to 44 % of total revenue in 2012. cost of revenue and gross profit replace_table_token_17_th 41 our cost of revenue increased $ 12.7 million in 2013 , compared to 2012 . $ 9.9 million of this increase was incremental cost from grass and nicolet . gross profit increased $ 39.8 million due to the overall growth in revenue and also as a result of our improved margins associated with product mix . the increase in gross profit as a percentage of revenue was the result of a higher percentage of sales of neurology products which generally carry higher margins than our other products . operating costs replace_table_token_18_th marketing and selling our marketing and selling expenses increased $ 9.9 million . the marketing and selling expenses of grass and the incremental marketing and selling expenses of nicolet were $ 10.7 million . the remaining decrease in marketing and selling expenses was primarily related to cost reduction initiatives .
| no single customer accounted for more than 10 % of our revenue in either 2014 or 2013. revenue from domestic sales increased 8 % to $ 215.5 million in 2014 , from $ 199.6 million in 2013. revenue from international sales decreased 3 % in 2014 to $ 140.3 million from $ 144.5 million in 2013. revenue from domestic sales was 61 % of total revenue in 2014 compared to 58 % of total revenue in 2013 , and revenue from international sales was 39 % of total revenue in 2014 compared to 42 % of total revenue in 2013. cost of revenue and gross profit replace_table_token_14_th for the year ended december 31 , 2014 , our gross profit as a percentage of sales increased by 1.4 % compared to the same period for the prior year . this increase in gross profit was driven by higher domestic revenues which generally have higher gross margins than international sales , as well as cost reduction initiatives which are resulting in higher margins primarily in neurology devices . 39 operating costs replace_table_token_15_th marketing and selling marketing and selling expenses as a percentage of revenue decreased in 2014 compared to 2013. the slight increase in expense is related to higher commissions and additional labor costs associated with our peloton business . marketing and selling expense in 2014 also included a $ 0.5 million reduction in expense for prior period amortization expense adjustment . see note 6 of our consolidated financial statements . research and development research and development expenses decreased during the year ended december , 31 , 2014 compared to the prior year . this decrease was primarily due to a reduction in payroll expenses driven by our ongoing cost reduction activities . general and administrative during 2014 we listed our manufacturing facility in mundelein , illinois for sale . we adjusted the carrying value of this asset to fair market value less cost to sell . the related expense of $ 2.2 million , which included impairment of building improvements , was recorded in general and administrative expenses in the third quarter of 2014. this increase in expense was offset by a reduction in spending on outside services associated with cost reduction initiatives . other income ( expense ) , net other income ( expense ) , net consists of interest income , interest expense , net currency exchange gains and
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we have also received positive coverage determinations from numerous other commercial payers and , as of march 2015 , the gec is covered by payers representing 145 million covered lives . contracted and reimbursement rates vary by payer . we recognized revenue of $ 38.2 million , $ 21.9 million and $ 11.6 million in the years ended december 31 , 2014 , 2013 and 2012 , respectively . revenue increased by 75 % , 88 % and 340 % for the years ended december 31 , 2014 , 2013 and 2012 , respectively . we incurred a net loss of $ 29.4 million , $ 25.6 million and $ 18.6 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 , we had an accumulated deficit of $ 115.0 million . factors affecting our performance the number of fnas we receive and test the growth in our business is tied to the number of fnas we receive and the number of gecs performed . approximately 91 % of fnas we receive are for the afirma solution , which consists of cytopathology , and if the cytopathology result is indeterminate , the gec is performed . the remaining approximate 9 % of fnas are received from centers performing cytopathology in their institution where the cytopathology result is indeterminate and we perform the gec only . the rate at which adoption occurs in these two settings will cause these two percentages to fluctuate over time . approximately 1 % to 2 % of the fna samples we receive for cytopathology have insufficient cellular material from which to render a cytopathology diagnosis . we only bill the technical component , including slide preparation , for these tests . for results that are benign or suspicious/malignant by cytopathology , we bill for these services when we issue the report to the physician . if the cytopathology result is indeterminate , defined as atypia/follicular lesions of undetermined significance ( aus/flus ) or suspicious for fn/hcn , we perform the gec . historically , approximately 14 % -17 % of samples we have received for the afirma solution have yielded indeterminate results by cytopathology . approximately 5 % -10 % of the samples for gec testing have insufficient ribonucleic acid , or rna , from which to render a result . the gec can be reported as benign , suspicious or no result . we bill for the gec benign and gec suspicious results only . after the gec is completed , we issue the cytopathology report for the indeterminate results as well as the gec report , and then bill for both of these tests . we incur costs of collecting and shipping the fnas and a portion of the costs of performing tests where we can not ultimately issue a patient report . because we can not bill for all samples received , the number of fnas received does not directly correlate to the total number of patient reports issued and the amount billed . continued adoption of and reimbursement for afirma to date , only a small number of payers have reimbursed us for afirma at full list price . revenue growth depends on both our ability to achieve broader reimbursement at increased levels from third-party payers and to expand our base of prescribing physicians and increase our penetration in existing accounts . because some payers consider the gec experimental and investigational , we may not receive payment on many tests and payments may not be at acceptable levels compared to what we have billed . we expect our revenue growth will increase as more payers make a positive coverage decision and as payers enter into contracts with us , which should enhance our accrued revenue and collections . to drive increased adoption 65 of afirma , we have increased our internal sales force in high-volume geographies domestically during 2014 and plan to continue to do so into 2015 , along with increasing our marketing efforts . we have also hired institutional channel managers to focus on the institutional segment , which accounts generally send us only gecs . if we are unable to expand the base of prescribing physicians and penetration within these accounts at an acceptable rate , or if we are not able to execute our strategy for increasing reimbursement , we may not be able to effectively increase our revenue . how we recognize revenue a significant portion of our revenue is recognized upon the earlier of receipt of third-party notification of payment or when cash is received . for medicare and certain other payers where we have an agreed upon reimbursement rate or we are able to make a reasonable estimate of reimbursement at the time delivery is complete , we recognize the related revenue on an accrual basis . until we have contracts with or can make a reasonable estimate of reimbursement from a larger number of payers , we will recognize a large portion of our revenue upon the earlier of notification of payment or when cash is received . additionally , as we commercialize new products , we will need to contract with or be able to make a reasonable estimate of reimbursement for each payer for each new product offering prior to being able to recognize the related revenue on an accrual basis . because the timing and amount of cash payments received from payers is difficult to predict , we expect that our revenue will fluctuate significantly in any given quarter . in addition , even if we begin to accrue larger amounts of revenue related to afirma , when we introduce new products we do not expect we will be able to recognize revenue from new products on an accrual basis for some period of time . this may result in continued fluctuations in our revenue . story_separator_special_tag revenue recognized when cash is received was $ 25.7 million , $ 14.6 million and $ 7.5 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . revenue recognized on an accrual basis was $ 12.5 million , $ 7.3 million and $ 4.1 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 , amounts billed in the last 12 months at list price , for tests processed which were not recognized as revenue upon delivery of a patient report because our accrual revenue recognition criteria were not met and for which we have not received notification of payment , collected cash or written off as uncollectible , totaled $ 47.1 million . as of december 31 , 2013 , amounts billed in the last 12 months at list price , for tests processed which were not recognized as revenue upon delivery of a patient report because our accrual revenue recognition criteria were not met and for which we have not received notification of payment , collected cash or written off as uncollectible , totaled $ 32.4 million . of this amount , we recognized revenue of $ 7.3 million in the year ended december 31 , 2014 , when cash was received . although primarily all cash we receive is collected within 12 months of the date the test is billed , we can not provide any assurance as to when , if ever , or to what extent any of these amounts will be collected . notwithstanding our efforts to obtain payment for these tests , payers may deny our claims , in whole or in part , and we may never receive revenue from previously performed but unpaid tests . revenue from these tests , if any , may not be equal to the billed amount due to a number of factors , including differences in reimbursement rates , the amounts of patient co-payments and co-insurance , the existence of secondary payers and claims denials . we incur expense for tests in the period in which the test is conducted and recognize revenue for tests in the period in which our revenue recognition criteria are met . accordingly , any revenue that we recognize as a result of cash collection in respect of previously performed but unpaid tests will favorably impact our liquidity and results of operations in future periods . 66 impact of genzyme co-promotion agreement the $ 10.0 million fee we received from genzyme under the co-promotion agreement dated as of january 18 , 2012 is being amortized over the estimated useful life based on the provisions of the agreement , and is recorded as a reduction to selling and marketing expenses . we amortized $ 2.3 million , $ 2.5 million and $ 2.4 million of the $ 10.0 million in the years ended december 31 , 2014 , 2013 and 2012 , respectively , and these offsets to expense are included in selling and marketing expense in our consolidated statements of operations and comprehensive loss . the 2012 agreement required that we pay a certain percentage of our cash receipts from the sale of the afirma gec test to genzyme , which percentage decreased over time . the percentage was 40 % from january 2013 through february 2014 , 32 % from february 2014 through december 2014 , and decreased to 15 % in january 2015 ( upon execution of the amended and restated u.s. co-promotion agreement , dated as of november 7 , 2014 , with genzyme ) . our co-promotion fees were $ 12.0 million , $ 8.6 million and $ 5.5 million in the years ended december 31 , 2014 , 2013 and 2012 , respectively , and are included in selling and marketing expenses in our consolidated statements of operations and comprehensive loss . on august 12 , 2014 , we signed a binding letter of agreement with genzyme to amend the terms of the 2012 agreement . on november 7 , 2014 , we signed an amended and restated u.s. co-promotion agreement , or amended agreement , with genzyme . under the amended agreement , the co-promotion fees genzyme will receive as a percentage of u.s. cash receipts from the sale of the afirma gec test were reduced from 32 % to 15 % beginning january 1 , 2015. further , we have agreed to assume more responsibilities for sales and marketing activities . either party may terminate the agreement for convenience with six months prior notice , however , neither party can terminate the agreement for convenience prior to june 30 , 2016. our agreement with genzyme expires in january 2027. on february 13 , 2015 , we entered into an ex-u.s. co-promotion agreement , or ex-u.s. agreement , with genzyme for the co-exclusive promotion of the afirma gec test in two countries outside the united states : brazil and singapore . we also granted genzyme , for a limited period of time , an exclusive right of first negotiation to enter into an agreement with us for the promotion of the afirma gec test in three additional countries : canada , the netherlands and italy . further , upon mutual agreement , the parties may add additional countries ( other than the united states ) to the ex-u.s. agreement . the term of the agreement commenced january 1 , 2015 and continues until december 31 , 2019 , with extension of the agreement possible upon agreement of the parties . country specific terms have been established under this agreement for brazil and singapore . we will pay genzyme 25 % of cash receipts from the sale of the afirma gec test in brazil and singapore over a five-year period commencing january 1 , 2015. beginning in the fourth year of the agreement , if we terminate the agreement for convenience in brazil , we may be required to pay a termination fee contingent on the number of gec billable results generated .
| fnas received increased 16,178 , or 33 % , to 65,848 in the year ended december 31 , 2014. research and development comparison of the years ended december 31 , 2014 and 2013 is as follows : replace_table_token_8_th research and development expense increased $ 2.0 million , or 26 % , for the year ended december 31 , 2014 compared to the same period in 2013. the increase in personnel related expense was primarily due to a 38 % increase in headcount at december 31 , 2014 as compared to december 31 , 2013. the increase in stock-based compensation expense reflects option grants to new and existing employees . the increase in direct r & d expense was due primarily to the timing of genome sequencing expenses and other laboratory expenses . the decrease in other expense was due primarily to $ 530,000 in licensing fees to secure thyroid intellectual property in 2013 , partially offset by an increase in consulting and recruiting fees . selling and marketing comparison of the years ended december 31 , 2014 and 2013 is as follows : replace_table_token_9_th selling and marketing expense increased $ 9.4 million , or 75 % , for the year ended december 31 , 2014 compared to the same period in 2013. the increase in genzyme co-promotion expense , net , reflects growth in cash collections , partially offset by a reduction in the co-promotion percentage rate payable to genzyme in 2014 as compared to 2013 under the 2012 co-promotion agreement . the increase in personnel related expense were primarily due to a 107 % increase in headcount of our sales force at december 31 , 2014 as compared to december 31 , 2013. the increase in stock-based compensation expense reflects option grants 75 to new and existing employees . the increase in direct marketing expense was due primarily to increased marketing and promotional materials and market research and consultants . the increase in other expense was primarily due to an increase in information technology and facilities expenses that were related to sales and marketing activities . in november 2014 , we entered into an amended and restated u.s. co-promotion agreement , or amended agreement , with genzyme . as a result of the amended agreement , we expect our selling and marketing expenses for afirma to remain flat over the next year . while we expect that our personnel costs will increase as we take on
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notes to consolidated financial statements note 3. related party transactions expense support and conditional reimbursement agreement. 61 organization and offering costs since the fund 's inception , the adviser and its affiliates have incurred organizational costs of $ 817,503 and offering costs of $ 209,458 , all of which have been expensed as of december 31 , 2019. additional organizational costs of $ 106,510 were incurred in 2020 in connection with the creation of abpcice , all of which were fully expensed as of december 31 , 2020. organizational costs include , among other things , the cost of organizing as a maryland corporation , including the cost of legal services , directors ' fees and other fees , including travel-related expenses , pertaining to the fund 's organization , all of which are expensed as incurred . offering costs include , among other things , legal fees and other costs pertaining to the preparation of the fund 's private placement memorandum and other offering documents . operating expenses under the advisory agreement , the fund 's primary operating expenses will include the payment of fees to the adviser , the fund 's allocable portion of overhead expenses under the expense reimbursement agreement and other operating costs described below . the fund bears all other out-of-pocket costs and expenses of the fund 's operations and transactions , including those relating to : reasonable and documented organization and offering expenses to the extent reimbursement of such expenses is included in any future agreement with the adviser ; calculating the fund 's net asset value ( including the cost and expenses of any independent valuation firm ) ; fees and expenses payable to third parties , including agents , consultants or other advisers , in connection with monitoring financial ( including advising with respect to the fund 's financing strategy ) and legal affairs for the fund and in providing administrative services , monitoring the fund 's investments and performing due diligence on the fund 's prospective portfolio companies or otherwise relating to , or associated with , evaluating and making investments ; interest payable on debt , if any , incurred to finance the fund 's investments ; sales and purchases of the fund 's common stock and other securities ; base management fees and incentive fees payable to the adviser ; transfer agent and custodial fees ; federal and state registration fees ; all costs of registration and listing the fund 's securities on any securities exchange ; u.s. federal , state and local taxes ; independent directors ' fees and expenses ; costs of preparing and filing reports or other documents required by the sec , the financial industry regulatory authority or other regulators ; costs of any reports , proxy statements or other notices to stockholders , including printing costs ; the fund 's allocable portion of any fidelity bond , directors ' and officers ' errors and omissions liability insurance , and any other insurance premiums ; direct costs and expenses of administration , including printing , mailing , long distance telephone , copying , secretarial and other staff , independent auditors and outside legal costs ; and all other expenses incurred by the fund , the administrator or the adviser in connection with administering the fund 's business , including payments under the administration agreement and payments under the expense reimbursement agreement based on the fund 's allocable portion of the adviser 's overhead in performing its obligations under the expense reimbursement agreement , including the allocable portion of the cost of the fund 's chief compliance officer and chief financial officer and their respective staffs . portfolio and investment activity during the year ended december 31 , 2020 , the fund invested $ 235,420,913 in 47 portfolio companies , $ 49,770,566 was drawn down against the revolvers and delayed draw term loans , and the fund had $ 86,687,331 in aggregate amount of principal repayments , which includes $ 15,944,450 in revolver and delayed draw term loan paydowns , and $ 10,036,583 in sales , resulting in net investments of $ 188,467,565 for the period . for the year ended december 31 , 2020 , the fund had $ 862,336 in pik interest . 62 during the year ended december 31 , 2019 , the fund invested $ 218,609,270 in 54 portfolio companies , $ 31,444,355 was drawn down against the revolvers and delayed draw term loans , and the fund had $ 35,633,455 in aggregate amount of principal repayments , which included $ 8,974,614 in revolver and delayed draw term loan paydowns , and $ 7,834,771 in sales , resulting in net investments of $ 206,585,399 for the period . for the year ended december 31 , 2019 , the fund had $ 301,603 in pik interest . the following table shows the composition of the investment portfolio and associated yield data as of december 31 , 2020 : replace_table_token_11_th ( 1 ) based upon the par value of the fund 's debt investments the following table shows the composition of the investment portfolio and associated yield data as of december 31 , 2019 : replace_table_token_12_th ( 1 ) based upon the par value of the fund 's debt investments the following table presents certain selected financial information regarding the debt investments in the fund 's portfolio as of december 31 , 2020 and 2019 : replace_table_token_13_th ( 1 ) measured on a fair value basis , and excludes equity securities . story_separator_special_tag the following table shows the amortized cost and fair value of the fund 's performing and non-accrual debt investments as of december 31 , 2020 : replace_table_token_14_th 63 the following table shows the amortized cost and fair value of the fund 's performing and non-accrual debt investments as of december 31 , 2019 : replace_table_token_15_th generally , when interest and or principal payments on a loan become past due , or if the fund otherwise does not expect the borrower to be able to service its debt and other obligations , the fund will place the loan on non-accrual status and will cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to restructuring such that the interest income is deemed to be collectible . the fund generally restores non-accrual loans to accrual status when past due principal and interest is paid and , in the management 's judgment , is likely to remain current . as of december 31 , 2020 and 2019 , the fund had no investments that were on non-accrual status . the following table shows the amortized cost and fair value of the investment portfolio and cash and cash equivalents as of december 31 , 2020 : replace_table_token_16_th the following table shows the amortized cost and fair value of the investment portfolio and cash and cash equivalents as of december 31 , 2019 : replace_table_token_17_th 64 the following table shows the composition of the investment portfolio by industry , at amortized cost and fair value as of december 31 , 2020 ( with corresponding percentage of total portfolio investments ) : replace_table_token_18_th the following table shows the composition of the investment portfolio by industry , at amortized cost and fair value as of december 31 , 2019 ( with corresponding percentage of total portfolio investments ) : replace_table_token_19_th the adviser monitors the fund 's portfolio companies on an ongoing basis . it monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company . the adviser has several methods of evaluating and monitoring the performance and fair value of the fund 's investments , which may include the following : assessment of success in adhering to the portfolio company 's business plan and compliance with covenants ; periodic or regular contact with portfolio company management and , if appropriate , the financial or strategic sponsor to discuss financial position , requirements and accomplishments ; comparisons to the fund 's other portfolio companies in the industry , if any ; attendance at and participation in board meetings or presentations by portfolio companies ; and review of monthly and quarterly consolidated financial statements and financial projections of portfolio companies . 65 story_separator_special_tag font-size:10pt ; font-family : times new roman '' > hedging the fund may enter into currency hedging contracts , interest rate hedging agreements such as futures , options , swaps and forward contracts , and credit hedging contracts , such as credit default swaps . however , no assurance can be given that such hedging transactions will be entered into or , if they are , that they will be effective . for the year ended december 31 , 2020 , the fund did not enter into any hedging contracts . financial condition , liquidity and capital resources at december 31 , 2020 , and december 31 , 2019 , the fund had $ 22,410,622 and $ 14,931,791 in cash and cash equivalents on hand , respectively . the fund expects to generate cash primarily from ( i ) the net proceeds of the private offering , ( ii ) cash flows from the fund 's operations , ( iii ) any financing arrangements now existing or that the fund may enter into in the future and ( iv ) any future offerings of the fund 's equity or debt securities . the fund may fund a portion of its investments through borrowings from banks , or other large global institutions such as insurance companies , and issuances of senior securities . the fund 's primary use of funds from a credit facility will be investments in portfolio companies , cash distributions to holders of the fund 's common stock and the payment of operating expenses . in the future , the fund may also securitize or finance a portion of its investments with a special purpose vehicle . if the fund undertakes a securitization transaction , it will consolidate its allocable portion of the debt of any securitization subsidiary on its financial statements , and include such debt in its calculation of the asset coverage test , if and to the extent required pursuant to the guidance of the staff of the sec . cash and cash equivalents as of december 31 , 2020 , taken together with the fund 's uncalled capital commitments of $ 231,023,885 , $ 4,000,000 undrawn amount on the hsbc credit facility and $ 15,300,000 undrawn amount on the synovus credit facility , is expected to be sufficient for the fund 's investing activities and to conduct the fund 's operations for at least the next twelve months . as of december 31 , 2020 , the fund had $ 22,410,622 in cash and cash equivalents . during the year ended december 31 , 2020 , the fund used $ 177,285,515 for operating activities . credit facilities hsbc credit facility on november 15 , 2017 , the fund entered into the hsbc credit agreement to establish the hsbc credit facility with the hsbc administrative agent and any other lender that becomes a party to the hsbc credit facility in accordance with the terms of the hsbc credit agreement , as lenders . the initial maximum commitment amount ( the hsbc maximum commitment ) under the hsbc credit facility was $ 30 million . the hsbc maximum commitment amount may be increased upon request of the fund to an amount agreed upon by the fund and the hsbc administrative agent .
| the fund first drew on the hsbc credit facility on november 15 , 2017 , the barclays credit facility on january 30 , 2019 and the synovus credit facility on october 15 , 2020. as of december 31 , 2020 , there were outstanding balances of $ 46,000,000 and $ 84,700,000 on the hsbc credit facility and synovus credit facility , respectively , and an outstanding balance of $ 18,870,856 in secured borrowings ( as defined below ) . as of december 31 , 2019 , there was an outstanding balance of $ 19,500,000 on the hsbc credit facility , and an outstanding balance of $ 0 in secured borrowings . on august 9 , 2019 , abpcic funding issued collateralized loan obligation securities ( clos ) , and terminated the barclays credit facility . the outstanding amount on the notes is $ 211,337,498 , net of unamortized discount and debt issuance costs as of december 31 , 2020. the outstanding amount on the notes was $ 210,336,633 , net of unamortized discount and debt issuance costs as of december 31 , 2019. interest and borrowing expenses for the years ended december 31 , 2020 and december 31 , 2019 , were $ 8,616,494 and $ 8,465,414 , respectively . the weighted average interest rate ( excluding deferred upfront financing costs and unused fees ) on the fund 's debt outstanding was 2.87 % and 4.39 % for the years ending december 31 , 2020 and december 31 , 2019 , respectively . management fee the gross management fee expenses for the years ended december 31 , 2020 and 2019 were $ 6,091,338 and $ 3,688,293 respectively . the increase in the management fee for the year ended december 31 , 2020 was a result of the increase in average gross assets during this period , which are the basis used to calculate management fees . for the years ended december 31 , 2020 and december 31 , 2019 , the adviser waived management fees of $ 1,863,539 and $ 380,701 , respectively . net realized gain ( loss ) on investments during the year ended december 31 , 2020 , the fund had principal repayments of $ 86,687,331 , which includes $ 15,944,450 of revolver and delayed draw term loan paydowns , and $ 10,036,583 in sales , resulting in $ 569,369 of
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other significant costs include facility-related costs , legal fees relating to intellectual property and corporate matters , professional fees for accounting and consulting services and insurance costs . we expect our general and administrative expenses will increase for the foreseeable future to support our expanded infrastructure and increased costs of operating as a public company . these increases will likely include increased expenses related to audit , legal , regulatory , and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance premiums , and investor relations costs associated with operating as a public company . other income ( expense ) , net other income ( expense ) , net consists of ( 1 ) interest income on our cash , cash equivalents and marketable securities , ( 2 ) other miscellaneous income ( expense ) and ( 3 ) interest expense related to the convertible promissory note issued in october 2017. the note converted into shares of our series a convertible preferred stock in january 2018 . 82 critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of our consolidated financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , costs and expenses . we base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances . we evaluate our estimates and assumptions on an ongoing basis . we base our estimates on historical experience , known trends and events , and various other factors 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 . our actual results may differ from these estimates under different assumptions or conditions ( see note 2 ) . accrued expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses as of each balance sheet date . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . we make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . the significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced . we base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepaid expense accordingly . advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made . although we do not expect our estimates to be materially different from amounts actually incurred , if our estimates of the status and timing of services performed differ from the actual status and timing of services performed , it could result in us reporting amounts that are too high or too low in any particular period . to date , there have been no material differences between our estimates of such expenses and the amounts actually incurred . stock-based compensation we measure and recognize compensation expense for all options based on the estimated fair value of the award on the grant date . we use the black-scholes option-pricing model to estimate the fair value of option awards . the fair value is recognized as expense on a straight-line basis over the requisite service period . we account for forfeitures as they occur . we record expense for awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable . management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date . the determination of the grant date fair value of options using an option pricing model is affected principally by our estimated fair value of shares of our common stock and requires management to make a number of other assumptions , including the expected life of the option , the volatility of the underlying shares , the risk-free interest rate and expected dividends . the assumptions used in our black-scholes option-pricing model represent management 's best estimates at the time of measurement . these estimates are complex , involve a number of variables , uncertainties and assumptions and the application of management 's judgment , as they are inherently subjective . if any assumptions change , our stock-based compensation expense could be materially different in the future . story_separator_special_tag see note 9 to our consolidated financial statements included elsewhere in this annual report on form 10-k for information concerning certain of the specific assumptions we used in applying the black-scholes option pricing model to determine the estimated fair value of our stock options granted in the year ended december 31 , 2018. as of december 31 , 2018 , the unrecognized stock-based compensation expense related to employee stock options and unvested restricted stock was $ 24.0 million and $ 30.0 million , respectively , and is expected to be recognized as expense over a weighted-average period of approximately 3.6 years . the intrinsic value of all outstanding stock options as of december 31 , 2018 was approximately $ 16.3 million , of which approximately $ 0.4 million related to vested options and approximately $ 15.9 million related to unvested options . 83 fair value of common stock we are required to estimate the fair value of the common stock underlying our stock-based awards when performing fair value calculations , which is the most subjective input into the black-scholes option pricing model . prior to our ipo , the fair value of the common stock underlying our stock-based awards was determined on each grant date by our board of directors , taking into account input from management and independent third-party valuation analyses . all options to purchase shares of our common stock are intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant , based on the information known to us on the date of grant . prior to our ipo , in the absence of a public trading market for our common stock , on each grant date we developed an estimate of the fair value of our common stock in order to determine an exercise price for the option grants . our determinations of the fair value of our common stock were made using methodologies , approaches and assumptions consistent with the american institute of certified public accountants audit and accounting practice aid series : valuation of privately held company equity securities issued as compensation , or the practice aid . our board of directors considered various objective and subjective factors , along with input from management , to determine the fair value of our common stock , including : valuations of our common stock performed by independent third-party valuation specialists ; our stage of development and business strategy , including the status of research and development efforts of our product candidates , and the material risks related to our business and industry ; our results of operations and financial position , including our levels of available capital resources ; the valuation of publicly traded companies in the life sciences and biotechnology sectors , as well as recently completed mergers and acquisitions of peer companies ; the lack of marketability of our common stock as a private company ; the prices of our convertible preferred stock sold to investors in arm 's length transactions and the rights , preferences , and privileges of our convertible preferred stock relative to those of our common stock ; the likelihood of achieving a liquidity event for the holders of our common stock , such as an initial public offering or a sale of our company , given prevailing market conditions ; trends and developments in our industry ; and external market conditions affecting the life sciences and biotechnology industry sectors . our valuations were prepared in accordance with the guidelines in the practice aid , which prescribes several valuation approaches for setting the value of an enterprise , such as the cost , income and market approaches , and various methodologies for allocating the value of an enterprise to its common stock . the cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional or economic obsolescence , if present . the income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our company 's future operations , discounting to the present value with an appropriate risk adjusted discount rate or capitalization rate . the market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics . each valuation methodology was considered in our valuations . in determining a fair value for our common stock , we estimated the enterprise value of our business using either the market approach or the back-solve method . the back-solve method assigns an implied enterprise value based on the most recent round of funding or investment and allows for the incorporation of the implied future benefits and risks of the investment decision assigned by an outside investor . in accordance with the practice aid , we considered the various methods for allocating the enterprise value across our classes and series of capital stock to determine the fair value of our common stock at each valuation date . we only granted restricted stock awards prior to january 2018. from january 2018 to july 2018 , we concluded that a hybrid of the option pricing method , or opm , and the guideline transaction method with current value method allocation , or cvm , was the most appropriate for each of the valuations of our common stock performed by our independent third-party valuation specialist . under the opm , shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class . the values of the preferred and common stock are inferred by analyzing these options . under the cvm , the enterprise value is calculated based on an assumed forced asset sale at a future date and the corresponding allocation of proceeds based on the rights and preferences of each class of equity .
| we also expect to initiate proof-of-concept phase 2 clinical trials of gb001 in crs and csu in 2019. we are developing gb002 for the treatment of pah , and plan to commence a phase 1b clinical trial in pah in the first half of 2019 and a phase 2/3 clinical trial in pah in the second half of 2019. we are developing gb004 for the treatment of ibd , including uc and cd , and expect to initiate a phase 1b clinical trial in uc in the first half of 2019. we also plan to initiate a phase 2 clinical trial in uc in the first half of 2020. we currently have three programs in preclinical development . gb1275 is an oral small molecule , cd11b agonist in preclinical development for the treatment of oncology indications for which we plan to submit an ind application and , after acceptance , initiate a phase 1/2 clinical trial in 2019. we are also currently evaluating a portfolio of novel btk inhibitors for the treatment of autoimmune indications and small molecule cancer metabolism modulators for the treatment of solid tumors . we were incorporated in october 2015 and commenced operations in 2017. to date , we have focused primarily on organizing and staffing our company , business planning , raising capital , identifying , acquiring and in-licensing our product candidates and conducting preclinical studies and early clinical trials . we have funded our operations primarily through equity financings . we raised $ 310.0 million from october 2017 through july 2018 through series a and b convertible preferred stock financings and a convertible note financing . in addition , we received $ 12.8 million in cash in connection with the january 2018 acquisition of aa biopharma inc. , of which pulmagen therapeutics ( asthma ) limited is a wholly-owned subsidiary . as of december 31 , 2018 , we had $ 228.7 million in cash , cash equivalents and marketable securities . on february 12 , 2019 , we closed our ipo
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our publications , posters and presentations at scientific conferences lead to engagement at the scientific level with potential customers who often make the initial decision to gain experience with our platform . accessing these new customers through scientific engagement and marketing to gain initial buy-in is critical to our success and gives us the opportunity to demonstrate the utility of our platform . our revenues and costs are affected by the volume of samples we receive from customers from period to period . the timing and size of sample shipments received after orders have been placed is variable . since sample shipments can be large , and are often received from a third party , the timing of arrival can be difficult to predict over the short term . although our long-term performance is not affected , we do see quarter-to-quarter volatility due to these factors . samples arriving later than expected may not be processed in the quarter proposed and result in revenue the following quarter . since many of our customers request defined turnaround times , we employ project managers to coordinate and manage the complex process from sample receipt to sequencing and delivery of results . investment in product innovation to support commercial growth . investment in research and development , including the development of new products is critical to establish and maintain our leading position . in particular , we have invested in neoantigenid , a neoantigen characterization report , immunogenomicsid , a broad biomarker report , and immunoid next , our universal cancer immunogenomics platform . we are also collaborating with key opinion leaders from academic cancer centers , such as inova health system , stanford medicine , and the parker institute for cancer immunotherapy , to support the utility of our platform . we believe this work is critical to gaining customer adoption and expect our investments in these efforts to increase . we believe utility for our product may result in additional expenditures to develop and market new products , including a diagnostic or database . leverage our operational infrastructure . we have invested significantly , and will continue to invest , in our sample processing capabilities and commercial infrastructure . with our current operating model and infrastructure , we can increase our production and commercialize new generations of our platform , but as our volumes continue to increase we will ultimately need to invest in additional production capabilities . we expect to grow our revenues and spread our costs over a larger volume of services . in addition , we may invest significant amounts in infrastructure to support new products resulting from our research and development activities . in addition to the factors described above , as our headquarters and laboratory operations are located in san mateo county , california , our operations have been impacted by the ongoing covid-19 pandemic . on march 16 , 2020 , the health officer of the county of san mateo ( the “ health officer ” ) issued a shelter-in-place order ( the “ san mateo order ” ) , which directed all businesses to cease non-essential operations at physical locations in the county . the san mateo order also directed all individuals living in the county to shelter at their place of residence with limited exceptions . the intent of the san mateo order is to slow the spread of covid-19 to the maximum extent possible . the san mateo order became effective on march 17 , 2020 and will continue to be in effect through april 7 , 2020 , or until it is extended , rescinded , superseded , or amended in writing by the health officer . similar orders were issued in neighboring counties , including santa clara county , such that the substantial majority of our employees are subject to a shelter-in-place order . while the san mateo order allows for continued operation of so-called essential businesses , which includes certain critical healthcare operations and services , to comply with the san mateo order , we are prioritizing the fulfillment of customer orders to those related to time-sensitive healthcare projects , such as in-process clinical trials , and will fulfill other customer orders to the extent we have the ability to do so with limited laboratory staffing . in addition , on march 19 , 2020 , the governor of california and the state public health officer and director of the california department of public health ordered all individuals living in the state of california to stay at their place of residence for an indefinite period of time ( subject to certain exceptions to facilitate authorized necessary activities ) to mitigate the impact of the covid-19 pandemic ( the “ california order ” and , together with the san mateo order , the “ orders ” ) . other states in the united states , including massachusetts and new york , have followed suit by issuing orders with similar goals and restrictions . 60 beyond the immediate impact of the orders to our operations , the ongoing covid-19 pandemic , the orders , and similar orders issued by other authorities to impose restrictions intended to mitigate the impact of the covid-19 pandemic , may disrupt our supply chain , including our ability to acquire raw materi als , disrupt customer demand , reduce our ability to receive customer samples on a normal basis , disrupt our customer and vendor relationships , divert management attention , and negatively impact employee productivity due to work-from-home policies . the scop e and duration of such impact is highly uncertain . we are unable to predict or quantify the impact of any potential disruption to our supply chain , changes in consumer demand , or any other actions that may become necessary as events unfold . components of operating results revenues we derive our revenues primarily from sequencing and data analysis services to support the development of next-generation cancer therapies and to support large scale genetic research programs . we support our customers by providing high-accuracy , validated genomic sequencing and advanced analytics . story_separator_special_tag many of these analytics are related to state-of-the-art biomarkers , including those relevant to immuno-oncology therapeutics such as checkpoint inhibitors . our revenues are primarily generated through contracts with companies in the pharmaceutical industry , healthcare organizations , and government entities . our ability to increase our revenues will depend on our ability to further penetrate this market . to do this , we are developing a growing set of additional state-of-the-art products , advancing our operational infrastructure , building our regulatory credentials and expanding our targeted marketing efforts . unlike diagnostic or therapeutic companies , we have not to date sought reimbursement through traditional healthcare payors . we sell through a small direct sales force . we have one reportable segment from the sale of sequencing and data analysis services . substantially all of our revenues to date have been derived from sales in the united states . costs and expenses costs of revenues costs of revenues consist of production material costs , personnel costs ( salaries , bonuses , benefits , and stock-based compensation ) , costs of consumables , laboratory supplies , depreciation and service maintenance on capitalized equipment , and information technology ( “ it ” ) and facility costs . we expect the costs of revenues to increase as our revenues grow , but the cost per unit of data delivered to decrease over time due to economies of scale we may gain as volume increases , automation initiatives , and other cost reductions . research and development expenses research and development expenses consist of costs incurred for the development of our products . these expenses consist primarily of payroll and personnel costs ( salaries , bonuses , benefits , and stock-based compensation ) , costs of consumables , laboratory supplies , depreciation and service maintenance on capitalized equipment , and it and facility costs . these expenses also include costs associated with our collaborations , which we expect to increase over time . we expense our research and development expenses in the period in which they are incurred . we expect to increase our research and development expenses as we continue to develop new products . selling , general , and administrative expenses selling expenses consist of personnel costs , customer support expenses , direct marketing expenses , educational and promotional expenses , and market research . our general and administrative expenses include costs for our executive , accounting , finance , legal , and human resources functions . these expenses consist of personnel costs , audit and legal expenses , consulting costs , and it and facility costs . we expense all selling , general , and administrative expenses as incurred . we expect our selling expenses will continue to increase in absolute dollars , primarily driven by our efforts to expand our commercial capability and to expand our brand awareness and customer base through targeted marketing initiatives with an increased presence both within and outside the united states . we also expect general and administrative expenses will increase as we scale our operations . interest income 61 interest income consists primarily of interest earned on our cash and cash equivalent s , and short-term investments . interest income increased significantly in 2019 as a result of us investing proceeds from the ipo . we expect a continued higher level of interest income in 2020 for this reason . interest expense interest expense primarily consists of cash and non-cash interest costs related to our term loan , convertible promissory notes , revolving loan , and growth capital loan . we record costs incurred in connection with the issuance of debt as a direct deduction from the debt liability . we amortize these costs over the term of our debt agreements as interest expense in our consolidated statements of operations . after the payoff of our growth capital loan in august 2019 , we no longer have any outstanding debt and have not incurred interest expense from that point forward . loss on debt extinguishment we incurred loss on debt extinguishment in 2018 resulting from changes in the maturity dates of the convertible notes issued in 2017. we also incurred loss on debt extinguishment in 2019 upon the payoff of the growth capital loan . see note 6 to our consolidated financial statements included elsewhere in this annual report . other ( expense ) income , net other ( expense ) income , net consists of changes in the fair value of the compound derivative instrument , changes in fair value of convertible preferred stock warrant liability , and foreign currency exchange gains and losses . future periods will not include changes in fair value of the compound derivative instrument , due to extinguishment of the related convertible notes , nor will future periods include changes in fair value of convertible preferred stock warrants , due to the conversion of such warrants to common stock warrants . see notes 6 and 10 included elsewhere in this annual report for further discussion of these two items . we expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates . story_separator_special_tag cash provided by financing activities of $ 134.9 million during 2019 consisted primarily of $ 139.8 million of proceeds from initial public offering , net of underwriting discounts and commissions , $ 1.4 million of proceeds from issuance of common stock under employee stock plans , and net proceeds from the issuance of a growth capital loan of $ 20.0 million , partially offset by cash used to repay a revolving loan and issue and repay the growth capital loan of $ 26.3 million . 65 investments in property and equipment the company 's capital expenditures were $ 8.4 million during 2019 , which was primarily related to the acquisition of property and equipment used for our sequencing and data analysis services . debt we previously entered into various forms of convertible debt and revolving loans to finance our operations prior to our ipo .
| research and development expenses increased due to an increase of $ 4.0 million in personnel-related expenses , including salaries , bonuses , benefits , and stock-based compensation expenses , a $ 2.8 million increase in laboratory and automation supplies consumed , a $ 1.2 million increase in depreciation , service maintenance on capitalized equipment , and cost of expensed equipment , and $ 0.2 million increase in other costs . selling , general and administrative the increase in 2019 was due to a $ 7.3 million increase in personnel-related expenses including salaries , bonuses , benefits , and stock-based compensation expenses primarily related to increased headcount , a $ 3.0 million increase in professional services primarily related to public company-related costs ( including corporate insurance , audit fees , and legal expenses ) , and a $ 0.5 million increase in other costs . 63 interest income , interest expense , and loss on debt extinguishment replace_table_token_7_th interest income the increase in 2019 was due to investments of proceeds from our ipo . interest expense the lower interest expense in 2019 was due to the repayment of the $ 20 million growth capital loan in august 2019 , which resulted in no further outstanding debt for the remainder of the year , as well as 2018 including significant interest expense from the convertible notes and revolving loan . loss on debt extinguishment the $ 1.7 million loss on debt extinguishment in 2019 resulted from the extinguishment of our $ 20 million growth capital loan facility . the $ 4.7 million loss on debt extinguishment in 2018 resulted from changes in the maturity dates of the convertible notes issues in 2017. other ( expense ) income , net replace_table_token_8_th other expenses , net in 2019 were primarily comprised of a $ 1.4 million increase in the fair values of warrants for series b and series c redeemable convertible preferred stock . other income , net in 2018 was primarily comprised of a $ 0.6 million decrease in fair value of the compound derivative instrument , partially offset by a $ 0.4 million increase in the fair values of warrants for series b and series c redeemable convertible preferred stock . liquidity and capital resources the following table presents selected financial information and statistics as of and for the years ended december 31 ,
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depreciation expense increased $ 0.4 million due to capital projects being completed and placed in service in the fourth quarter of 2017 and throughout 2018. other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . 55 natural gas liquids segment comparative results of operations for the years ended december 31 , 2019 and 2018 replace_table_token_13_th products revenues . our ngl average sales price per barrel decreased $ 11.20 , or 23 % , resulting in a decrease to products revenues of $ 114.5 million . the decrease in average sales price per barrel was a result of a decrease in market prices . product sales volumes decreased 4 % , decreasing revenues $ 15.0 million . cost of products sold . our average cost per barrel decreased $ 10.93 , or 24 % , decreasing cost of products sold by $ 111.7 million . the decrease in average cost per barrel was a result of a decrease in market prices . the decrease in sales volume of 4 % resulted in a $ 14.0 million decrease to cost of products sold . our margins decreased $ 0.27 per barrel , or 10 % during the period . operating expenses . operating expenses decreased primarily due to the sale of our east texas pipeline on august 12 , 2019. selling , general and administrative expenses . selling , general and administrative expenses decreased $ 0.6 million primarily as a result of $ 0.3 million in decreased compensation expense and $ 0.2 million in decreased property taxes . other operating income ( loss ) , net . other operating income ( loss ) , net represents the gains associated with the disposition of the east texas pipeline . comparative results of operations for the years ended december 31 , 2018 and 2017 replace_table_token_14_th 56 products revenues . our ngl average sales price per barrel increased $ 3.37 , or 7 % , resulting in an increase to products revenues of $ 35.3 million . the increase in average sales price per barrel was a result of an increase in market prices . product sales volumes decreased 3 % , decreasing revenues $ 12.8 million . cost of products sold . our average cost per barrel increased $ 5.25 , or 13 % , increasing cost of products sold by $ 55.0 million . the increase in average cost per barrel was a result of an increase in market prices . the decrease in sales volume of 3 % resulted in a $ 12.1 million decrease to cost of products sold . our margins decreased $ 1.88 per barrel , or 40 % during the period . operating expenses . operating expenses increased $ 0.2 million as a result of increased repairs and maintenance expense at our underground ngl storage facility . selling , general and administrative expenses . selling , general and administrative expenses decreased $ 1.7 million as a result of $ 2.3 million in decreased compensation expense offset by $ 0.4 million in increased property taxes and $ 0.4 million in in increased property damage claims . other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . interest expense comparative components of interest expense , net for the years ended december 31 , 2019 and 2018 replace_table_token_15_th comparative components of interest expense , net for the years ended december 31 , 2018 and 2017 replace_table_token_16_th 57 indirect selling , general and administrative expenses replace_table_token_17_th indirect selling , general and administrative expenses remained consistent from 2018 to 2019. the increase in indirect selling , general and administrative expenses from 2017 to 2018 is primarily a result of increased unit based compensation expense . martin resource management corporation allocates to us a portion of its indirect selling , general and administrative expenses for services such as accounting , treasury , clerical , engineering , legal , billing , information technology , administration of insurance , general office expenses and employee benefit plans and other general corporate overhead functions we share with martin resource management corporation retained businesses . this allocation is based on the percentage of time spent by martin resource management corporation personnel that provide such centralized services . gaap also permits other methods for allocation of these expenses , such as basing the allocation on the percentage of revenues contributed by a segment . the allocation of these expenses between martin resource management corporation and us is subject to a number of judgments and estimates , regardless of the method used . we can provide no assurances that our method of allocation , in the past or in the future , is or will be the most accurate or appropriate method of allocation for these expenses . other methods could result in a higher allocation of selling , general and administrative expense to us , which would reduce our net income . under the omnibus agreement , we are required to reimburse martin resource management corporation for indirect general and administrative and corporate overhead expenses . the conflicts committee approved the following reimbursement amounts : replace_table_token_18_th the amounts reflected above represent our allocable share of such expenses . the conflicts committee will review and approve future adjustments in the reimbursement amount for indirect expenses , if any , annually . liquidity and capital resources general our primary sources of liquidity to meet operating expenses , service our indebtedness , pay distributions to our unitholders and fund capital expenditures have historically been cash flows generated by our operations , borrowings under our revolving credit facility and access to debt and equity capital markets , both public and private . set forth below is a description of our cash flows for the periods indicated . recent debt financing activity credit facility amendment and extension . on july 18 , 2019 , the partnership amended its revolving story_separator_special_tag depreciation expense increased $ 0.4 million due to capital projects being completed and placed in service in the fourth quarter of 2017 and throughout 2018. other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . 55 natural gas liquids segment comparative results of operations for the years ended december 31 , 2019 and 2018 replace_table_token_13_th products revenues . our ngl average sales price per barrel decreased $ 11.20 , or 23 % , resulting in a decrease to products revenues of $ 114.5 million . the decrease in average sales price per barrel was a result of a decrease in market prices . product sales volumes decreased 4 % , decreasing revenues $ 15.0 million . cost of products sold . our average cost per barrel decreased $ 10.93 , or 24 % , decreasing cost of products sold by $ 111.7 million . the decrease in average cost per barrel was a result of a decrease in market prices . the decrease in sales volume of 4 % resulted in a $ 14.0 million decrease to cost of products sold . our margins decreased $ 0.27 per barrel , or 10 % during the period . operating expenses . operating expenses decreased primarily due to the sale of our east texas pipeline on august 12 , 2019. selling , general and administrative expenses . selling , general and administrative expenses decreased $ 0.6 million primarily as a result of $ 0.3 million in decreased compensation expense and $ 0.2 million in decreased property taxes . other operating income ( loss ) , net . other operating income ( loss ) , net represents the gains associated with the disposition of the east texas pipeline . comparative results of operations for the years ended december 31 , 2018 and 2017 replace_table_token_14_th 56 products revenues . our ngl average sales price per barrel increased $ 3.37 , or 7 % , resulting in an increase to products revenues of $ 35.3 million . the increase in average sales price per barrel was a result of an increase in market prices . product sales volumes decreased 3 % , decreasing revenues $ 12.8 million . cost of products sold . our average cost per barrel increased $ 5.25 , or 13 % , increasing cost of products sold by $ 55.0 million . the increase in average cost per barrel was a result of an increase in market prices . the decrease in sales volume of 3 % resulted in a $ 12.1 million decrease to cost of products sold . our margins decreased $ 1.88 per barrel , or 40 % during the period . operating expenses . operating expenses increased $ 0.2 million as a result of increased repairs and maintenance expense at our underground ngl storage facility . selling , general and administrative expenses . selling , general and administrative expenses decreased $ 1.7 million as a result of $ 2.3 million in decreased compensation expense offset by $ 0.4 million in increased property taxes and $ 0.4 million in in increased property damage claims . other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . interest expense comparative components of interest expense , net for the years ended december 31 , 2019 and 2018 replace_table_token_15_th comparative components of interest expense , net for the years ended december 31 , 2018 and 2017 replace_table_token_16_th 57 indirect selling , general and administrative expenses replace_table_token_17_th indirect selling , general and administrative expenses remained consistent from 2018 to 2019. the increase in indirect selling , general and administrative expenses from 2017 to 2018 is primarily a result of increased unit based compensation expense . martin resource management corporation allocates to us a portion of its indirect selling , general and administrative expenses for services such as accounting , treasury , clerical , engineering , legal , billing , information technology , administration of insurance , general office expenses and employee benefit plans and other general corporate overhead functions we share with martin resource management corporation retained businesses . this allocation is based on the percentage of time spent by martin resource management corporation personnel that provide such centralized services . gaap also permits other methods for allocation of these expenses , such as basing the allocation on the percentage of revenues contributed by a segment . the allocation of these expenses between martin resource management corporation and us is subject to a number of judgments and estimates , regardless of the method used . we can provide no assurances that our method of allocation , in the past or in the future , is or will be the most accurate or appropriate method of allocation for these expenses . other methods could result in a higher allocation of selling , general and administrative expense to us , which would reduce our net income . under the omnibus agreement , we are required to reimburse martin resource management corporation for indirect general and administrative and corporate overhead expenses . the conflicts committee approved the following reimbursement amounts : replace_table_token_18_th the amounts reflected above represent our allocable share of such expenses . the conflicts committee will review and approve future adjustments in the reimbursement amount for indirect expenses , if any , annually . liquidity and capital resources general our primary sources of liquidity to meet operating expenses , service our indebtedness , pay distributions to our unitholders and fund capital expenditures have historically been cash flows generated by our operations , borrowings under our revolving credit facility and access to debt and equity capital markets , both public and private . set forth below is a description of our cash flows for the periods indicated . recent debt financing activity credit facility amendment and extension . on july 18 , 2019 , the partnership amended its revolving
| a 31 % decrease in sales volumes combined with a 29 % decrease in average sales price at our shore-based terminals resulted in a $ 33.1 million decrease to products revenues . offsetting this decrease was a 10 % increase in sales volumes combined with a 3 % increase in average sales price at our blending and packaging facilities resulting in an $ 11.1 million increase in products revenues . cost of products sold . a 31 % decrease in sales volumes combined with a 32 % decrease in average cost per gallon at our shore-based terminals resulted in a $ 31.7 million decrease in cost of products sold . offsetting this decrease was a 10 % increase in sales volume combined with a 1 % increase in average cost per gallon at our blending and packaging facilities resulting in a $ 7.4 million increase in cost of products sold . operating expenses . operating expenses decreased $ 0.9 million , of which $ 0.8 million is a result of the disposition of our sulfuric acid terminal in elko , nevada combined with decreases in lease expense of $ 0.9 million and utilities of $ 0.8 million across our terminals . offsetting these decreases were increases in repairs and maintenance of $ 1.2 million across our terminals and $ 0.5 million in wharfage and dockage fees at our tampa specialty terminal . selling , general and administrative expenses . selling , general and administrative expenses increased primarily as a result of increases in legal expenses of $ 0.4 million and compensation expense of $ 0.3 million . depreciation and amortization . the decrease in depreciation and amortization is due to the disposition of assets at several closed shore-based facilities , offset by recent capital expenditures . 50 other operating income ( loss ) , net . other operating income ( loss ) , net represents gains and losses from the disposition of property , plant and equipment . comparative results of operations for the years ended december 31 , 2018 and 2017 replace_table_token_8_th services revenues . services revenue decreased $ 3.2 million , of which $ 7.6 million was primarily a result
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on may 26 , 2020 , we completed an underwritten public offering of our common stock , which resulted in the sale of 5,750,000 shares of common stock , inclusive of 750,000 shares we sold pursuant to the full exercise of the underwriters ' option to purchase additional shares . the aggregate net proceeds received by us from the offering were $ 75.1 million , after deducting underwriting discounts and commissions as well as other offering costs of $ 0.6 million . because of the numerous risks and uncertainties associated with product development and commercialization , we are unable to accurately predict the timing or amount of increased expenses or when , or if , we will be able to achieve or maintain profitability . until such time , if ever , as we can generate substantial net revenue sufficient to achieve profitability , we expect to finance our operations through a combination of equity offerings , debt financings and strategic alliances . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms or at all . if we are unable to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the further development and commercialization efforts of one or more of our products , or may be forced to reduce or terminate our operations . we believe that our cash and cash equivalents , and marketable securities , will be sufficient for us to fund our operating expenses , capital expenditure requirements and debt service payments for at least the next 12 months . we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . see “ —liquidity and capital resources ” . covid-19 the impact of the covid-19 pandemic has been and will likely continue to be extensive in many aspects of society , which has resulted in and will likely continue to result in significant disruptions to the global economy , as well as businesses and capital markets around the world . impacts to our business as a result of covid-19 include the temporary disruption of transplant procedures at many of the organ transplant centers who purchase ocs products ; disruptions to our manufacturing operations and supply chain caused by facility closures , reductions in operating hours , staggered shifts and other social distancing efforts ; labor shortages ; decreased productivity and unavailability of materials or components ; restrictions on or delays of our clinical trials and studies ; delays of reviews and approvals by the fda and other health authorities ; limitations on our employees ' and customers ' ability to travel , and delays in product installations , trainings or shipments to and from affected countries and within the united states . in response to the pandemic , healthcare providers have , and may need to further , reallocate resources , such as physicians , staff , hospital beds and intensive care unit facilities , and these actions significantly delay the provision of other medical care such as organ transplantation and reduce the number of transplant procedures that are performed , which has a negative impact on our revenue and clinical trial activities . our sales and clinical adoption team has been and may continue to be restricted in visiting many transplant centers in person . customer delays or reductions in capital expenditures and operating budgets also have a negative impact on our product sales . we plan to maintain these or similar restrictions until we believe employees can fully resume such activities in accordance with federal , state and local requirements . the covid-19 pandemic also has impacted operations at the fda and other health authorities , resulting in delays of reviews and approvals , including with respect to our ocs heart pma application , and may affect other potential pma applications . for example , although the fda had scheduled an advisory committee of experts from outside the fda to review and evaluate our ocs heart pma application in the second quarter of 2020 , due to the covid-19 pandemic the advisory committee meeting was postponed to october 2020. however , this meeting was further postponed to allow the fda to review additional , already collected , short and longer-term data from the ocs heart expand trial and ocs heart expand cap trial . the fda advisory committee meeting is expected to be held on april 6 , 2021. in april 2020 , we announced several steps to respond to the covid-19 pandemic . these steps are intended to protect the health and safety of our employees , to establish a process to support the continuous supply of our ocs products at transplant centers globally and to maintain financial flexibility . these actions include transitioning most employees to a remote work environment , except for those who are deemed essential to product supply and reducing near-term expenses , such as reducing non-essential discretionary expenses . we also deferred a portion of executive and employee compensation from april 2020 through august 31 , 2020. while the covid-19 pandemic did not significantly impact our business or results of operations during the first quarter of 2020 , ocs product sales have been negatively impacted by the covid-19 pandemic since the second quarter of 2020 and we anticipate a negative impact to ocs product sales in 2021. the extent of the future impact on our operations and financial condition will depend on the length and severity of the pandemic , its consequences , and containment and vaccination efforts . while the fda approved emergency use authorization of vaccines in december 2020 , it is expected to take several months for widespread vaccinations to occur and it is not yet known how vaccination efforts will impact the covid-19 pandemic . story_separator_special_tag 74 we have observed recovery in the frequency of transplant procedures , but not yet at the same activity level as prior to the disruption of business and economic activities resulting from covid-19 . in addition , while the number of transplant procedures performed has declined during the covid-19 pandemic , organ transplantations are non-elective , life-saving procedures and we believe that the need for these procedures will persist . however , as interventions to contain the spread of the virus are lifted or reduced , new covid-19 outbreaks may result in new or heightened restrictions , which could again cause disruptions to our customers ' operations and adversely impact organ transplant procedures . we continue to monitor developments regarding the covid-19 pandemic and its impact on our business , financial condition , results of operations and prospects . however , we are unable to predict the extent of the impact with confidence due to the uncertainty of future developments , such as the duration of the pandemic , additional or modified government actions , new information which may emerge concerning the severity and incidence of covid-19 and actions to contain the virus or treat its impact . in particular , the speed of the continued spread of covid-19 globally , and the magnitude , duration and frequency 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 . components of our results of operations net revenue we generate revenue primarily from sales of our single-use , organ-specific disposable sets ( i.e. , our organ-specific ocs perfusion sets sold together with our organ-specific ocs solutions ) used on our organ-specific ocs consoles , each being a component of our ocs products . to a lesser extent , we also generate revenue from the sale of ocs consoles to customers and from the implied rental of ocs consoles loaned to customers at no charge . for each new transplant procedure , customers purchase an additional ocs disposable set for use on the customer 's existing organ-specific ocs console . all of our revenue has been generated by sales to transplant centers in the united states , europe and asia-pacific , or , in some cases , to distributors selling to transplant centers in select countries . substantially all of our customer contracts have multiple-performance obligations that contain promises consisting of ocs perfusion sets and ocs solutions . in some of those contracts , the promises also include an ocs console , whether sold or loaned to the customer . some of our revenue has been generated from products sold in conjunction with the clinical trials conducted for our ocs products , under arrangements referred to as customer clinical trial agreements . under most of these customer clinical trial agreements , we place an organ-specific ocs console at the customer site for its use free of charge for the duration of the clinical trial , and the customer separately purchases from us the ocs disposable sets used in each transplant procedure during the clinical trial . when we loan the ocs console to the customer , we retain title to the console at all times and do not require minimum purchase commitments from the customer related to any ocs products . in such cases , we invoice the customer for ocs disposable sets based on customer orders received for each new transplant procedure and the prices set forth in the customer agreement . over time , we typically recover the cost of the loaned ocs console through the customer 's continued purchasing and use of additional ocs disposable sets . for these reasons , we have determined that part of the selling price for the disposable set is an implied rental payment for use of the ocs console . we continue to loan ocs consoles to some of our customers during commercialization of our ocs products . because all promises of a customer contract are delivered and recognized as revenue at the same time and because revenue allocated to promises other than ocs disposable sets , such as implied rental income and service revenue , is insignificant , all performance obligations from customer contracts are classified as a single category of revenue in our consolidated statements of operations . under some of our customer clinical trial agreements , we make payments to our customers for reimbursements of clinical trial materials and for specified clinical documentation related to their use of our ocs products . because some of these payments do not provide us with a separately identifiable benefit , we record such payments as a reduction of revenue from the customer , resulting in our net revenue presentation . we recorded reimbursable clinical trial costs as a reduction of revenue of $ 2.7 million and $ 2.2 million for the fiscal years ended december 31 , 2020 and december 28 , 2019 , respectively . 75 in march 2018 , we received our first fda pma for the ocs lung , and we began commercial sales of this product in the united states during the fourth quarter of 2018. in may 2019 , we received our second fda pma for the ocs lung for additional clinical indications . therefore , our net revenue in the united states for the ocs lung is now derived primarily from commercial sales and consists of sales of ocs disposable sets and , to a much lesser extent , sales of ocs consoles . in 2019 , we also recorded revenue from clinical trial sales of the ocs lung for our ocs lung expand ii trial , which stopped enrollment as of june 24 , 2019 since we received fda pma for the ocs lung expand indication .
| net revenue from sales of ocs lung products in the united states decreased from $ 8.0 million in the fiscal year ended december 28 , 2019 to $ 5.4 million in the fiscal year ended december 31 , 2020. the decrease was due to fewer sales of ocs lung disposable sets as a result of the covid-19 pandemic , which impacted lung transplants more than other organ transplants due to the nature of the disease , new protocols required for safe lung transplants and the necessary use of ventilators post-transplant . net revenue from ocs heart disposable sets sold to customers for use in our ocs heart expand cap trial and ocs heart dcd trial increased from $ 4.7 million in the fiscal year ended december 28 , 2019 to $ 8.6 million in the fiscal year ended december 31 , 2020. net revenue from ocs liver disposable sets sold to customers for use in our ocs liver protect trial increased from $ 3.5 million in the fiscal year ended december 28 , 2019 to $ 5.2 million in the fiscal year ended december 31 , 2020. in addition , the u.s. selling price of ocs disposable sets sold in the fiscal year ended december 31 , 2020 was approximately 12 % higher than the u.s. selling prices of ocs disposable sets sold in the fiscal year ended december 28 , 2019 , which accounted for $ 2.0 million of the overall $ 3.0 million increase in net revenue in the united states from the fiscal year ended december 28 , 2019 to the fiscal year ended december 31 , 2020 . 79 net revenue from customers outside the u nited states was $ 6.4 million in the fiscal year ended december 31 , 2020 and decreased by $ 1.0 million compared to the fiscal year ended december 28 , 2019. the decrease in net revenue from customers outside the united states was primarily due to the adverse impact of the covid-19 pandemic on the global economy . cost of revenue , gross profit and gross margin cost of revenue decreased by $ 0.7 million in the fiscal year ended december 31 , 2020 compared to the fiscal year ended december 28 , 2019. gross profit increased by $ 2.8 million in the fiscal year ended december 31 , 2020 compared
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our other cost of sales was $ 6.3 million during the year ended march 31 , 2015 , compared to $ 9.8 million during the year ended march 31 , 2014. these costs related primarily to our water transportation business , which we sold during september 2014 . 69 operating expenses . the following table summarizes our operating expenses ( in thousands ) : replace_table_token_23_th the increase in operating expenses for existing facilities is due primarily to increased costs associated with the construction and operation of new water disposal wells at existing facilities . loss on disposal or impairment of assets , net . our water solutions segment incurred $ 7.5 million of losses on disposal or impairment of assets during the year ended march 31 , 2015 and $ 3.0 million of losses on disposal or impairment of assets during the year ended march 31 , 2014. during the year ended march 31 , 2015 , we sold our water transportation business and recorded a loss of $ 4.0 million . also , during the year ended march 31 , 2015 , we recorded a loss on abandonment of $ 3.1 million related to the property , plant and equipment of water disposal facilities that we have retired . during the year ended march 31 , 2014 , we recorded losses on disposal of property , plant and equipment of $ 2.0 million as a result of property damage from lightning strikes at two of our facilities . general and administrative expenses . our water solutions segment incurred $ 3.1 million of general and administrative expenses during the year ended march 31 , 2015 , compared to $ 3.8 million of general and administrative expenses during the year ended march 31 , 2014. depreciation and amortization expense . our water solutions segment incurred $ 73.6 million of depreciation and amortization expense during the year ended march 31 , 2015 , compared to $ 55.1 million of depreciation and amortization expense during the year ended march 31 , 2014. of this increase , $ 15.0 million related to acquisitions , which included $ 1.3 million of amortization expense related to trade name intangible assets . the remaining increase was due primarily to $ 1.8 million of amortization expense related to trade name intangible assets . during the fourth quarter of the year ended march 31 , 2014 , we ceased using certain trade names and began amortizing them as finite-lived defensive assets . liquids the following table summarizes the operating results of our liquids segment for the periods indicated : replace_table_token_24_th 70 ( 1 ) revenues include $ 162.0 million and $ 245.6 million of intersegment sales during the years ended march 31 , 2015 and 2014 , respectively , that are eliminated in our consolidated statements of operations . revenues . our liquids segment generated $ 1.3 billion of wholesale propane sales revenue during the year ended march 31 , 2015 , selling 1.3 billion gallons at an average price of $ 0.98 per gallon . during the year ended march 31 , 2014 , our liquids segment generated $ 1.6 billion of wholesale propane sales revenue , selling 1.2 billion gallons at an average price of $ 1.37 per gallon . the increase in the volume sold from the year ended march 31 , 2014 to the year ended march 31 , 2015 was due primarily to the inclusion of the natural gas liquids operations acquired from gavilon energy for a full fiscal year ( compared to only four months of the prior fiscal year ) and to the expansion of an agreement under which we market the majority of the production from a fractionation facility . our liquids segment generated $ 1.1 billion of other wholesale products sales revenue during the year ended march 31 , 2015 , selling 825.5 million gallons at an average price of $ 1.35 per gallon . during the year ended march 31 , 2014 , our liquids segment generated $ 1.2 billion of other wholesale products sales revenue , selling 786.7 million gallons at an average price of $ 1.57 per gallon . our liquids segment generated $ 31.3 million of other revenues during the year ended march 31 , 2015. this revenue includes storage sublease income , terminal gain/loss and income generated from the operation of a terminal for a customer . cost of sales . our cost of wholesale propane sales was $ 1.2 billion during the year ended march 31 , 2015 , as we sold 1.3 billion gallons at an average cost of $ 0.94 per gallon . our cost of wholesale propane sales during the year ended march 31 , 2015 was increased by $ 4.6 million of net unrealized losses on derivatives . during the year ended march 31 , 2014 , our cost of wholesale propane sales was $ 1.6 billion , as we sold 1.2 billion gallons at an average cost of $ 1.31 per gallon . our cost of wholesale propane sales during the year ended march 31 , 2014 was increased by $ 1.6 million of net unrealized losses on derivatives . our product margins for propane sales are summarized below ( in thousands , except per gallon amounts ) : replace_table_token_25_th product margins per gallon of propane sold were lower during the year ended march 31 , 2015 than during the prior year . although we sold a higher volume of propane during the year ended march 31 , 2015 than during the prior year , product margins were narrower . during the winter season of the year ended march 31 , 2014 , the price of propane increased as a result of high demand due to cold weather conditions . during the winter season of the year ended march 31 , 2015 , propane prices decreased , due primarily to a decline in the price of crude oil . our product margins are typically higher during periods of rising story_separator_special_tag our other cost of sales was $ 6.3 million during the year ended march 31 , 2015 , compared to $ 9.8 million during the year ended march 31 , 2014. these costs related primarily to our water transportation business , which we sold during september 2014 . 69 operating expenses . the following table summarizes our operating expenses ( in thousands ) : replace_table_token_23_th the increase in operating expenses for existing facilities is due primarily to increased costs associated with the construction and operation of new water disposal wells at existing facilities . loss on disposal or impairment of assets , net . our water solutions segment incurred $ 7.5 million of losses on disposal or impairment of assets during the year ended march 31 , 2015 and $ 3.0 million of losses on disposal or impairment of assets during the year ended march 31 , 2014. during the year ended march 31 , 2015 , we sold our water transportation business and recorded a loss of $ 4.0 million . also , during the year ended march 31 , 2015 , we recorded a loss on abandonment of $ 3.1 million related to the property , plant and equipment of water disposal facilities that we have retired . during the year ended march 31 , 2014 , we recorded losses on disposal of property , plant and equipment of $ 2.0 million as a result of property damage from lightning strikes at two of our facilities . general and administrative expenses . our water solutions segment incurred $ 3.1 million of general and administrative expenses during the year ended march 31 , 2015 , compared to $ 3.8 million of general and administrative expenses during the year ended march 31 , 2014. depreciation and amortization expense . our water solutions segment incurred $ 73.6 million of depreciation and amortization expense during the year ended march 31 , 2015 , compared to $ 55.1 million of depreciation and amortization expense during the year ended march 31 , 2014. of this increase , $ 15.0 million related to acquisitions , which included $ 1.3 million of amortization expense related to trade name intangible assets . the remaining increase was due primarily to $ 1.8 million of amortization expense related to trade name intangible assets . during the fourth quarter of the year ended march 31 , 2014 , we ceased using certain trade names and began amortizing them as finite-lived defensive assets . liquids the following table summarizes the operating results of our liquids segment for the periods indicated : replace_table_token_24_th 70 ( 1 ) revenues include $ 162.0 million and $ 245.6 million of intersegment sales during the years ended march 31 , 2015 and 2014 , respectively , that are eliminated in our consolidated statements of operations . revenues . our liquids segment generated $ 1.3 billion of wholesale propane sales revenue during the year ended march 31 , 2015 , selling 1.3 billion gallons at an average price of $ 0.98 per gallon . during the year ended march 31 , 2014 , our liquids segment generated $ 1.6 billion of wholesale propane sales revenue , selling 1.2 billion gallons at an average price of $ 1.37 per gallon . the increase in the volume sold from the year ended march 31 , 2014 to the year ended march 31 , 2015 was due primarily to the inclusion of the natural gas liquids operations acquired from gavilon energy for a full fiscal year ( compared to only four months of the prior fiscal year ) and to the expansion of an agreement under which we market the majority of the production from a fractionation facility . our liquids segment generated $ 1.1 billion of other wholesale products sales revenue during the year ended march 31 , 2015 , selling 825.5 million gallons at an average price of $ 1.35 per gallon . during the year ended march 31 , 2014 , our liquids segment generated $ 1.2 billion of other wholesale products sales revenue , selling 786.7 million gallons at an average price of $ 1.57 per gallon . our liquids segment generated $ 31.3 million of other revenues during the year ended march 31 , 2015. this revenue includes storage sublease income , terminal gain/loss and income generated from the operation of a terminal for a customer . cost of sales . our cost of wholesale propane sales was $ 1.2 billion during the year ended march 31 , 2015 , as we sold 1.3 billion gallons at an average cost of $ 0.94 per gallon . our cost of wholesale propane sales during the year ended march 31 , 2015 was increased by $ 4.6 million of net unrealized losses on derivatives . during the year ended march 31 , 2014 , our cost of wholesale propane sales was $ 1.6 billion , as we sold 1.2 billion gallons at an average cost of $ 1.31 per gallon . our cost of wholesale propane sales during the year ended march 31 , 2014 was increased by $ 1.6 million of net unrealized losses on derivatives . our product margins for propane sales are summarized below ( in thousands , except per gallon amounts ) : replace_table_token_25_th product margins per gallon of propane sold were lower during the year ended march 31 , 2015 than during the prior year . although we sold a higher volume of propane during the year ended march 31 , 2015 than during the prior year , product margins were narrower . during the winter season of the year ended march 31 , 2014 , the price of propane increased as a result of high demand due to cold weather conditions . during the winter season of the year ended march 31 , 2015 , propane prices decreased , due primarily to a decline in the price of crude oil . our product margins are typically higher during periods of rising
| replace_table_token_16_th revenues and cost of sales by segment our revenues and cost of sales during the year ended march 31 , 2015 by segment are as follows : replace_table_token_17_th operating income ( loss ) by segment our operating income ( loss ) by segment is as follows : replace_table_token_18_th 66 crude oil logistics the following table summarizes the operating results of our crude oil logistics segment for the periods indicated : replace_table_token_19_th ( 1 ) revenues include $ 29.8 million and $ 37.8 million of intersegment sales during the years ended march 31 , 2015 and 2014 , respectively , that are eliminated in our consolidated statements of operations . ( 2 ) in october 2014 , we announced plans to build a crude oil rail transloading facility , backed by executed producer commitments . subsequent to executing these commitments , the producers requested to be released from the commitments . we agreed to release the producers from their commitments in return for which the producers paid us specified amounts . upon execution of these agreements in march 2015 , we recorded a gain of $ 31.6 million to other income in our consolidated statement of operations , net of certain project abandonment costs . since this gain was reported in other income , it is not reflected in the table above . revenues . our crude oil logistics segment generated $ 6.6 billion of revenue from crude oil sales during the year ended march 31 , 2015 , selling 83.9 million barrels at an average price of $ 78.81 per barrel . during the year ended march 31 , 2014 , our crude oil logistics segment generated $ 4.6 billion of revenue from crude oil sales , selling 46.1 million barrels at an average price of $ 98.90 per barrel . the decrease in revenue per barrel was due primarily to the sharp decline in crude oil prices during the year ended march 31 , 2015. the most significant driver of the increase in our sales volumes was the acquisition of gavilon energy in december 2013. crude oil transportation and other revenues were $ 55.5 million during the year ended march 31 , 2015 , compared to $ 36.5 million of crude oil transportation and other revenues during the year ended march 31 , 2014. this increase was due primarily to the crescent acquisition in july 2013 and the gavilon
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we believe this remote support has been appreciated by customers and has expanded our sales team 's ability to support surgeons and their patients during covid-19 and beyond . in addition , our professional education group was able to quickly develop a virtual surgeon training program , and combined with our marketing initiatives , was successful in developing new customers and revenue growth through product penetration . story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > interest expense increased to $ 1,054 as compared to $ 40 for the year ended december 31 , 2019. the change is primarily due to interest expense from our oberland debt facility , which began on june 30 , 2020. we recognized total interest charges of $ 1,941 in connection with the oberland debt facility in the current year , but $ 997 of this interest was capitalized to the construction costs of the apc . for the year ended december 31 , 2020 , we recognized $ 605 of investment income from our asset management and cash investment sweep accounts as compared to $ 2,364 for the year ended december 31 , 2019. the decrease is primarily due to lower investment income from our asset management program as a result of lower interest rates from covid-19 and as we lowered investment balances and increased cash reserves . 68 income taxes we had no income tax expenses or income tax benefit for 2020 or 2019 due to incurrence of net operating loss for the year , the benefits of which have been fully value allowed . we do not believe that there are any additional tax expenses or benefits currently available . comparison of the years ended december 31 , 2019 and 2018 the following table sets forth , for the periods indicated , our results of operations expressed as dollar amounts and as percentages of total revenue : replace_table_token_4_th revenue revenue for the year ended december 31 , 2019 increased 27.1 % to $ 106,712 as compared to $ 83,937 for the year ended december 31 , 2018. revenue growth for the year was primarily the result of increases in unit volume , as well as the net impact of price increases and changes in product mix . our revenue growth was largely driven by increased revenue in active accounts as well as the addition of new active accounts . in the fourth quarter of 2019 , we had 797 active accounts , an increase of 12 % from 712 at the end of 2018. gross profit gross profit for the year ended december 31 , 2019 increased 25.8 % to $ 89,363 as compared to $ 71,014 for the year ended december 31 , 2018. the increase was primarily attributable to the increased revenue , but slightly offset by increased processing costs , inventory write downs and additional inventory reserves . gross profit margin in 2019 decreased to 83.7 % as compared to 84.6 % in 2018. costs and expenses total cost and expenses increased 32.0 % to $ 120,769 for the year ended december 31 , 2019 as compared to $ 91,514 for the year ended december 31 , 2018. the increase was primarily due to variable costs associated with increased sales activity , expansion of our commercial team , expanding product development and clinical study activities , expanded surgeon education programs , and increases in compensation and general expenses associated with ongoing expansions of infrastructure to support 69 our growth . in addition , general and administrative expenses include approximately $ 2,467 of litigation expenses and certain expenses associated therewith , as a result of the ongoing litigation described in legal proceedings and other litigation that was dismissed during 2019 ( the “ litigation ” ) in the period ending december 31 , 2019 as compared to $ 0 in the prior year period . as a percentage of revenue , total cost and expenses increased to 113.1 % in 2019 compared to 109.0 % in 2018. sales and marketing expenses increased 27.1 % to $ 71,950 for the year ended december 31 , 2019 as compared to $ 56,617 for the year ended december 31 , 2018. the increase was primarily due to : ( a ) increased compensation expenses related to axogen 's direct sales force as a result of increased sales and hiring of additional personnel ; ( b ) increased travel expenses to support the commercial team 's activities ; ( c ) expansion of our surgeon education program ; and ( d ) increased marketing activity . as a percentage of revenue , sales and marketing expenses were 67.4 % for the year ended december 31 , 2019 compared to 67.5 % for the year ended december 31 , 2018. general and administrative expenses increased 35.4 % to $ 31,305 for the year ended december 31 , 2019 as compared to $ 23,124 for the year ended december 31 , 2018. the increase was primarily the result of increased expenses related to infrastructure expansion to support our growth , including professional fees , salaries , and an increase of $ 1,982 of non-cash stock compensation . as mentioned above , we also recorded $ 2,467 of legal fees associated the litigation . as a percentage of revenue , general and administrative expenses increased to 29.3 % for the year ended december 31 , 2019 compared to 27.5 % for the year ended december 31 , 2018. research and development expenses increased 48.8 % to $ 17,514 in the year ended december 31 , 2019 as compared to $ 11,773 for the year ended december 31 , 2018. research and development costs include our product development and clinical efforts substantially focused on its biologics license application , or bla , for avance nerve graft , the sensation-now and recon studies and the development of new or next generation products . story_separator_special_tag the increase in expenses for 2019 relate to expenditures for these activities and hiring additional personnel to support clinical and product development activity . it is expected that costs associated with the bla will continue to increase as we continue to invest in completing the license application . we continue to conduct development efforts focused on both new peripheral nerve products and new peripheral nerve applications for our existing products . we pursue research grants to support research and early product development . our increased product and clinical pipeline development initiatives contributed to the increase in research and development expenses in 2019. as a result , research and development expenses increased to 16.4 % in 2019 from 14.0 % in 2018 , as a percentage of revenue . other income and expenses for the year ended december 31 , 2019 , we recognized $ 2,364 of investment income from our asset management and cash investment sweep accounts as compared to $ 1,525 for the year ended december 31 , 2018. interest expense decreased to $ 40 as compared to $ 1,127 for the year ended december 31 , 2018 as a result of our paying , in full , the term loan and revolving loan with midcap , as defined in “ term and revolving loan agreements in the prior year ended december 31 , 2018. for the year ended december 31 , 2018 , we incurred a loss on the extinguishment of the debt of $ 2,186 for exit , prepayment fees and the amortization of the remaining balance of the deferred financing costs for which there was no such activity in the current year . income taxes we had no income tax expenses or income tax benefit for 2019 or 2018 due to incurrence of net operating loss for the year , the benefits of which have been fully value allowed . 70 liquidity and capital resources cash flow information as of december 31 , 2020 , we had cash , cash equivalents , investments , and restricted cash of $ 110,808 , an increase of $ 8,298 from $ 102,510 at december 31 , 2019. the increase includes $ 35,000 of proceeds from our new debt facility , $ 3,500 of equity proceeds from the oberland option , and $ 2,630 of net proceeds from employee stock option exercises , partially offset by $ 21,905 of capital expenditures , and $ 9,626 of cash used in operating activities including favorable changes in working capital . we have working capital of $ 122,420 and a current ratio of 6.4 at december 31 , 2020 , compared to working capital of $ 114,141 and a current ratio of 6.5 at december 31 , 2019. the increase in working capital at december 31 , 2020 as compared to december 31 , 2019 , was primarily proceeds from our new debt facility , which is recorded as a long-term liability and the year over year improvement in the cash collections cycle , as accounts receivable remained relatively flat with revenue growth of 5.2 % . our future capital requirements depend on a number of factors including , without limitation , revenue increases consistent with our business plan , cost of products and acquisition and or development of new products . we could face increasing capital needs . such capital needs could be substantial depending on the extent to which we are unable to increase revenue . if we need additional capital in the future , we may raise additional funds through public or private equity offerings , debt financings or from other sources . the sale of additional equity would result in dilution to our shareholders . there is no assurance that we will be able to secure funding on terms acceptable to us , or at all . the increasing need for capital could also make it more difficult to obtain funding through either equity or debt . should additional capital not become available to us as needed , we may be required to take certain action , such as slowing sales and marketing expansion , delaying regulatory approvals or reducing headcount . replace_table_token_5_th net cash used in operating activities we used $ 9,626 of cash for operating activities in 2020 , as compared to using $ 19,872 and $ 17,862 of cash for operating activities in 2019 and 2018 , respectively . this improvement in cash used in operating activities in 2020 was primarily due to favorable changes in working capital as well as a decrease in the net loss year over year . net cash used in operations decreased in 2019 as compared to 2018 was the result of a higher net loss for the year offset by improvements in working capital . net cash provided by/used in investing activities investing activities for 2020 used $ 16,963 of cash as compared to providing $ 27,271 during 2019 and use of $ 98,193 in 2018. the increase in outflows of cash in the current year as compared to 2019 primarily related to capital expenditures for apc and our tampa facilities offset by higher proceeds from the sale of investments in prior year . the improvement in cash flow from investing in 2019 over 2018 , was primarily the result of the company beginning to invest in longer term instruments in 2018. net cash provided by financing activities financing activities in 2020 provided $ 40,474 of cash as compared to providing $ 4,031 and $ 109,842 of cash in 2019 and 2018 , respectively . the 2020 improvement over 2019 was primarily the result of the borrowings from the oberland facility of $ 35,000 as well as $ 3,500 of proceeds from the exercise of the stock options related to the oberland facility , see footnote 10 - long-term debt in the notes to the consolidated financial statements for further discussion .
| gross profit margin in 2020 decreased to 80.8 % as compared to 83.7 % in 2019. gross margin was negatively impacted during fiscal year 2020 due to idle facility charges and other increased period costs of approximately $ 2,000 in the second and third quarters resulting from our temporary suspension of tissue processing , as well as approximately $ 2,242 of inventory write-downs . gross margins have continued to improve sequentially in the second half of the year and we expect them to continue to return to historical levels as revenue and nerve processing volumes increase . costs and expenses total cost and expenses decreased 5.7 % to $ 113,901 for the year ended december 31 , 2020 as compared to $ 120,769 for the year ended december 31 , 2019. the decrease in operating expenses was primarily attributable to the impact of our lower travel and in-person surgeon education program of $ 9,807 as a result of restrictions associated with covid-19 , as well as a decreased litigation expenses of $ 2,467 as a result of reaching deductible limits with respect to certain litigation matters . these decreases were slightly offset by higher sales commissions and other compensation related costs of $ 5,519. as a percentage of revenue , total cost and expenses decreased to 101.4 % in 2020 compared to 113.1 % in 2019. sales and marketing expenses decreased 3.2 % to $ 69,659 for the year ended december 31 , 2020 as compared to $ 71,950 for the year ended december 31 , 2019. this decrease was driven by lower travel , surgeon education and conference expenses as we cancelled in-person education programs , and experienced restrictions in hospital access and travel directly related to the impact of covid-19 . the decrease in expenses was slightly offset by salaries and benefits from increased sales commissions . as a percentage of revenue , sales and marketing expenses were 62.0 % for the year ended december 31 , 2020 compared to 67.4 % for the year ended december 31 , 2019. we expect sales and marketing expenses will increase as pandemic-related restrictions in hospital access and travel normalize . general and administrative expenses decreased 15.7 % to $ 26,396 for
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at present , the company 's operations are focused on : ● manufacturing and sale of sci-b-vac in territories where it is currently registered ; ● continuing the phase iv trial in israel as described above ; ● preparing for sci-b-vac clinical trials to support various marketing authorizations in the u.s. , canada and europe ; ● conducting human proof-of-concept clinical trials with our cmv vaccine candidate ; ● continuing pre-clinical development of our gbm vaccine candidate ; ● scaling-up manufacturing capabilities to commercialize products and dose forms for which we may obtain regulatory approval ; ● continuing the research and development of our product candidates , including the exploration and development of new product candidates ; ● providing contracted services , primarily to customers in the pharmaceutical and biotechnology sectors ; ● adding operational , financial and management information systems and human resources support , including additional personnel to support our vaccine development ; ● maintaining , expanding and protecting our intellectual property portfolio . vbi 's income generating activities have been from sales of its sci-b-vac product in markets that have generated a limited number of sales to-date as well as fees from r & d services . vbi has also incurred significant net losses and negative operating cash flows since inception . as of december 31 , 2016 , vbi had an accumulated deficit of approximately $ 105.0 million and stockholders ' equity of approximately $ 83.7 million . our ability to maintain our status as an operating company is dependent upon obtaining adequate cash to finance our clinical development , our administrative overhead and our research and development activities . we plan to finance future operations with a combination of existing cash reserves , proceeds from the issuance of equity securities , the issuance of additional debt , and revenues from potential collaborations , if any . there is no assurance the company will manage to obtain these sources of financing . these factors raise substantial doubt about the company 's ability to continue as a going concern . the accompanying financial statements have been prepared assuming that we will continue as a going concern . the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern . we have incurred operating losses since inception , have not generated significant product sales revenue and have not achieved profitable operations . we incurred net losses of $ 23.2 million for the year ended december 31 , 2016 and we expect to continue to incur substantial losses in future periods . we anticipate that our operating expenses will increase substantially as we continue the clinical development of the sci-b-vac product and cmv vaccine candidate as well as advance our pre-clinical-stage product candidate , gbm . these include expenses related to : ● conducting human proof-of-concept clinical trials including the continuation of the cmv phase i clinical trial , a planned gbm phase i clinical trial and preparation for a sci-b-vac phase iii trial will require significant financial resources ; ● continuing the research and development of our product candidates ; ● scaling-up manufacturing capabilities through sub-contractors to commercialize products and dose forms for which we may obtain regulatory approval ; ● maintaining , expanding and protecting our intellectual property portfolio ; ● hiring additional clinical , manufacturing , and scientific personnel or contractors ; and ● adding operational , financial and management information systems and human resources support , including additional personnel , to support our vaccine development . 44 in addition , we have incurred and will continue to incur significant expenses as a public company , which subjects us to the reporting requirements of the exchange act , the sarbanes-oxley act and the rules and regulations of the nasdaq capital market . in 2016 , we raised $ 24.1 million in equity and $ 15.0 million in debt financing to support our sci-b-vac , cmv and gbm vaccine program , to continue the advancement of our research programs and for other general corporate purposes . based upon our current cash position and by monitoring our discretionary expenditures as well as the careful management of our clinical trial commitments and operating costs , we believe these proceeds will be sufficient to fund our activities , including our approved capital expenditure requirements , into 2018. we expect , however , that we will need to secure additional financing in the future to carry out all of our planned clinical , regulatory , r & d , sales and manufacturing activities with respect to the advancement of our sci-b-vac and new vaccine candidates . since inception , vbi and its subsidiaries collectively have raised approximately $ 124.7 million in total equity and debt financing to support clinical and research development and general business operations . r & d services pursuant to an agreement with the office of the chief scientist in israel , the company is required to make services available for the biotechnology industry in israel . these services include relevant activities for development and manufacturing of therapeutic proteins according to international standards and cgmp quality level suitable for toxicological studies in animals and clinical studies ( phase i & ii ) in humans . service activities include analytics/bio analytics methods for development and process development of therapeutic proteins starting with a lead candidate clone through the upstream , purification , formulation and filling processes and manufacturing for phase i & ii clinical trials . these r & d services are primarily marketed to the israeli research community in academia and israeli biotechnology companies in the life sciences lacking the infrastructure or experience in the development and production of therapeutic proteins in the standards and quality required for clinical trials for human use . in 2016 and 2015 the company provided services to more than 10 biotech companies including analytical development , upstream development process , protein purification and formulation and filling for phase i clinical studies . story_separator_special_tag vbi cda also provides some r & d services pursuant to a research agreement and certain governmental research and development grants . financial overview overall performance the company had net losses of approximately $ 23.2 and $ 26.2 for the years ended december 31 , 2016 and 2015 , respectively . the company has an accumulated deficit of $ 105.0 as december 31 , 2016. the company had $ 32.3 of cash at december 31 , 2016 and net working capital of approximately $ 26.7. research and development expenses our research and development expenses consist primarily of costs incurred for the development of our cmv vaccine , which include : ● the cost of acquiring , developing and manufacturing clinical trial materials and other consumables and lab supplies used in our pre-clinical studies ● expenses incurred under agreements with contractors or contract manufacturing organizations to advance the cmv vaccine into clinical trials ; and ● employee-related expenses , including salaries , benefits , travel and stock-based compensation expense . we expense research and development costs when we incur them . 45 general and administrative expenses general and administrative expenses consist principally of salaries and related costs for executive and other administrative personnel and consultants , including stock-based compensation and travel expenses . other general and administrative expenses include professional fees for legal , patent protection , consulting and accounting services , travel and conference fees , including board and scientific advisory board meeting costs , rent , maintenance of facilities , depreciation , office supplies and expenses , insurance and other general expenses . general and administrative expenses are expensed when incurred . we expect that our general and administrative expenses will increase in the future as a result of adding employees and scaling our operations commensurate with advancing a clinical candidate and continuing to support a public company infrastructure . these increases will likely include increased costs for insurance , hiring of additional personnel , board committees , outside consultants , investor relations , lawyers and accountants , among other expenses . interest income interest income consists principally of interest income earned on cash balances and on r & d tax refunds . interest expense interest expense is associated with our previously outstanding convertible notes and the credit facility entered into on july 25 , 2014 and subsequently amended on december 6 , 2016. story_separator_special_tag company related to the vbi-scivac merger which were partially offset by the non-recurrence of professional and transaction fees arising from the levon merger that closed july 9 , 2015. net loss from operations the net loss from operations for the year ended december 31 , 2016 was $ 24,850 as compared to $ 23,759 for the year ended december 31 , 2015. the $ 1,091 increase in the net loss from operations resulted from the increased r & d and g & a costs resulting from the vbi-scivac merger , largely offset by the non-recurrence of $ 13,505 in costs related to the dnase technology that were incurred during the year ended december 31 , 2015 , discussed above . interest expense , net the interest expense decrease of $ 781 is a result of the deemed interest of certain previously outstanding related party loans that were held in scivac prior to the levon merger ( these loans and capital notes were exchanged for common shares of the company as part of the levon merger ) . this decrease was partially offset by $ 392 of interest recorded in 2016 related to the long-term loan . in 2016 , the interest expense relates to the interest on the debt facility that was assumed upon the vbi-scivac merger and the interest on the debt facility received in december 2016. the interest paid on long-term debt during the year-ended december 31 , 2016 and 2015 was $ 283 and $ 0 , respectively . the company also accreted $ 109 of non-cash interest expense related to the debt discount during 2016. foreign exchange loss ( gain ) the foreign exchange gain of $ 189 as compared to a foreign exchange loss in the 2015 period of $ 1,458 , is the result of the fluctuation in the foreign currency exchange rate of the canadian dollar ( “ cad ” ) and the new israeli shekel ( “ nis ” ) as compared to the u.s. dollar . income tax benefit the income tax benefit for the year ended december 31 , 2016 was $ 1,780 as compared to $ 129 for the year ended december 31 , 2015. the tax benefit recognized in 2016 related to the deferred taxes recorded for the increase in net operating loss carry forwards in the acquired company subsequent to the vbi-scivac merger . in 2015 , the income tax benefit recognized related to the deemed interest expense on the related party loans . 47 net loss the net loss decreased by $ 2,988 or 11.4 % , from $ 26,193 for the year ended december 31 , 2015 to $ 23,205 for the year ended december 31 , 2016. the decrease in our net loss is mainly attributable to the decrease in our loss from operations and the increase in the income tax benefit , discussed above . liquidity and capital resources replace_table_token_2_th as at december 31 , 2016 , we had cash of $ 32,282 as compared to $ 12,476 as at december 31 , 2015. as at december 31 , 2016 , the company had working capital of $ 26,744 as compared to working capital of $ 11,593 at december 31 , 2015. working capital is calculated by subtracting current liabilities from current assets . we expect , that we will need to secure additional financing in the future to carry out all of our planned clinical , regulatory , r & d , sales and manufacturing activities with respect to the advancement of our sci-b-vac and new vaccine candidates . we base this belief on assumptions that are subject to change , and we may be required to use our available cash resources sooner than we currently expect .
| 46 cost of revenues cost of revenues for the year ended december 31 , 2016 was $ 3,671 as compared to $ 3,753 for the year ended december 31 , 2015. the decrease in the cost of revenues of $ 82 , or 2.2 % , was a result of a decrease of production activities as a result of a partial shutdown of the manufacturing facility for maintenance and upgrades during the first half of 2016 which was offset by a provision of approximately $ 341 for inventory which largely related to some excess raw materials in inventory which are no longer expected to be used in the manufacturing process . research and development research and development ( “ r & d ” ) expenses for the year ended december 31 , 2016 were $ 9,966 as compared to $ 14,123 for the year ended december 31 , 2015. during the year ended december 31 , 2015 , the company incurred $ 13,505 in costs related to the acquisition of dnase technology . this one-time cost was not repeated during the year ended december 31 , 2016. during the year ended december 31 , 2016 , the decrease in the cost of r & d due to the non-recurrence of the technology acquisition was largely offset by the r & d expenses incurred by vbi de since the vbi-scivac merger in the amount of $ 2.3 million . these costs included fees paid to cros and other contractors in support of the trials as well as r & d salaries , contractors , consumables , license and patent related fees and well as a $ 637 share-based compensation expense related to the issuance of options and restricted shares . general and administrative general and administrative ( “ g & a ” ) expenses for the year ended december 31 , 2016 were $ 11,761 as compared to $ 6,838 for the year ended december 31 , 2015. the g & a expense increase of $ 4,923 or 72 % , was primarily a result of an additional $ 3,694 in operating costs incurred by vbi de since the vbi-scivac merger . these costs included salaries , facilities related
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the company 's discussion below regarding its operating segments has been updated to reflect the company 's disaggregation of revenue , which was adopted in the first quarter of 2018 , as summarized in part iv , item i , note 11 , segment and geographic information , of this report . the company 's reportable segments consist of the flavors & fragrances , color , and asia pacific segments . flavors & fragrances flavors & fragrances segment revenue was $ 746.9 million in both 2018 and 2017. foreign exchange rates increased segment revenue by approximately 1 % in 2018. segment revenue was consistent with the prior year due to higher revenue in fragrances and natural ingredients , mostly offset by lower revenue in flavors . the higher revenue in fragrances is primarily a result of higher selling prices , favorable volumes , and favorable exchange rates . the higher revenue in natural ingredients is primarily a result of favorable volumes , partially offset by lower selling prices and the impact of the 2017 sale of the european natural ingredients business as part of the company 's prior restructuring activities . the lower revenue in flavors was primarily a result of lower volumes , partially offset by the favorable impact of exchange rates and higher selling prices . flavors & fragrances segment operating income was $ 96.4 million in 2018 and $ 114.3 million in 2017 , a decrease of approximately 16 % . foreign exchange rates had a minimal impact on segment operating income . the lower segment operating income was primarily a result of lower operating income in flavors and natural ingredients . the lower operating income in flavors was primarily a result of lower volumes ( primarily at the production site affected by last year 's plant consolidation ) and product mix , partially offset by higher selling prices , lower manufacturing and other costs , and lower raw material costs . the lower operating income in natural ingredients was primarily due to higher raw material costs , primarily onion , and lower selling prices , partially offset by higher volumes and lower manufacturing and other costs . segment operating income as a percent of revenue was 12.9 % and 15.3 % for 2018 and 2017 , respectively . 19 index color segment revenue for the color segment was $ 553.5 million in 2018 and $ 526.4 million in 2017 , an increase of approximately 5 % . foreign exchange rates had a minimal impact on segment revenue . the higher segment revenue was primarily a result of higher revenue in food & beverage colors and cosmetics . the higher revenue in food & beverage colors was primarily a result of higher volumes , the impact of the globenatural acquisition ( approximately 1 % ) , favorable exchange rates , and higher selling prices . the higher revenue in cosmetics was primarily a result of higher volumes . segment operating income for the color segment was $ 114.9 million in 2018 and $ 113.4 million in 2017 , an increase of approximately 1 % . the higher segment operating income was primarily a result of higher operating income in cosmetics , partially offset by unfavorable product mix and higher raw material costs in food & beverage colors . the higher operating income in cosmetics was primarily a result of higher volumes and selling prices , favorable product mix , lower raw material costs , and the favorable impact of exchange rates , partially offset by higher manufacturing and other costs . foreign exchange rates increased segment operating income by approximately 1 % . segment operating income as a percent of revenue was 20.8 % in 2018 compared to 21.5 % in 2017. asia pacific segment revenue for the asia pacific segment was $ 123.2 million for both 2018 and 2017. foreign exchange rates had a minimal impact on segment revenues . segment revenue was consistent with the prior year as higher selling prices were mostly offset by lower volumes . segment operating income for the asia pacific segment was $ 20.9 million in 2018 and $ 20.8 million in 2017 , a slight increase over the prior year . the slight increase in segment operating income was a result of higher selling prices , favorable product mix , and favorable exchange rates , mostly offset by higher manufacturing and other costs . foreign exchange rates increased segment operating income by approximately 1 % . segment operating income as a percent of revenue was 16.9 % in both 2018 and 2017. corporate & other the corporate & other operating loss was $ 28.8 million in 2018 and $ 80.7 million in 2017. the lower operating loss was primarily a result of the absence in 2018 of the restructuring and other costs that were incurred in 2017 and lower performance based executive compensation incurred in 2018. restructuring and other costs were $ 48.1 million in 2017. there were no restructuring and other costs incurred in 2018. results of continuing operations 2017 vs. 2016 revenue sensient 's revenue was approximately $ 1.4 billion in both 2017 and 2016. gross profit the company 's gross margin was 34.9 % in 2017 and 34.4 % in 2016. included in the cost of products sold are $ 2.9 million and $ 2.1 million of restructuring costs for 2017 and 2016 , respectively . the increase in the gross margin was primarily a result of higher selling prices and the favorable impact of a divestiture ( see note 13 , restructuring charges , and note 15 , divestiture ) , partially offset by higher raw material and manufacturing costs . restructuring costs reduced gross margin by 20 basis points and 10 basis points in 2017 and 2016 , respectively . selling and administrative expenses selling and administrative expense as a percent of revenue was 22.6 % in 2017 and 21.0 % in 2016. restructuring and other costs of $ 45.2 million and $ 24.0 million for 2017 and 2016 , respectively , were included in selling and administrative expense . story_separator_special_tag selling and administrative expense as a percent of revenue was higher in 2017 than in 2016 primarily as a result of higher restructuring and other costs , partially offset by lower performance based executive compensation and professional fees . restructuring and other costs increased selling and administrative expense as a percent of revenue by 330 basis points and 180 basis points in 2017 and 2016 , respectively . operating income operating income was $ 167.8 million in 2017 and $ 185.6 million in 2016. operating margins were 12.3 % in 2017 and 13.4 % in 2016. restructuring and other costs reduced operating margins by 350 basis points and 190 basis points in 2017 and 2016 , respectively . additional information on segment results can be found in the segment information section . interest expense interest expense was $ 19.4 million in 2017 and $ 18.3 million in 2016. the increase in expense was primarily due to the increase in average debt outstanding . 20 index income taxes the effective income tax rate was 39.6 % in 2017 and 26.5 % in 2016. the effective tax rates in both 2017 and 2016 were impacted by restructuring and other activities , changes in estimates associated with the finalization of prior year foreign and domestic tax items , audit settlements , adjustments to valuation allowances , and mix of foreign earnings . the effective tax rate in 2017 was also impacted by the limited tax deductibility of losses and the result of the cumulative foreign currency effect related to certain repatriation transactions . on december 22 , 2017 , the u.s. enacted the 2017 tax legislation . the act significantly changed u.s. corporate income tax laws by reducing the u.s. corporate income tax rate to 21 % beginning in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of u.s. subsidiaries . as a result , the company recorded a net charge of $ 18.4 million during the fourth quarter of 2017. this amount consisted of reassessing the u.s. deferred tax assets and liabilities based on the lower corporate income tax rate , adjustments to the company 's foreign tax credit carryover , and the one-time mandatory tax on previously deferred foreign earnings of u.s. subsidiaries . although the company believed that $ 18.4 million was a reasonable estimate of the 2017 tax legislation , it was considered a provisional estimate . the company received additional guidance on the 2017 tax legislation in 2018 , and adjusted this provisional estimate during the third and fourth quarters of 2018 ( see note 10 , income taxes ) . replace_table_token_6_th restructuring between march 2014 and 2017 , the company executed a restructuring plan to eliminate underperforming operations , consolidate manufacturing facilities , and improve efficiencies within the company . in accordance with gaap , the company recorded total restructuring costs of $ 36.5 million and $ 11.1 million for the years ended december 31 , 2017 and 2016 , respectively . divestiture in 2016 , the company 's board of directors authorized management to explore strategic alternatives for a facility and certain related business lines within the flavors & fragrances segment in strasbourg , france . in 2016 , the company recorded a non-cash impairment charge of $ 10.8 million , in selling and administrative expense , and incurred $ 0.7 million of outside professional fees and other related costs in 2016 , as a result of the then anticipated divestiture . in january 2017 , the company completed this divestiture for approximately $ 12.5 million . the company recognized an additional non-cash loss of $ 11.6 million in 2017. non-gaap financial measures within the following tables , the company reports certain non-gaap financial measures , including : ( 1 ) adjusted operating income , adjusted net earnings , and adjusted diluted eps from continuing operations ( which exclude restructuring and other costs as well as the impact of the 2017 tax legislation ) and ( 2 ) percentage changes in revenue , operating income , diluted eps , adjusted operating income , and adjusted diluted eps on a local currency basis ( which eliminate the effects that result from translating its international operations into u.s. dollars ) . the other costs in 2017 and 2016 are divestiture related costs , discussed under “ divestiture ” above . the company has included each of these non-gaap measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance . such information is supplemental to information presented in accordance with gaap and is not intended to represent a presentation in accordance with gaap . these non-gaap measures should not be considered in isolation . rather , they should be considered together with gaap measures and the rest of the information included in this report . management internally reviews each of these non-gaap measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and performance trends . the company believes that this information can be beneficial to investors for the same purposes . these non-gaap measures may not be comparable to similarly titled measures used by other companies . 21 index replace_table_token_7_th ( 1 ) the other costs in 2017 and 2016 are for the divestiture related costs discussed under “ divestiture ” above . note : earnings per share calculations may not foot due to rounding differences . the following table summarizes the percentage change in the 2017 results compared to the 2016 results in the respective financial measures . replace_table_token_8_th ( 1 ) refer to table above for a reconciliation of these non-gaap measures . segment information the company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance . segment performance is evaluated on operating income before restructuring and other costs ( which are reported in corporate & other ) , interest expense , and income taxes . the company 's reportable segments consist of the flavors & fragrances , color , and asia pacific segments .
| income taxes the effective income tax rate was 13.3 % in 2018 and 39.6 % in 2017. the effective tax rates in both 2018 and 2017 were impacted by changes in estimates associated with the finalization of prior year foreign and domestic tax items , audit settlements , adjustments to valuation allowances and mix of foreign earnings . the effective tax rate in 2018 was also favorably impacted by u.s. tax accounting method changes that were filed with the irs in the second quarter of 2018 and generation of foreign tax credits during 2018. the 2017 effective tax rate was impacted by the limited tax deductibility of losses , the result of the cumulative foreign currency effect related to certain repatriation transactions , and restructuring and other activities . on december 22 , 2017 , the u.s. enacted the 2017 tax legislation . the act significantly changed u.s. corporate income tax laws by reducing the u.s. corporate income tax rate to 21 % beginning in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of u.s. subsidiaries . as a result , the company recorded a provisional net tax expense of $ 18.4 million during the fourth quarter of 2017. this amount consists of reevaluating the u.s. deferred tax assets and liabilities based on the lower corporate income tax rate , adjustments to the company 's foreign tax credit carryover , and the one-time mandatory tax on previously deferred foreign earnings of u.s. subsidiaries . in 2018 , the company finalized its provisional estimates related to the act resulting in an income tax benefit of $ 6.6 million . sensient considers $ 11.8 million to be the final net tax expense related to the act . replace_table_token_3_th the 2019 effective income tax rate is estimated to be between 22.0 % and 23.0 % , before any discrete items . acquisitions on july 10 , 2018 , the company completed the acquisition of mazza innovation limited , a botanical extraction business with patented solvent-free extraction processes , located in vancouver , canada . the company paid $ 19.8 million of cash for this acquisition . the assets acquired and
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the change in the effective rate from 2014 to 2015 was primarily driven by the asset impairment charges recorded in the current year , non-deductible restructuring and divestiture costs recorded in the prior year and charges related to a change in assertion with respect to certain foreign subsidiaries ' undistributed earnings which are no longer considered permanently reinvested . all earnings of other non u. s. subsidiaries are permanently reinvested and no deferred taxes have been provided on those earnings . the effective tax rate for 2014 was 29.1 percent compared to 22.4 percent for 2013 . the change in the effective rate from 2013 to 2014 was primarily driven by a $ 7.2 million tax charge related to a change in assertion of a foreign subsidiary 's certain undistributed earnings , which are no longer considered permanently reinvested . this change in assertion is related to the repatriation of $ 57.0 million . all earnings of other non u.s. subsidiaries are permanently reinvested and no deferred taxes have been provided on those earnings . in addition to this tax charge , the 2014 rate increased due to non-deductible restructuring and divestiture costs , and expiration of the credit for increasing research activities . ( loss ) income attributable to kennametal shareholders loss attributable to kennametal shareholders was $ 373.9 million , or $ 4.71 per diluted share , in 2015 , compared to income of $ 158.4 million , or $ 1.99 per diluted share , in 2014 . the decrease in ( loss ) income from continuing operations was a result of the factors previously discussed . income from continuing operations attributable to kennametal shareholders was $ 158.4 million or $ 1.99 per diluted share , in 2014 , compared to $ 203.3 million , or $ 2.52 per diluted share , in 2013 . the decrease in income from continuing operations was a result of the factors previously discussed . business segment review we operate two reportable operating segments consisting of industrial and infrastructure . corporate expenses that are not allocated are reported in corporate . segment determination is based upon internal organizational structure , the manner in which we organize segments for making operating decisions and assessing performance and the availability of separate financial results . 18 industrial replace_table_token_6_th external sales of $ 1,461.7 million in 2015 decreased by $ 62.3 million , or 4 percent , from 2014 . the decrease in sales is attributable to unfavorable currency exchange impact of 5 percent , offset partially by an increase of 1 percent due to prior year net acquisition and divestiture activity . excluding the impact of currency exchange , sales increased in both general engineering and transportation by approximately 2 percent while the aerospace and defense served markets decreased approximately 4 percent and energy decreased approximately 6 percent . in general engineering , sales growth in the indirect channel was partially offset by weak demand in the energy market due to the downturn in the oil and gas markets . transportation end market sales increased due to strong growth in asia from our component solutions focus , partially offset by fewer new tooling programs sales in the americas and slower market conditions in europe . sales in aerospace and defense declined due to our decision to exit certain low margin business . on a regional basis , excluding impacts of acquisition and divestiture , sales increased by approximately 8 percent in asia and remained flat in the americas , while sales decreased 2 percent in europe . the sales increase in asia was driven primarily by transportation and to a lesser extent aerospace and defense and general engineering . the americas sales benefited from increases in general engineering , offset by decreases in aerospace and defense and transportation . the sales decrease in europe was driven primarily by aerospace and defense and to a lesser extent transportation . in 2015 , industrial operating income was $ 160.9 million and decreased by $ 16.1 million from 2014 . the primary drivers of the decrease in operating income were increased restructuring and related charges of $ 16.6 million and lower absorption of manufacturing costs due to an inventory reduction initiative , offset partially by the impact of acquisition , restructuring benefits and decreased operating expense as a result of cost reduction efforts . industrial operating margin was 11.0 percent compared with 11.6 percent in the prior year . external sales of $ 1,524.1 million in 2014 increased by $ 137.4 million , or 10 percent , from 2013 . the increase in sales was attributed to the impact of acquisition of 5 percent , organic sales increase of 4 percent and the impact of more business days of 1 percent . sales increased in all served market sectors and geographies . excluding tmb , sales increased in both general engineering and transportation by approximately 7 percent while the aerospace and defense served markets increased slightly . general engineering increased due to improvements in production and overall demand for machinery and demand in distribution channels . the transportation market benefited from increased demand in the light vehicle markets world-wide . on a regional basis , excluding tmb , sales increased by approximately 9 percent in asia , 6 percent in europe and 2 percent in the americas . the americas sales were dampened by the weather impacts in north america . the sales increase in asia was driven by general engineering followed by transportation and to a lesser extent aerospace and defense . the sales increase in europe was driven by both transportation and general engineering and the americas was driven by general engineering and to a lesser extent transportation . in 2014 , industrial operating income was $ 177.0 million and decreased by $ 15.8 million from 2013 . story_separator_special_tag the primary drivers of the decrease in operating income were restructuring and related charges of $ 13.2 million ; the dilutive effects of eight months of tmb base operations of $ 9.8 million , which included purchase accounting impacts of $ 13.4 million ; higher employment costs and acquisition-related charges of $ 2.9 million , partially offset by the margin impact of higher organic sales . industrial operating margin was 11.6 percent compared with 13.9 percent in the prior year . infrastructure replace_table_token_7_th 19 external sales of $ 1,185.5 million in 2015 decreased by $ 127.7 million , or 10 percent , from 2014 . the decrease in sales was attributed to organic sales decline of 11 percent and unfavorable currency exchange impact of 4 percent , offset partially by the impact of acquisition of 5 percent . excluding the impact of currency exchange , sales decreased approximately 11 percent in the energy market and approximately 10 percent in the earthworks markets . the energy market was impacted by the severe downturn in oil and gas markets . in the earthworks market , underground mining remained weak throughout 2015 , while construction sales were down in all regions , particularly in europe and asia due to lower infrastructure project work year over year . general industrial sales decreased , tied largely to the impacts of the downturn in oil and gas markets , while weakness in machine demand resulted in lower surface finishing sales . on a regional basis , excluding impacts of acquisition , sales decreased 12 percent in asia , 10 percent in europe and 9 percent in the americas . the sales decreases in all geographic regions were driven by the energy markets and the earthworks market . in 2015 , infrastructure operating loss in 2015 was $ 509.4 million , a decrease of $ 604.3 million from 2014 operating income of $ 94.9 million . in addition to the previously mentioned impairment charges of $ 536.2 million , operating results for the current period were negatively impacted by lower organic sales , higher restructuring and related charges of $ 17.7 million , lower manufacturing absorption due to lower sales volumes and an inventory reduction initiative and unfavorable mix , partly offset by the impacts of the tmb acquisition and restructuring benefits . prior year operating income included a non-recurring inventory charge of $ 6.4 million . the further acceleration or extended persistence of the current downturn in the global end markets could have a further negative impact on our business and financial performance . we are currently exploring strategic alternatives for several businesses mostly within the infrastructure segment , which have total estimated net book values of approximately $ 170 million to $ 250 million as of june 30 , 2015 . as the strategic direction has not yet been determined for these businesses , the company can not determine if additional impairment charges will be incurred . external sales of $ 1,313.1 million in 2014 increased by $ 110.4 million , or 9 percent , from 2013. the increase in sales was attributed to the impact of acquisition of 10 percent , partially offset by an organic sales decrease of 1 percent . excluding tmb , the energy market had sales growth of 4 percent , which was offset by the decrease of 6 percent in the earthworks markets . energy sales improved year over year reflecting improved demand in oil and gas drilling activity , coupled with continued gains in the production , completion and process applications . earthworks sales declined from persistently weak underground coal and surface mining markets globally , as well as weaker road construction activity . on a regional basis , excluding tmb , sales grew 2 percent in europe , offset by decreased sales of approximately 5 percent in asia and 3 percent in the americas . the sales increase in europe was driven by the energy markets and a slightly favorable earthworks market . the sales decrease in asia was driven by the earthworks market , which overshadowed the positive growth in the energy markets , while the americas sales decline was due to the earthworks market and to a slightly lesser extent the energy markets . in 2014 , infrastructure operating income decreased $ 16.5 million from 2013. the primary drivers of the decrease in operating income were lower organic sales , a nonrecurring physical inventory adjustment of $ 6.4 million , lower absorption of fixed manufacturing costs , restructuring and related charges of $ 5.9 million , acquisition-related charges of $ 4.7 million and higher employment costs , partially offset by tmb 's operating income contribution of $ 2.6 million and continued cost discipline . infrastructure operating margin decreased to 7.2 percent from 9.3 percent in the prior year . corporate replace_table_token_8_th in 2015 , corporate unallocated expense increased $ 0.8 million , or 9.2 percent , from 2014 , primarily due to restructuring-related charges in the current period . in 2014 , corporate unallocated expense increased $ 0.7 million , or 8.4 percent , from 2013 . liquidity and capital resources cash flow from operations is the primary source of funding for capital expenditures and internal growth . during the year ended june 30 , 2015 , cash flow provided by operating activities was $ 351.4 million . our five-year , multi-currency , revolving credit facility ( 2011 credit agreement ) is used to augment cash from operations and as an additional source of funds . the 2011 credit agreement permits revolving credit loans of up to $ 600.0 million for working capital , capital expenditures and general corporate purposes . the 2011 credit agreement allows for borrowings in u.s. dollars , euro , canadian dollars , pound sterling and japanese yen .
| gross profit increased $ 52.0 million to $ 897.0 million in 2014 from $ 845.0 million in 2013 . this increase was primarily due to the effects of owning tmb for eight months , organic sales growth of $ 44.6 million and favorable raw material pricing , partially offset by higher employment costs and a nonrecurring inventory charge of $ 6.4 million . the gross profit margin for 2014 was 31.6 percent compared to 32.6 percent in 2013 . operating expense operating expense in 2015 was $ 554.9 million , a decrease of $ 34.9 million , or 5.9 percent , compared to $ 589.8 million in 2014 . the decrease is primarily due to foreign currency exchange impacts of $ 24.7 million , restructuring benefits and the impact of cost reduction initiatives , offset partially by annual merit increase . operating expense in 2014 was $ 589.8 million , an increase of $ 61.9 million , or 11.7 percent , compared to $ 527.9 million in 2013 . the increase is primarily due to operating expense of $ 28.8 million related to eight months of owning tmb , $ 22.2 million increase in employment costs , mostly related to annual merit increase and sales compensation , acquisition-related charges of $ 7.5 million and unfavorable currency exchange rates of $ 2.0 million . restructuring and related charges and asset impairment charges restructuring and related charges during 2015 , we recorded restructuring and related charges of $ 58.1 million . of this amount , restructuring charges totaled $ 42.1 million , of which $ 1.5 million were charges related to inventory disposals and were recorded in cost of goods sold . restructuring-related charges of $ 8.2 million were recorded in cost of goods sold and $ 7.8 million in operating expense during 2015 . total restructuring and related charges since the inception of our restructuring plans through 2015 were $ 77.2 million . see note 14 in our consolidated financial statements set forth in part ii item
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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 - 2013 , 2012 and 2011 our fiscal year ends on the saturday closest to december 31. fiscal 2013 ended on december 28 , 2013 , fiscal 2012 ended on december 29 , 2012 , and fiscal 2011 ended on december 31 , 2011. fiscal years 2013 , 2012 and 2011 each 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 indicated . replace_table_token_3_th comparison of 2013 and 2012 revenues . our total revenues increased $ 4.4 million or 13.0 % from $ 33.9 million in 2012 to $ 38.3 million in 2013 , as a result of increases in both system sales and in our recurring revenues . the increase in system sales was due to an increase in sales of our iq lasers that features micropulse , both domestic and international . the increase in recurring revenues was attributable to the inclusion of sales generated by the independent sales force resulting from the peregrine distribution and supply agreement , as well as an increase in sales of our licensed greentip product by our distribution partner , alcon , inc. ( “ alcon ” ) . oem sales are expected to cease shortly as our oem partner , bausch & lomb , incorporated ( “ b & l ” ) , has discontinued selling this product . replace_table_token_4_th gross profit . gross profit was $ 18.6 million in 2013 compared with $ 16.3 million in 2012 , an increase of $ 2.2 million or 13.7 % . the increase in gross profit was primarily due to the increase in revenues . gross margin as a percent of revenue was 48.6 % compared with 48.3 % , an increase of 0.3 % due to overhead efficiencies and cost reductions , which were partly offset by a change in product mix . gross margins as a percentage of revenues are expected to continue to fluctuate due to changes in the relative proportions of domestic and international sales , the product mix of sales , manufacturing variances , total unit volume changes that lead to greater or lesser production efficiencies and a variety of other factors . see item 1a . “ risk factors - factors that may affect future results - ‘ our operating results may fluctuate from quarter to quarter and year to year . ” 26 research and development . r & d expenses decreased $ 0.7 million or 16.0 % from $ 4.4 million in 2012 to $ 3.7 million in 2013. the decrease in spending was primarily attributable to a decrease in headcount and associated costs . additionally , project development materials decreased as a result of units being released to production . we anticipate an increase in the spending level in r & d in support of new products and certain product cost reduction programs we are initiating going forward . sales and marketing . sales and marketing expenses decreased $ 0.2 million or 2.2 % , from $ 7.9 million in 2012 to $ 7.7 in 2013. marketing expenditures decreased $ 0.6 million due to reduced headcount and program spending as we transitioned from traditional marketing programs to online digital marketing programs , these savings were , partly offset by costs associated with the expansion of our independent sales force resulting from the peregrine agreement and increased commissions associated with increased revenues . story_separator_special_tag > contractual payment obligations as of december 28 , 2013 , our contractual payment obligations that were fixed and determinable to third parties for non-cancelable operating leases , contract manufacturers and other purchase commitments 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 . discontinued operations . discontinued operations are accounted for and presented in accordance with accounting standards codification ( “ asc ” ) 360 , impairment or disposal of long-lived assets ( “ asc 360 ” ) . story_separator_special_tag 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 discontinued for all periods presented under the requirements of asc 360 . 29 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 gener ally 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 asc 605 , revenue recognition , multiple-element arrangements . the company allocates revenue among deliverables in multiple-element arrangements using the relative selling price method . revenue allocated to each element is recognized when the basic revenue recognition criteria is met for each element . the company is required to apply a hierarchy to determine the selling price to be used for allocating revenue to deliverables : ( i ) vendor-specific objective evidence of selling price ( “ vsoe ” ) , ( ii ) third-party evidence of selling price ( “ tpe ” ) and ( iii ) best estimate of the selling price ( “ esp ” ) . in general , the company is unable to establish vsoe or tpe for all of the elements in the arrangement ; therefore , revenue is allocated to these elements based on the company 's esp , which the company determines after considering multiple factors such as management approved pricing guidelines , geographic differences , market conditions , competitor pricing strategies , internal costs and gross margin objectives . these factors may vary over time depending upon the unique facts and circumstances related to each deliverable . as a result , the company 's esp for products and services could change . revenues for post-sales obligations are recognized as the obligations are fulfilled . in international regions , we utilize distributors to market and sell our products . we recognize revenue upon shipment for sales to these independent , third -party distributors as we have no continuing obligations subsequent to shipment . generally our distributors are responsible for all marketing , sales , installation , training and warranty labor coverage for our products . our standard terms and conditions do not provide price protection or stock returns rights to any of our distributors . royalty revenues are typically based on licensees ' net sales of products that utilize our technology and are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collect ibility is reasonably assured , such as upon the earlier of the receipt of a royalty statement from the licensee or upon payment by the licensee . 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 t he 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 . once the cost of the inventory is reduced , a new lower-cost basis for that inventory is established , and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis . 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 management judgment and esti mates 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 . the balance for the provision of sales returns have not historically been material .
| our tax rate is benefiting from a decrease in the valuation allowance we currently have booked against our deferred tax asset and benefiting from a deduction under section 199 of the internal revenue code of 1986 , as amended ( “ irc ” ) . ultimately , assuming we remain profitable , the entire valuation allowance will be released and our tax rate will return to more normal levels . at the end of 2013 , the valuation allowance totaled $ 10.0 million . comparison of 2012 and 2011 revenues . total revenues from continuing operations in 2012 were $ 33.9 million compared with $ 33.2 million in 2011 , an increase of $ 0.7 million or 2.1 % . the increase was due primarily to our recurring revenues which improved as a result of the onset of revenues from the licensing and distribution agreement with alcon . our ophthalmology system revenues remained consistent period to period . our oem revenue continued to decline as anticipated because this revenue is generated from a product that is now in its end of life phase . replace_table_token_5_th 27 gross profit . gross profit remained level at $ 16.3 million in 2012 even though revenues increased as a result of a decrease in gross margin to 48.3 % in 2012 , from 49.1 % in 2011. the reduction in gross margin was primarily attributable to increased manufacturing and service costs . research and development . research and development expenses increased $ 0.5 million or 12.1 % , from $ 3.9 million in 2011 to $ 4.4 million in 2012. the increase is attributable to increases in headcount and project material costs incurred in engineering development projects , and patent e xpenses as the company continued to focus on new product introductions . sales and marketing . sales and marketing expenses increased $ 0.4 million or 5.9 % , from $ 7.5 million in 2011 to $ 7.9 million in 2012. the increase is primarily attributable
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asset management fees asset management fees for hedge funds , hedge funds of funds , private equity funds and reits include base management fees and incentive fees earned from managing investment partnerships sponsored by us and from managing a portion of the net assets of new york mortgage trust , inc. ( nymt ) pursuant to the advisory agreement between hcs and nymt entered into in january 2008. the advisory agreement was terminated effective july 26 , 2010 upon execution of an amended and restated advisory agreement between hcs and nymt . under the amended advisory agreement , hcs manages certain assets of nymt , which are subject to the base advisory fee and incentive fee calculations , and receives an annual consulting fee equal to $ 1.0 million . base management fees earned by us are generally based on the fair value of assets under management or 46 aggregate capital commitments and the fee schedule for each fund and account . we also earn incentive fees that are based upon the performance of investment funds and accounts . for most of the funds , such fees are based on a percentage of the excess of an investment return over a specified highwater mark or hurdle rate over a defined performance period . for private equity funds , incentive fees are based on a specified percentage of realized gains from the disposition of each portfolio investment in which each investor participates , and are earned by the company after returning contributions by the investors for that portfolio investment and for all other portfolio investments in which each such investor participates that have been disposed of at the time of distribution . as of december 31 , 2010 , the contractual base management fees earned from each of these investment funds ranged between 1 % and 2 % of assets under management or were 2 % of aggregate committed capital . the contractual incentive fees were generally ( i ) 20 % , subject to high-water marks , for the hedge funds ; ( ii ) 5 % to 20 % , subject to high-water marks or a performance hurdle rate , for the hedge funds of funds ; ( iii ) 25 % , subject to a performance hurdle rate , for harvest mortgage opportunities partners ( hmop ) ; 35 % , subject to high-water marks for new york mortgage trust , inc. ( nymt ) ; and ( iv ) 20 % , subject to high-water marks , for hgc . hmop was liquidated on december 31 , 2010 , with all of its partners redeeming their interests as of that date . the assets of hmop were distributed to its partners in january 2011. our asset management revenues are subject to fluctuations due to a variety of factors that are unpredictable , including the overall condition of the economy and the securities markets as a whole and our core sectors . these conditions can have a material effect on the inflows and outflows of assets under management , and the performance of our asset management funds . for example , a significant portion of the performance-based or incentive revenues that we recognize are based on the value of securities held in the funds we manage . the value of these securities includes unrealized gains or losses that may change from one period to another . asset management fees for the two clos the company manages currently consist only of senior and subordinated base management fees . for one of the clos , the company earns incentive fees in the event that specified cumulative investment returns are achieved ; such investment returns have not been achieved yet . the company recognizes base management fees for the clos on a monthly basis over the period in which the collateral management services are performed . the base management fees for the clos are calculated as a percentage of the average aggregate collateral balances for a specified period . as we consolidate cratos clo , the management fees earned at jmpca from cratos clo are eliminated on consolidation in accordance with u.s. gaap . at december 31 , 2010 , the contractual base management fees earned from the clos ranged from 0.40 % to 0.50 % of the average aggregate collateral balance for a specified period . 47 the following tables present certain information with respect to the investment funds managed by harvest capital strategies ( hcs ) and clos managed by jmp credit advisors llc ( jmpca ) : replace_table_token_9_th ( 1 ) for hedge funds , private equity funds and funds of funds , assets under management represent the net assets of such funds . for new york mortgage trust ( nymt ) , assets under management represent the portion of the net assets of nymt that is subject to the management fee calculation . in connection with its investment in nymt , in january 2008 , the company entered into an advisory agreement between hcs and nymt . the advisory agreement was terminated effective july 26 , 2010 upon execution of an amended and restated advisory agreement between hcs and nymt . under the amended advisory agreement , hcs manages certain assets of nymt , which are subject to the base advisory fee and incentive fee calculations , and receives an annual consulting fee equal to $ 1.0 million . for clos , assets under management represent the sum of the aggregate collateral balance and restricted cash to be reinvested in collateral , upon which management fees are earned . ( 2 ) hmop and cratos clo were consolidated in the company 's statements of financial condition at december 31 , 2010 and december 31 , 2009. hmop was liquidated on december 31 , 2010 , with all of its partners redeeming their interests as of that date . the assets of hmop were distributed to its partners in january 2011. hgc was consolidated in the company 's statement of financial condition at december 31 , 2010 . story_separator_special_tag ( 3 ) harvest global select partners was liquidated on may 31 , 2010 and its assets were distributed to its partners . 48 replace_table_token_10_th ( 1 ) time-weighted rate of return , or twr , for the hedge funds and funds of funds . twr is a measure of the compound rate of growth in a portfolio and eliminates the effect of varying cash inflows by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period . ( 2 ) revenues earned from hmop , hgc and cratos clo are consolidated and then eliminated in consolidation in the company 's statements of operations , net of noncontrolling interest . hmop was liquidated on december 31 , 2010 , with all of its partners redeeming their interests as of that date . the assets of hmop were distributed to its partners in january 2011 . ( 3 ) harvest global select partners was liquidated on may 31 , 2010 and its assets were distributed to its partners . replace_table_token_11_th 49 ( 1 ) time-weighted rate of return , or twr , for the hedge funds and funds of funds . twr is a measure of the compound rate of growth in a portfolio and eliminates the effect of varying cash inflows by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period . ( 2 ) effective may 1 , 2009 , revenues earned from hmop are consolidated and then allocated to noncontrolling interest in consolidation in the company 's statements of operations . hmop was liquidated on december 31 , 2010 , with all of its partners redeeming their interests as of that date . the assets of hmop were distributed to its partners in january 2011. effective april 7 , 2009 , revenues earned from cratos clo are consolidated and then eliminated in consolidation in the company 's statements of operations , net of noncontrolling interest . ( 3 ) harvest global select partners was liquidated on may 31 , 2010 and its assets were distributed to its partners . ( 4 ) jmp emerging masters fund was liquidated on december 31 , 2009 and its assets were distributed to its partners . replace_table_token_12_th ( 1 ) time-weighted rate of return , or twr , for the hedge funds and funds of funds . twr is a measure of the compound rate of growth in a portfolio and eliminates the effect of varying cash inflows by assuming a single investment at the beginning of a period and measuring the growth or loss of market value to the end of that period . ( 2 ) revenues earned from htp , hcp and jmprt were consolidated and then allocated to noncontrolling interest in the company 's statements of operations , through july 31 , 2008 , november 30 , 2008 and january 1 , 2009 , respectively . htp and hcp were deconsolidated effective august 1 , 2008 and december 1 , 2008 , respectively . all of the assets and liabilities of jmprt were transferred to hmop on january 2 , 2009 . ( 3 ) jmp emerging masters fund was liquidated and its assets were distributed to its partners on december 31 , 2009. principal transactions principal transaction revenues include realized and unrealized net gains and losses resulting from our principal investments , which include investments in equity and other securities for our own account , general partner investments in funds managed by us , warrants we may receive from certain investment banking assignments and limited partner investments in private funds managed by third parties . in addition , we invest a portion of our capital in a portfolio of equity securities managed by hcs and in side-by-side investments in the funds managed by us . in certain cases , we also co-invest alongside our institutional clients in private transactions 50 resulting from our investment banking business . principal transaction revenues also include unrealized gains and losses on the private equity securities owned by hgc , a private equity fund managed by hcs which is consolidated in our financial statements , as well as unrealized gains and losses on the investments in private companies sponsored by hcs and jmp capital . gain on sale and payoff of loans gain on sale and payoff of loans consists of gains from the sale and payoff of loans collateralizing asset-backed securities at jmp credit . gains are recorded when the proceeds exceed the carrying value of the loan . gain on repurchase of asset-backed securities issued gain on repurchase of asset-backed securities issued ( abs ) primarily consists of gains from repurchases of our abs from third parties . gains are recorded when the repurchase price is less than the carrying value of the abs . gain on bargain purchase a bargain purchase gain was recognized upon the acquisition of cratos by jmp credit on april 7 , 2009. this represents the difference between the fair value of net assets acquired and the consideration given to the sellers . net dividend income net dividend income comprises dividends from our investments offset by dividend expense for paying short positions in our principal investment portfolio . other income other income includes loan restructuring fees at jmp credit and revenues from fee sharing arrangements with , and fees earned to raise capital for third-party investment partnerships , or funds . interest income interest income primarily consists of interest income earned on loans collateralizing asset backed securities issued and loans held for investment . interest income on loans comprises the stated coupon as a percentage of the face amount receivable as well as accretion of accretable or purchase discounts and deferred fees . interest income is recorded on the accrual basis in accordance with the terms of the respective loans unless such loans are placed on non-accrual status .
| million , or 77.2 % , from $ 5.8 million for the year ended december 31 , 2009 to $ 1.3 million for the year ended december 31 , 2010. provision for loan losses for the year ended december 31 , 2010 was comprised of provision recorded against loans held for investment of $ 0.3 million and provision recorded against loans collateralizing abs issued of $ 1.0 million . provision for loan losses for the year ended december 31 , 2009 was comprised of provision recorded against loans held for investment of $ 1.4 million and provision recorded against loans collateralizing abs issued of $ 4.4 million . total non-interest expenses decreased $ 5.1 million , or 4.0 % , from $ 129.1 million for the year ended december 31 , 2009 to $ 124.0 million for the year ended december 31 , 2010 , primarily due to a decrease in compensation and benefits of $ 9.5 million , partly offset by an impairment loss on purchased management contract recorded in 2010 of $ 2.8 million , an increase in other expense of $ 1.0 million and a net increase in the remaining expenses of $ 0.6 million . net income attributable to jmp group inc. decreased $ 1.9 million , or 18.0 % , from $ 10.8 million for the year ended december 31 , 2009 to $ 8.9million for the year ended december 31 , 2010 and includes income tax expense of $ 7.7 million and $ 9.0 million for the year ended december 31 , 2009 and 2010 , respectively . revenues investment banking investment banking revenues increased $ 5.6 million , or 14.0 % , from $ 39.9 million for the year ended december 31 , 2009 to $ 45.5 million for the same period in 2010 , and increased as a percentage of total net revenues after provision for loan losses from 26.7 % to 31.5 % , respectively . the increase in revenues reflects a higher level
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we are the second largest china-based fishery company operating its vessels outside of china waters and our fleet has an average remaining useful life of approximately 12.6 years . all of our vessels are approved by the moa and , to the extent required , licensed by foreign fishing territories where they operate , subject to any foreign government 's moratorium or any suspensions or revocations that apply to the vessels or local entities , as described below . among the 140 vessels , 12 are located in the bay of bengal in india ; 11 are located in international waters ( including 1 refrigerated transport vessel ) ; and 13 are located in the democratic republic of timor-leste but are currently not operating as described above . the remaining 104 vessels are licensed by the moa to operate in the arafura sea in indonesia . the vessels in indonesian waters , however , are not in operation because the licenses are currently inactive due to either the moratorium discussed below , the revocation of the fishery business license of the local entity through which the vessels operate , or , with respect to four vessels , the revocation of the local fishing licenses . we catch nearly 50 different species of fish including ribbon fish , croaker fish , pomfret , spanish mackerel , conger eel , and squid . all of our catch is shipped back to china . our fishing vessels transport frozen catch to a cold storage warehouse nearby onshore fishing bases . we then arrange chartered transportation ships to deliver frozen stocks to cold storage warehouses located in one of china 's largest seafood trading centers , mawei seafood market in fujian province . we derive our revenue primarily from the sale of frozen seafood products . we sell our products directly to customers including distributors , restaurant owners and exporters . most of our customers have long-term , cooperative relationships with us . our existing customers also introduce new customers to us from time to time . in july 2017 , we entered into an exclusive strategic cooperation agreement to sell our fish products directly to consumers online . our operating results are subject to seasonal variations . harvest volume is the highest in the fourth quarter of the year while harvest volumes in the second and third quarters are relatively low due to the spawn season of certain fish species , including ribbon fish , cuttlefish , pomfret , and squid . based on past experiences , demand for seafood products is the highest from december to january , during chinese new year . we believe that our profitability and growth are dependent on the termination of the indonesian moratorium discussed below or the redeployment of our vessels from indonesian waters to other locations , our ability , and those with which we conduct business , to maintain effective licenses with local departments of fisheries , such as indonesia and timor-leste , and our ability to expand our customer base . revenue by territory our customers are from the following prc territories : replace_table_token_6_th significant factors affecting our results of operations ● the indonesian government 's moratorium on local fishing licenses renewals : in early december 2014 , the indonesian government introduced a six-month moratorium on issuing new fishing licenses and renewals so that the country 's mmaf could combat illegal fishing and rectify ocean fishing order . as a result , all licensed fishing vessels operating in the indonesian waters have been informed by the indonesian government to operate within strict guidelines and subsequently to cease operation , in order to avoid potential enforcement actions , such as boat seizures , by the indonesian navy . in february 2015 , we ceased all fishing operations in indonesia . during the moratorium , pme was informed that fishing licenses of four vessels operated through pt . avona , one of the local companies through which pme conducts business in indonesia , and the fishery business license of pt . dwikarya , the other local company through which pme conducts business in indonesia , were revoked . as a result and because license renewal was prohibited due to the general moratorium , all local fishing licenses of pme 's vessels in indonesia are presently inactive . the mmaf has not yet restored license issuing or renewal process for vessels built abroad . although , in november 2015 , the indonesian government announced that the moratorium had concluded , the mmaf has not implemented new fishing policies and resumed the license renewal process . we do not know when exactly licensing and renewal will start . we have been paying close attention to any new trends in fishing policy and have been actively exploring other business operations and redeploying vessels to other locations . since we derived a majority of our revenue from this area , this ban has caused a significant drop in our production and our financial results will continue to be adversely affected . ● governmental policies : fishing is a highly regulated industry and our operations require licenses and permits . our ability to obtain , sustain or renew such licenses and permits on acceptable terms is subject to changes in regulations and policies and is at the discretion of the applicable government agencies . our inability to obtain , or loss or denial of extensions to , any of our applicable licenses or permits could hamper our ability to generate revenue from our operations . 28 ● resource & environmental factors : our fishing expeditions are based in the indian exclusive economic zone , indo-pacific waters , the arafura sea of indonesia and international waters of atlantic and pacific oceans . any earthquake , tsunami , adverse weather or oceanic conditions or other calamities in such areas may result in disruption to our operations and could adversely affect our sales . adverse weather conditions such as storms , cyclones and typhoons or cataclysmic events may also decrease the volume of fish catches or may even hamper our operations . story_separator_special_tag our fishing volumes may also be adversely affected by major climatic disruptions such as el nino , which in the past has caused significant decreases in seafood catch worldwide . besides weather patterns , other unpredictable factors , such as fish migration , may also have impact our harvest volume . ● fluctuation on fuel prices : our operations may be adversely affected by fluctuations in fuel prices . changes in fuel prices may result in increases in the selling prices of our products , and may , in turn , adversely affect our sales volume , revenue and operating profit . ● competition : we engage in the business in the bay of bengal in india , indo-pacific waters , the arafura sea of indonesia and international waters of atlantic and pacific oceans . competition within our dedicated fishing areas is not currently significant as the region is not overfished or regulated by government limits on the number of vessels that are allowed to fish in the territories ; however , there is no guarantee that competition will not become more intense . competition in the consumer market in china , however , is keen . we compete with other fishing companies which offer similar and varied products . there is significant demand for fish in the chinese market . we believe our catch appeals to a wide segment of consumers because of the low price points of our products . ● fishing licenses : each of our fishing vessels requires approval from the ministry of agriculture of the people 's republic of china to carry out ocean fishing projects in foreign territories . these approvals are granted annually and normally valid for a period of twelve months ; when the inspection certificate of a vessel is valid for less than 12 months , the approval will be granted with the validity period equal to that indicated on the inspection certificate and will be extended to full validity period when new inspection certificate is issued . different countries may have different policies for foreign cooperation in fisheries . some countries require fishing licenses issued by the accessed country ; some others may require establishment of a joint venture or sole proprietorship to obtain local licenses . during the indonesian moratorium , we were informed that fishing licenses of four vessels operated through pt avona , one of the local companies through which we conduct business in indonesia , and the fishery business license of pt dwikarya , the other local company through which we conduct business in indonesia , were revoked . in september 2017 , we were informed that the fishing licenses of the 13 vessels operating in the indo-pacific water of timor-leste were suspended and the vessels were docked in the port by the maf . story_separator_special_tag compared to the year ended december 31 , 2016 was primarily attributable to the decrease in our unit production cost of fish resulting from the increase in our harvest volume by deploying more fishing vessels into operations . selling expense our selling expense mainly includes shipping and handling fees , insurance , customs service charge , storage fees and advertising expenses . our sales activities are conducted through direct selling by our internal sales staff . because of the strong demand for our products and services , we typically do not aggressively market and distribute our products . as a result , our selling expense has been relatively small as a percentage of our revenue . selling expense totaled $ 1,231,031 for the year ended december 31 , 2017 , as compared to $ 1,235,497 for the year ended december 31 , 2016 , a slight decrease of $ 4,466 or 0.4 % . selling expense as a percentage of revenue for the year ended december 31 , 2017 decreased slight to 1.9 % from 6.0 % for the year ended december 31 , 2016. selling expense for the years ended december 31 , 2017 and 2016 consisted of the following : replace_table_token_11_th 31 ● for the year ended december 31 , 2017 , insurance expense decreased by $ 113,875 , or 19.1 % , as compared to the year ended december 31 , 2016. the change was mainly attributable to the different insured fishing vessels mix . ● for the year ended december 31 , 2017 , shipping and handling fees increased by $ 46,207 , or 20.7 % , as compared to the year ended december 31 , 2016. the increase was primarily attributable to more fish shipped to the warehouse of the company because of our increased fishing activities for the year ended december 31 , 2017 . ● for the year ended december 31 , 2017 , storage fees increased by $ 81,022 , or 45.3 % , as compared to the year ended december 31 , 2016. the increase was mainly attributable to the increase in our storage rent period to meet the storage demand . in addition , we did not obtain any rent discounts in relation to warehouse rent while discounts were offered in 2016 . ● for the year ended december 31 , 2017 , customs service charges decreased by $ 27,890 , or 17.3 % , as compared to the year ended december 31 , 2016 . ● for the year ended december 31 , 2017 , advertising expenses increased by $ 32,124 , or 76.1 % , as compared to the year ended december 31 , 2016 . ● other selling expense , which primarily consisted of fishing vessels ' examination fees , for the year ended december 31 , 2017 decreased by $ 22,054 , or 65.0 % , as compared to the year ended december 31 , 2016. general and administrative expense general and administrative expense totaled $ 9,579,404 for the year ended december 31 , 2017 , as compared to $ 3,969,465 for the year ended december 31 , 2016 , an increase of $ 5,609,939 or 141.3 % .
| during the year ended december 31 , 2017 , we purchased 4 squid jigging vessels to reinforce our fishing capacity and we placed 10 fishing vessels in operation in international waters during the year ended december 31 , 2017 in comparison to 2 fishing vessels operating in international waters during the year ended december 31 , 2016. cost of revenue our cost of revenue primarily consists of fuel cost , depreciation , labor cost , fishing vessels maintenance fee , other overhead costs , and reserve for inventories . fuel cost , depreciation , and labor cost generally accounted for the majority of our cost of revenue . the following table sets forth our cost of revenue information , both in amounts and as a percentage of revenue for the years ended december 31 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_9_th * represents the cost of fish purchased from third parties to satisfy our customers ' demand . 30 cost of revenue for the year ended december 31 , 2017 was $ 41,126,898 , representing an increase of $ 11,798,122 or 40.2 % as compared to $ 29,328,776 for the year ended december 31 , 2016. the increase was primarily attributable to the increase in our revenue . gross profit ( loss ) our gross profit ( loss ) is affected primarily by changes in production costs . fuel cost , depreciation , and labor cost together account for about 91.9 % and 94.1 % of cost of revenue for the years ended december 31 , 2017 and 2016 , respectively . the fluctuation of fuel price and change in labor cost may significantly affect our cost level and gross profit ( loss ) . the following table sets forth information as to our revenue , cost of revenue , gross loss and gross margin for the years ended december 31 , 2017 and 2016. replace_table_token_10_th gross profit for the year ended december 31 , 2017 was $ 22,082,789 , representing an increase of $ 30,870,796 or 351.3 % as compared to gross loss of $ 8,788,007 for the year ended december 31 , 2016 due to the
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further , we have agreed to pay up to an additional $ 10.0 million to rigel upon the achievement of a second set of development milestones . with respect to any products we commercialize under the agreement , we will pay rigel quarterly tiered royalties on our annual net sales of each product at a high single digit percentage of annual net sales , subject to specified reductions until the date that all of the patent rights for that product have expired , as determined on a country-by-country and product-by-product basis or , in specified countries under specified circumstances , 10 years from the first commercial sale of such product . the agreement terminates on the date of expiration of all royalty obligations unless earlier terminated by either party for a material breach . we may also terminate the agreement without cause at any time upon advance written notice to rigel . rigel , after consultation with us , will be responsible for maintaining and prosecuting the patent rights , and we will have final decision-making authority regarding such patent rights for a product in the united states and the european union . to the extent that we jointly develop intellectual property , we will confer and decide which party will be responsible for filing , prosecuting and maintaining those patent rights . the agreement also establishes a joint steering committee composed of an equal number of representatives for each party , which will monitor progress in the development of products . we accounted for the license and collaboration agreement with rigel as an asset acquisition since the arrangement did not meet the definition of a business pursuant to the guidance prescribed in accounting standards codification topic 805 , business combinations . accordingly , we recorded the $ 8.0 million upfront payment as research and development expense in the year ended december 31 , 2015. we will record contingent milestone payments and royalties as research and development expense or cost of revenues , respectively , in the period in which such liabilities are incurred . we concluded the licensing arrangement with rigel did not meet the definition of a business because the transaction principally resulted in its acquisition of intellectual property . as part of the transaction , we did not acquire employees , tangible assets , processes , protocols or operating systems . in addition , at the time of the acquisition , there were no activities being conducted related to the licensed patents . we expensed the acquired intellectual property asset upon acquisition because we will use it in our research and development activities and believe it has no alternative future uses . 76 stock purchase agreement with vixen pharmaceuticals , inc. and license agreement with columbia university on march 24 , 2016 , we entered into a stock purchase agreement with vixen pharmaceuticals , inc. , or vixen , and jak1 , llc , jak2 , llc and jak3 , llc , all together with vixen , the selling stockholders , and shareholder representative services llc , a colorado limited liability company , solely in its capacity as the representative of the selling stockholders . pursuant to the vixen agreement , we acquired all shares of vixen 's capital stock from the selling stockholders , or the vixen acquisition . following the vixen acquisition , vixen became a wholly-owned subsidiary of us . pursuant to the vixen agreement , we paid $ 0.6 million upfront and issued an aggregate of 159,420 shares of our common stock to the selling stockholders . we are obligated to make annual payments of $ 0.1 million on march 24 th of each year , through march 24 , 2022 , with such amounts being creditable against specified future payments that may be paid under the vixen agreement . we are obligated to make aggregate payments of up to $ 18.0 million to the selling stockholders upon the achievement of specified pre-commercialization milestones for three products in the united states , the european union and japan , and aggregate payments of up to $ 22.5 million upon the achievement of specified commercial milestones . with respect to any commercialized products covered by the vixen agreement , we are obligated to pay low single-digit royalties on net sales , subject to specified reductions , limitations and other adjustments , until the date that all of the patent rights for that product have expired , as determined on a country-by-country and product-by-product basis or , in specified circumstances , ten years from the first commercial sale of such product . if we sublicense any of vixen 's patent rights and know-how acquired pursuant to the vixen agreement , we will be obligated to pay a portion of any consideration we receive from such sublicenses in specified circumstances . as a result of the transaction with vixen , we became party to the exclusive license agreement , by and between vixen and the trustees of columbia university in the city of new york , or columbia , dated as of december 31 , 2015 , or the license agreement . under the license agreement , we are obligated to pay columbia an annual license fee of $ 10,000 subject to specified adjustments for patent expenses incurred by columbia and creditable against any royalties that may be paid under the license agreement . we are also obligated to pay up to an aggregate of $ 11.6 million upon the achievement of specified commercial milestones , including specified levels of net sales of products covered by columbia patent rights and or know-how , and royalties at a sub-single-digit percentage of annual net sales of products covered by columbia patent rights and or know-how , subject to specified adjustments . if we sublicense any of columbia 's patent rights and know-how acquired pursuant to the license agreement , we will be obligated to pay columbia a portion of any consideration received from such sublicenses in specified circumstances . story_separator_special_tag the royalties , as determined on a country-by-country and product-by-product basis , are payable until the date that all of the patent rights for that product have expired , the expiration of any market exclusivity period granted by a regulatory body or , in specified circumstances , ten years from the first commercial sale of such product . the license agreement terminates on the date of expiration of all royalty obligations thereunder unless earlier terminated by either party for a material breach , subject to a specified cure period . we may also terminate the license agreement without cause at any time upon advance written notice to columbia . we accounted for the transaction with vixen as an asset acquisition as the arrangement did not meet the definition of a business pursuant to the guidance prescribed in accounting standards codification topic 805 , business combinations . we concluded the transaction with vixen did not meet the definition of a business because the transaction principally resulted in the acquisition of the license agreement . we did not acquire tangible assets , processes , protocols or operating systems . in addition , at the time of the transaction , there were no activities being conducted related to the licensed patents . we expensed the acquired intellectual property as of the acquisition date on the basis that the cost of intangible assets purchased from others for use in research and development activities , and that have no alternative future uses , are expensed at the time the costs are incurred . accordingly , we recorded the $ 0.6 million upfront payment , the fair value of the shares of common stock issued of $ 2.4 million , and the present value of the six non-contingent annual payments as research and development expense in the year ended december 31 , 2016. additionally , we will record as expense any contingent milestone payments or royalties in the period in which such liabilities are incurred . 77 other third-party agreements under an assignment agreement , pursuant to which we acquired intellectual property , we have agreed to pay royalties on sales of a-101 40 % topical solution or related products at rates ranging in low single-digit percentages of net sales , as defined in the agreement . under this assignment agreement , we have paid aggregate milestone payments of $ 0.2 million and there are no remaining milestone payment obligations . in connection with the assignment agreement , we also entered into a finder 's services agreement under which we have paid aggregate milestone payments of $ 0.5 million and have agreed to make aggregate payments of up to $ 1.0 million upon the achievement of specified pre-commercialization milestones , such as clinical trials and regulatory approvals , as described in the agreement . we have also agreed to make aggregate payments of up to $ 4.5 million upon the achievement of specified commercial milestones . in addition , we have agreed to pay royalties on sales of a-101 40 % topical solution or related products at a low single-digit percentage of net sales , as defined in the agreement . in november 2015 , we entered into an exclusive , worldwide license agreement with jakpharm llc , or jakpharm , and key organics , ltd , or key organics , for the development and commercialization of products containing specified novel jak inhibitors for any therapeutic , prophylactic , prognostic or diagnostic applications for use in any dermatological condition or disease . we made upfront non-refundable payments of $ 0.3 million and are obligated to make aggregate payments of up to $ 2.4 million upon the achievement of specified milestones , such as completion of clinical trials and filing of applications for regulatory approvals . with respect to any products we commercialize under the agreement , we will pay tiered royalties equal to a low to middle single-digit percentage of annual net sales , subject to specified reductions , as determined on a country-by-country and product-by-product basis , until the date that all of the patent rights for that product have expired , or in specified countries under specified circumstances , ten years from the first commercial sale of such product . components of our results of operations revenue we have not generated any revenue since our inception and do not expect to generate revenue from the sale of products in the near future . research and development expenses research and development expenses consist of expenses incurred in connection with the discovery and development of our drug candidates . we expense research and development costs as incurred . these expenses include : · expenses incurred under agreements with contract research organizations , or cros , as well as investigative sites and consultants that conduct our clinical trials and preclinical studies ; · manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials , including manufacturing validation batches ; · outsourced professional scientific development services ; · employee-related expenses , which include salaries , benefits and stock-based compensation ; · depreciation of manufacturing equipment ; · payments made under agreements with third parties under which we have acquired or licensed intellectual property ; · expenses relating to regulatory activities , including filing fees paid to regulatory agencies ; and · laboratory materials and supplies used to support our research activities . 78 research and development activities are central to our business model . drug 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 our research and development expenses to increase significantly over the next several years as we increase personnel costs , including stock-based compensation , continue to conduct pre-commercial activities related to a-101 40 % topical solution for treatment of sk , and conduct clinical trials and prepare regulatory filings for our other drug candidates . the successful development of our drug candidates is highly uncertain .
| associated with being a public company , and $ 1.5 million in market research expenses related to pre-commercial activities for a-101 40 % topical solution , as well as a $ 0.3 million one-time milestone payment made during the year ended december 31 , 2016 pursuant to the finder 's services agreement related to a-101 . other income , net the increase in other income , net was primarily due to interest income received from higher invested balances of marketable securities as a result of funds received from our ipo in october 2015 , our private placement in june 2016 and our follow-on public offering in november 2016 . 82 comparison of years ended december 31 , 2015 and 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 : replace_table_token_4_th research and development expenses research and development expenses were $ 15.3 million for the year ended december 31 , 2015 , compared to $ 6.5 million for the year ended december 31 , 2014. the increase of $ 8.8 million was primarily attributable to an $ 8.0 million upfront payment to rigel in connection with our license of rights to specified jak inhibitors and related intellectual property . in addition , regulatory and clinical consulting expenses increased by $ 0.4 million in connection with our phase 2 trials of a-101 40 % topical solution , and depreciation expense increased by $ 0.4 million resulting from an equipment impairment charge of $ 0.3 million recorded in the year ended december 31 , 2015. general and administrative expenses general and administrative expenses were $ 5.3 million for the year ended december 31 , 2015 , compared to $ 2.0 million for the year ended december 31 , 2014. the increase of $ 3.3 million was primarily attributable to increases of $ 0.8 million in payroll related costs mainly associated with increased headcount , $ 0.6 million
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our effective tax rate was 39.0 % in the period from january 1 , 2002 to february 13 , 2002 and 39.2 % in the period from february 14 , 2002 to december 31 , 2002. our combined effective tax rate for the year ended december 31 , 2002 was 39.2 % . our combined effective tax rate for the year ended december 31 , 2001 was 38.8 % . income tax expense as a percentage of revenue was 11.0 % in the period from january 1 , 2002 to february 13 , 2002 and 3.2 % in the period from february 14 , 2002 to december 31 , 2002 , for a combined total of 4.2 % in the period from january 1 , 2002 to december 31 , 2002 , as compared to 12.2 % in the period from january 1 , 2001 to december 31 , 2001. net income was $ 6.9 million in the period from january 1 , 2002 to february 13 , 2002 and $ 14.4 million in the period from february 14 , 2002 to december 31 , 2002. combined net income was $ 21.3 million for the year ended december 31 , 2002. this represents a $ 47.9 million , or 69.2 % , decrease from the $ 69.3 million net income for the year ended december 31 , 2001. this decrease is primarily due to higher net interest expense associated with the debt incurred in 2002 and higher depreciation and amortization expense in connection with the acquisition of tsi . net income as a percentage of revenue was 17.3 % in the period from january 1 , 2002 to february 13 , 2002 and 5.0 % in the period from february 14 , 2002 to december 31 , 2002 , for a combined total of 6.4 % in the period from january 1 , 2002 to december 31 , 2002 , as compared to 19.2 % in the period from january 1 , 2001 to december 31 , 2001. the $ 23.0 million of undeclared and unpaid preferred unit dividends in the period from february 14 , 2002 to december 31 , 2002 relate to the 10 % preferred yield on the class b preferred units issued on february 14 , 2002. these dividends compound quarterly . the amounts are not recorded as liabilities until declared . comparison of year ended december 31 , 2001 and december 31 , 2000 total revenues were $ 361.4 million in 2001 , a $ 45.4 million or 14.4 % increase over revenues for 2000 of $ 315.9 million . network services , technology interoperability services and other outsourcing services experienced increases in revenues for 2001 compared to 2000 , partially offset by a decrease in call processing services revenues . network services revenues were $ 174.5 million ( including $ 69.1 million of off-network database query fees ) for 2001 , a $ 36.1 million , or 26.1 % , increase over revenues for 2000 of $ 138.4 million ( including $ 58.9 million of off-network database query fees ) . our visibility services experienced strong revenue growth as wireless carriers increasingly utilized this service to analyze network performance , monitor roaming traffic and troubleshoot customer care issues on a real-time basis . significant visibility transaction volume increases were partially offset by a substantial decrease in average per-transaction pricing consistent with our pricing strategy . in addition , we experienced significant growth in inlink revenues driven by increased customer connections , strong wireless subscriber roaming-related signaling activity and the growing trend among many telecommunication carriers to outsource all or a portion of their ss7 network , which was partially offset by a decrease in average per-transaction pricing consistent with our pricing strategy . our intelligent network services also experienced strong revenue growth as carriers increasingly utilized our enhanced ss7-based call features and functionality , most notably off-network database queries and local number portability . technology interoperability services revenues were $ 82.3 million for 2001 , a $ 13.4 million , or 19.4 % , increase over revenues for 2000 of $ 68.9 million . technology interoperability services revenue growth was driven primarily by strong access volume growth due to an increase in clearing transactions associated with continued industry-wide increases in wireless roaming telephone calls . this significant volume growth was partially offset by a slight decline in average per-transaction pricing consistent with our pricing strategy . in addition , access revenue management ( arms ) revenues rose due primarily to increased usage by existing customers . call processing services revenues were $ 65.2 million for 2001 , a $ 8.0 million , or 11.0 % , decrease from revenues for 2000 of $ 73.3 million . the revenue decline is primarily attributable to one customer 's decision to transition call processing functionality for its prepaid wireless service to its own internal solution . 27 other outsourcing services revenues were $ 39.3 million for 2001 , a $ 3.9 million , or 11.2 % , increase over revenues for 2000 of $ 35.4 million . revenue growth was mainly due to increased revenues from streamliner and win4 . win4 , which was developed exclusively as an interim solution for verizon , was phased out in 2001 according to plan . cost of operations was $ 169.0 million for 2001 , a $ 18.9 million , or 12.6 % , increase over the cost of operations for 2000 of $ 150.2 million . the cost increases were primarily due to the higher variable costs associated with transaction volume growth for off-network database queries and higher processing costs associated with increased revenues and volumes for the technology interoperability services . cost of operations as a percentage of revenues declined to 46.8 % in 2001 from 47.5 % in 2000. cost of operations ( excluding off-network database query charges ) declined to 34.2 % of revenues ( excluding off-network database query fees ) for 2001 from 35.6 % story_separator_special_tag our effective tax rate was 39.0 % in the period from january 1 , 2002 to february 13 , 2002 and 39.2 % in the period from february 14 , 2002 to december 31 , 2002. our combined effective tax rate for the year ended december 31 , 2002 was 39.2 % . our combined effective tax rate for the year ended december 31 , 2001 was 38.8 % . income tax expense as a percentage of revenue was 11.0 % in the period from january 1 , 2002 to february 13 , 2002 and 3.2 % in the period from february 14 , 2002 to december 31 , 2002 , for a combined total of 4.2 % in the period from january 1 , 2002 to december 31 , 2002 , as compared to 12.2 % in the period from january 1 , 2001 to december 31 , 2001. net income was $ 6.9 million in the period from january 1 , 2002 to february 13 , 2002 and $ 14.4 million in the period from february 14 , 2002 to december 31 , 2002. combined net income was $ 21.3 million for the year ended december 31 , 2002. this represents a $ 47.9 million , or 69.2 % , decrease from the $ 69.3 million net income for the year ended december 31 , 2001. this decrease is primarily due to higher net interest expense associated with the debt incurred in 2002 and higher depreciation and amortization expense in connection with the acquisition of tsi . net income as a percentage of revenue was 17.3 % in the period from january 1 , 2002 to february 13 , 2002 and 5.0 % in the period from february 14 , 2002 to december 31 , 2002 , for a combined total of 6.4 % in the period from january 1 , 2002 to december 31 , 2002 , as compared to 19.2 % in the period from january 1 , 2001 to december 31 , 2001. the $ 23.0 million of undeclared and unpaid preferred unit dividends in the period from february 14 , 2002 to december 31 , 2002 relate to the 10 % preferred yield on the class b preferred units issued on february 14 , 2002. these dividends compound quarterly . the amounts are not recorded as liabilities until declared . comparison of year ended december 31 , 2001 and december 31 , 2000 total revenues were $ 361.4 million in 2001 , a $ 45.4 million or 14.4 % increase over revenues for 2000 of $ 315.9 million . network services , technology interoperability services and other outsourcing services experienced increases in revenues for 2001 compared to 2000 , partially offset by a decrease in call processing services revenues . network services revenues were $ 174.5 million ( including $ 69.1 million of off-network database query fees ) for 2001 , a $ 36.1 million , or 26.1 % , increase over revenues for 2000 of $ 138.4 million ( including $ 58.9 million of off-network database query fees ) . our visibility services experienced strong revenue growth as wireless carriers increasingly utilized this service to analyze network performance , monitor roaming traffic and troubleshoot customer care issues on a real-time basis . significant visibility transaction volume increases were partially offset by a substantial decrease in average per-transaction pricing consistent with our pricing strategy . in addition , we experienced significant growth in inlink revenues driven by increased customer connections , strong wireless subscriber roaming-related signaling activity and the growing trend among many telecommunication carriers to outsource all or a portion of their ss7 network , which was partially offset by a decrease in average per-transaction pricing consistent with our pricing strategy . our intelligent network services also experienced strong revenue growth as carriers increasingly utilized our enhanced ss7-based call features and functionality , most notably off-network database queries and local number portability . technology interoperability services revenues were $ 82.3 million for 2001 , a $ 13.4 million , or 19.4 % , increase over revenues for 2000 of $ 68.9 million . technology interoperability services revenue growth was driven primarily by strong access volume growth due to an increase in clearing transactions associated with continued industry-wide increases in wireless roaming telephone calls . this significant volume growth was partially offset by a slight decline in average per-transaction pricing consistent with our pricing strategy . in addition , access revenue management ( arms ) revenues rose due primarily to increased usage by existing customers . call processing services revenues were $ 65.2 million for 2001 , a $ 8.0 million , or 11.0 % , decrease from revenues for 2000 of $ 73.3 million . the revenue decline is primarily attributable to one customer 's decision to transition call processing functionality for its prepaid wireless service to its own internal solution . 27 other outsourcing services revenues were $ 39.3 million for 2001 , a $ 3.9 million , or 11.2 % , increase over revenues for 2000 of $ 35.4 million . revenue growth was mainly due to increased revenues from streamliner and win4 . win4 , which was developed exclusively as an interim solution for verizon , was phased out in 2001 according to plan . cost of operations was $ 169.0 million for 2001 , a $ 18.9 million , or 12.6 % , increase over the cost of operations for 2000 of $ 150.2 million . the cost increases were primarily due to the higher variable costs associated with transaction volume growth for off-network database queries and higher processing costs associated with increased revenues and volumes for the technology interoperability services . cost of operations as a percentage of revenues declined to 46.8 % in 2001 from 47.5 % in 2000. cost of operations ( excluding off-network database query charges ) declined to 34.2 % of revenues ( excluding off-network database query fees ) for 2001 from 35.6 %
| we experienced growth in inlink revenues driven by increased customer connections , strong wireless subscriber roaming-related signaling activity and the growing trend among many telecommunication carriers to outsource all or a portion of their ss7 network , which was partially offset by a decrease in average per-transaction pricing consistent with our pricing strategy . combined technology interoperability services revenues were $ 78.7 million for the twelve months ended december 31 , 2002 , a $ 3.6 million , or 4.4 % , decrease over the comparable 2001 period of $ 82.3 million . the revenue decline was due to decreased volumes primarily resulting from the loss of cingular wireless as a major customer for access . this decline was partially offset by increases in our arm and access s & e products . combined call processing services revenues were $ 52.8 million for the year ended december 31 , 2002 , a $ 12.5 million , or 19.1 % , decrease from the comparable 2001 period of $ 65.2 million . this decline is due to a lifecycle migration by carriers , who are moving off tsi 's call processor to implement ss7 connections between their own markets and their roaming partners ' markets . 25 combined other outsourcing services revenues were $ 20.3 million for the year ended december 31 , 2002 , a $ 19.0 million , or 48.4 % , decrease from the comparable 2001 period of $ 39.3 million . the revenue decline is primarily prepaid and hardware sales due to the transition of our telematic services , which was developed exclusively as an interim solution for verizon . cost of operations was $ 20.7 million in the period from january 1 , 2002 to february 13 , 2002 and $ 127.2 million in the period from february 14 , 2002 to december 31 , 2002. combined cost of operations was $ 147.9 million for the year ended december 31 , 2002. this represents a $ 21.1 million decrease , or 12.5 % , over the $ 169.0 million for the year ended december 31 , 2001. this cost reduction is primarily due
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target procedures in gynecology include da vinci hysterectomy ( “ dvh ” ) , for both cancer and benign conditions , and sacrocolpopexy . target procedures in general surgery include hernia repair ( both ventral and inguinal ) , colorectal procedures , and cholecystectomy . target procedures in urology 38 include da vinci prostatectomy ( “ dvp ” ) and partial nephrectomy . in cardiothoracic surgery , target procedures include da vinci lobectomy and da vinci mitral valve repair . in head and neck surgery , target procedures include certain procedures resecting benign and malignant tumors classified as t1 and t2 . not all the indications , procedures , or products described may be available in a given country or region or on all generations of da vinci surgical systems . patients need to consult the product labeling in their specific country and for each product in order to determine the actual authorized uses , as well as important limitations , restrictions , or contraindications . in 2016 , approximately 753,000 surgical procedures were performed with the da vinci surgical system , compared with approximately 652,000 and 570,000 procedures performed in 2015 and 2014 , respectively . the growth in our overall procedure volume in 2016 was driven by growth in u.s. general surgery procedures and worldwide urologic procedures . u.s. procedures overall u.s. procedure volume grew to approximately 563,000 in 2016 , compared with approximately 499,000 in 2015 , and approximately 449,000 in 2014 . gynecology is our largest u.s. surgical specialty and the procedure volume was approximately 246,000 in 2016 , compared with 238,000 in 2015 and 235,000 in 2014 . general surgery is our second largest and fastest growing specialty in the u.s. with procedure volume that grew to approximately 186,000 in 2016 , compared with approximately 140,000 in 2015 and 107,000 in 2014 . u.s. urology procedure volume was approximately 109,000 in 2016 , compared with approximately 102,000 in 2015 , and 91,000 in 2014 . procedures outside of the u.s. overall ous procedures grew to approximately 190,000 in 2016 , compared with approximately 153,000 in 2015 and approximately 121,000 in 2014 . procedure growth in most ous markets was driven largely by urology procedure volume . dvp procedure volume grew to approximately 92,000 in 2016 , compared with approximately 79,000 in 2015 , and approximately 65,000 in 2014 . partial nephrectomy , general surgery , and gynecologic oncology procedures also contributed to ous procedure growth . see “ recent business events and trends ” for further discussion on u.s. and ous procedures . business model overview we generate revenue from both the initial capital sales of da vinci surgical systems and from subsequent sales of instruments , accessories and service , as recurring revenue . the da vinci surgical system generally sells for approximately between $ 0.6 million and $ 2.5 million , depending upon the model , configuration and geography , and represents a significant capital equipment investment for our customers . we generate recurring revenue as our customers purchase our endowrist and single-site instrument and accessory products used in performing procedures with the da vinci surgical system . our instruments and accessories have a limited life and will either expire or wear out as they are used in surgery , at which point they need to be replaced . we typically enter into service contracts at the time systems are sold at an annual rate of approximately $ 80,000 to $ 170,000 , depending upon the configuration of the underlying system and composition of the services offered under the contract . these service contracts have generally been renewed at the end of the initial contractual service periods . recurring revenue recurring revenue has generally grown at a faster rate than system revenue in the last few fiscal years . recurring revenue increased to $ 1.9 billion , or 71 % of total revenue in 2016 , compared with $ 1.7 billion , or 70 % of total revenue in 2015 and $ 1.5 billion , or 70 % of total revenue in 2014 . the growth of recurring revenue and its increasing proportion of total revenue largely reflect continued procedure adoption on a growing base of installed da vinci surgical systems . the installed base of da vinci surgical systems has grown to approximately 3,919 at december 31 , 2016 , compared with 3,597 at december 31 , 2015 , and 3,266 at december 31 , 2014 . procedure mix / products our procedure business is primarily comprised of : ( 1 ) cancer and other highly complex procedures and ( 2 ) less complex procedures for benign conditions . cancer and other highly complex procedures tend to be reimbursed at higher rates than less complex procedures for benign conditions . thus , hospitals are more sensitive to the costs associated with treating less complex benign conditions . our strategy is to provide hospitals with attractive clinical and economic solutions in each of these procedure categories . our fully featured da vinci xi system with advanced instruments including the endowrist vessel sealer , endowrist stapler products , and our table motion product target the more complex procedure segment . lower priced products , including the three-arm da vinci si-e system , refurbished da vinci si , and single-site instruments , are targeted towards less complex procedures . 39 procedure seasonality more than half of da vinci procedures performed are for benign conditions , most notably benign hysterectomies , hernia repairs , and cholecystectomies . the proportion of these procedures for benign conditions has grown over time in relation to the total number of procedures performed . hysterectomies for benign conditions , hernia repairs , cholecystectomies , and other short-term elective procedures tend to be more seasonal than cancer operations and surgeries for other life threatening conditions . seasonality in the u.s. for these procedures for benign conditions typically results in higher fourth quarter procedure volume when more patients have met annual deductibles and lower first quarter procedure volume when deductibles are reset . story_separator_special_tag seasonality outside the u.s. varies but is often more pronounced around local holidays and vacation periods . distribution channels we provide our products through direct sales organizations in the u.s. , japan , south korea , and europe , excluding spain , portugal , italy , greece , and eastern european countries . in the remainder of our ous markets , we provide our products through distributors . intuitive surgical da vinci system leasing since 2013 , we have entered into sales-type and operating lease arrangements directly with certain qualified customers as a way to offer customers flexibility in how they acquire da vinci systems and expand da vinci surgery availability while leveraging our balance sheet . the leases generally have commercially competitive terms as compared with other third party entities that offer equipment leasing . we include both operating and sales-type leases in our system shipment and installed base disclosures . we exclude operating leases from our system average selling price computations . in the years ended december 31 , 2016 , 2015 , and 2014 , we shipped 95 , 63 , and 41 systems under lease arrangements , respectively , of which 62 , 43 , and 14 were classified as operating leases , respectively . generally , the operating lease arrangements provide our customers with the right to purchase the leased system sometime during or at the end of the lease term . revenue generated from customer purchases of systems under operating lease arrangements ( “ lease buyouts ” ) was $ 38.2 million , $ 9.4 million , and $ 0 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . we expect that revenue recognized from customer exercises of the buyout options will fluctuate based on the timing of when , and if , customers choose to exercise their buyout options . operating lease revenue for the years ended december 31 , 2016 , 2015 , and 2014 , was $ 16.6 million , $ 7.0 million and $ 1.3 million , respectively . as of december 31 , 2016 , 79 da vinci systems were installed at customers under operating lease arrangements . we believe our leasing program has been an effective and well-received , and we are willing to expand it based on customer demand . regulatory activities clearances and approvals we have obtained the clearances required to market our multiport products associated with all generations of our da vinci surgical systems ( standard , s , si , and xi systems ) for our targeted surgical specialties within the u.s. and most of the european markets in which we operate . in march 2014 , we received fda clearance to market our da vinci xi surgical system in the u.s. , our fourth generation da vinci surgical system ( see the description of the da vinci xi surgical system in the new product introductions section below ) . in june 2014 , we received ce mark clearance for our da vinci xi surgical system in europe . we received regulatory clearances for the da vinci xi surgical system in south korea in october 2014 and in japan in march 2015. the regulatory status of the da vinci xi surgical system in other ous markets varies by country . we also received fda clearance on an initial set of instruments for the xi surgical system in early 2014. later in 2014 , we received fda clearances for xi versions of our endowrist vessel sealer , firefly , and endowrist stapler 45. in september 2014 , we received fda clearance to market the wristed version of our single-site needle driver product for use on benign hysterectomy , cholecystectomy , and salpingo oophorectomy procedures . in the second quarter of 2015 , we received fda clearance for an additional set of da vinci xi instruments . in april 2015 , we received ce mark status to sell the endowrist stapler for the si and xi surgical systems in european markets . in june 2015 , we received ce mark clearance in europe and in january 2016 we received u.s. fda clearance for our integrated table motion product . in march 2016 , we received fda 510 ( k ) clearances in the u.s. for single-site instruments and the 30mm endowrist stapler products for the da vinci xi surgical system ( see the description of the endowrist stapler 30 in the new product introductions section below ) . in march 2016 , we also received ce mark clearances in europe for single-site instruments and the 30mm endowrist stapler products for the da vinci xi surgical system . in april 2014 , we received fda clearance to market our da vinci single port surgical system in the u.s. for single-port urologic surgeries . at the time , we decided not to market that version of the da vinci single port surgical system . we instead elected to pursue the necessary modifications to integrate it into the da vinci xi product family as a dedicated single port patient console compatible with the existing da vinci xi surgeon console , vision cart , and other equipment . we have since completed 40 these modifications and have begun clinical evaluations of the product . we plan to seek fda clearance ( s ) for this da vinci xi version of the da vinci single port surgical system for procedure ( s ) in which a single small entry point to the body and parallel delivery of instruments is important . such surgeries could include those performed through a natural orifice like the mouth for head and neck procedures or those performed through a single skin incision .
| million for the year ended december 31 , 2015 . operating income included $ 178.0 million and $ 168.1 million of share-based compensation expense related to employee stock plans for the years ended december 31 , 2016 , and 2015 , respectively . operating income for the year ended december 31 , 2016 , and 2015 , also included pre-tax litigation charges of $ 12.1 million and $ 13.2 million , respectively . as of december 31 , 2016 , we had $ 4.8 billion in cash , cash equivalents , and investments . cash , cash equivalents , and investments increased by $ 1.5 billion compared with december 31 , 2015 , primarily as a result of cash provided by operating activities and employee stock option exercises . results of operations the following table sets forth , for the years indicated , certain consolidated statements of income information ( in millions , except percentages ) : 44 replace_table_token_4_th total revenue total revenue was $ 2.7 billion for the year ended december 31 , 2016 , and increased by 13 % compared with $ 2.4 billion for the year ended december 31 , 2015 . total revenue for the year ended december 31 , 2015 , increased by 12 % compared with $ 2.1 billion for the year ended december 31 , 2014 . the increase in total revenue for the year ended december 31 , 2016 , reflects 15 % higher recurring revenue driven by approximately 15 % higher procedure volume , and 10 % higher systems revenue . the increase in total revenue for the year ended december 31 , 2015 , reflects 14 % higher systems revenue and 11 % higher recurring revenue driven by approximately 14 % higher procedure volume . we sell our products and services in euros and british pounds in those european markets where we have direct distribution channels , and in japanese yen and korean won in japan and south korea , respectively . foreign currency did not have a material impact
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the bank is also active in the origination and sale of residential mortgage loans and the origination of small business loans . the residential mortgage loans are originated for sale to third-party investors , generally large mortgage and banking companies , under firm commitments by the investors to purchase the loans subject to compliance with pre-established investor criteria . the guaranteed portion of small business loans is typically sold through the small business administration , in a transaction apart from the loan 's origination . bethesda leasing , llc , a subsidiary of the company holds title to and manages other real estate owned ( `` oreo '' ) assets . eagle insurance services , llc , a subsidiary of the bank markets insurance products and services through an arrangement with a third party insurance broker . ecv , a subsidiary of the company provides , subordinated financing for the acquisition , development and construction of real estate projects . this lending involves higher levels of risk , together with commensurate expected returns . in spite of the official measures of economic activity signaling an end to the recession in june 2010 , generally weak economic conditions persisted in the u.s. economy throughout 2010 , with unemployment levels remaining high , real estate values remaining a concern , home foreclosure problems , and personal income levels being only modestly higher . average interest rates during 2010 declined as compared to 2009 , although interest rates began increasing late in 2010 , in response to market concerns about inflation . 32 the company 's primary market , the washington , d.c. metropolitan area , has been relatively less impacted by the severe recessionary climate than other parts of the country , due in part to the significant economic impact of the federal government , a highly educated work force and a diverse economy . the slowdown in the economy was less severe in the company 's marketplace than many other areas of the country , and has to a lesser extent impacted the company 's customers and business . however , the company has had the resources and has remained committed to meeting the credit needs of its community , resulting in ongoing growth in its loan portfolio . the company believes its strategies during the difficult economic times of the past few years is providing substantial new relationships , in addition to fostering future growth opportunities . in this less than ideal operating environment , the company was able to produce positive earnings in each quarter of 2010 , continuing a trend of eight quarters of increasing net income through the fourth quarter of 2010. the company did not make subprime residential mortgage loans to retail customers , did not invest in private label mortgage backed securities , securities backed by subprime or alt a mortgages , and was not a major lender to home builders , factors which have negatively impacted many banking companies throughout the u.s and the region . critical accounting policies the company 's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) and follow general practices within the banking industry . application of these principles requires management in certain circumstances to make estimates , assumptions , and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the consolidated financial statements . as this information changes , the consolidated financial statements could reflect different estimates , assumptions , and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions , and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset warrants an impairment write-down or a valuation reserve to be established , or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for investment securities available-for-sale are based either on quoted market prices or are provided by other third-party sources , when available . the company 's investment portfolio is categorized as available-for-sale with unrealized gains and losses net of tax being a component of stockholders ' equity and comprehensive income . refer to the fair value disclosures at page 46and note 18 to the consolidated financial statements at page 107 for further discussion of the carrying value of the investment portfolio and certain loans . the allowance for credit losses is an estimate of the losses that may be sustained in our loan portfolio . the allowance is based on two principles of accounting : ( a ) asc topic 450 , `` contingencies , '' which requires that losses be accrued when they are probable of occurring and are estimable and ( b ) asc topic 310 , `` receivables , '' which requires that losses be accrued when it is probable that the company will not collect all principal and interest payments according to the contractual terms of the loan . the loss , if any , can be determined by the difference between the loan balance and the value of collateral , the present value of expected future cash flows , or values observable in the secondary markets . 33 three components comprise our allowance for credit losses : a specific allowance , a formula allowance and a nonspecific or environmental factors allowance . each component is determined based on estimates that can and do change when actual events occur . the specific allowance allocates a reserve to identified impaired loans . loans identified in the risk rating evaluation as substandard , doubtful and loss ( classified loans ) , are segregated from non-classified loans . story_separator_special_tag classified loans are assigned specific reserves based on an impairment analysis . under asc topic 310 , `` receivables , '' a loan for which reserves are individually allocated may show deficiencies in the borrower 's overall financial condition , payment record , support available from financial guarantors and the fair market value of collateral . when a loan is identified as impaired , a specific reserve ( if any ) is established based on the company 's assessment of the loss that may be associated with the individual loan . the formula allowance is used to estimate the loss on internally risk rated loans , exclusive of those identified as impaired . the portfolio of unimpaired loans is stratified by loan type and risk assessment . allowance factors relate to the type of loan and level of the internal risk rating , with loans exhibiting higher risk and loss experience receiving a higher allowance factor . the formula allowance takes into account historical loss experience as one factor in the analyses of reserve adequacy . the environmental allowance is used to estimate the loss associated with pools of non-classified loans . these non-classified loans are also stratified by loan type , and environmental allowance factors are assigned by management based upon a number of conditions , including delinquencies , loss history , changes in lending policy and procedures , changes in business and economic conditions , changes in the nature , volume and loan sizes within the portfolio , management expertise , concentrations within the portfolio , quality of internal and external loan review systems , competition , and legal and regulatory requirements . the allowance captures losses inherent in the portfolio which have not yet been recognized . allowance factors and the overall size of the allowance may change from period to period based upon management 's assessment of the above described factors , the relative weights given to each factor , and portfolio composition . management has significant discretion in making the judgments inherent in the determination of the provision and allowance for credit losses , including , in connection with the valuation of collateral , a borrower 's prospects of repayment , and in establishing allowance factors on the formula allowance and environmental allowance components of the allowance . the establishment of allowance factors involves a continuing evaluation , based on management 's ongoing assessment of the global factors discussed above and their impact on the portfolio . the allowance factors may change from period to period , resulting in an increase or decrease in the amount of the provision or allowance , based upon the same volume and classification of loans . changes in allowance factors can have a direct impact on the amount of the provision , and a related after tax effect on net income . errors in management 's perception and assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio , and may result in additional provisions or charge-offs . alternatively , errors in management 's perception and assessment of the global factors and their impact on the portfolio could result in the allowance being in excess of amounts necessary to cover losses in the portfolio , and may result in lower provisions in the future . for additional information regarding the allowance for credit losses , refer to the discussion under the caption `` allowance for credit losses '' at page 50. the company follows the provisions of asc topic 718 `` compensation , '' which requires the expense recognition over a service period for the fair value of share based compensation awards , such as stock options , restricted stock , and performance based shares . this standard allows management to establish modeling assumptions as to expected stock price volatility , option terms , forfeiture rates and dividend rates which directly impact estimated fair value . the accounting standard also allows for the use of alternative option pricing models which may impact fair value as determined . the company 's practice is to utilize reasonable and supportable assumptions which are reviewed with the appropriate board committee . 34 in accounting for the acquisition of fidelity and its subsidiary f & t bank , the company followed the provisions of asc topic 805 `` business combinations , '' which mandates the use of the purchase method of accounting and asc topic 310-30 , `` loans and debt securities acquired with deteriorated credit quality . '' accordingly , the tangible assets and liabilities and identifiable intangibles acquired were recorded at their respective fair values on the date of acquisition , with any impaired loans acquired being recorded at fair value outside the allowance for loan losses . the valuation of the loan and time deposit portfolios acquired were made by independent analysis for the difference between the instruments ' stated interest rates and the instruments ' current origination interest rate , with premiums and discounts being amortized to interest income and interest expense to achieve an effective market interest rate . an identified intangible asset related to core deposits was recorded based on independent valuation . deferred tax assets were recorded for the future value of a net operating loss and for the tax effect of temporary timing differences between the accounting and tax basis of assets and liabilities . the company recorded an unidentified intangible ( goodwill ) for the excess of the purchase price of the acquisition ( including direct acquisition costs ) over the fair value of net tangible and identifiable intangible assets acquired . see `` allowance for credit losses '' at page 50 , `` nonperforming assets '' at page 53 , `` intangible assets '' at page 56 , and note 4 `` loans and allowance for credit losses '' to the consolidated financial statements , for further information on the acquisition of fidelity .
| per basic share were $ 0.24 for the three months ended december 31 , 2010 , as compared to $ 0.12 for 2009. earnings per diluted common shares were $ 0.23 for the three months ended december 31 , 2010 and $ 0.12 for the same period in 2009. the company had a return on average assets of 0.86 % and a return on average common equity of 8.74 % for the year of 2010 , as compared to returns on average assets and average equity of 0.65 % and 6.60 % , respectively , for the year of 2009 and 0.69 % and 8.05 % , respectively , for the year of 2008. the company 's earnings are largely dependent on net interest income , which represented 89 % of total revenue ( defined as net interest income plus non interest income ) in 2010 and 2009. for the twelve months ended december 31 , 2010 , the net interest margin , which measures the difference between interest income and interest expense ( i.e . net interest income ) as a percentage of earning assets increased from 3.85 % for the twelve months ended december 31 , 2009 to 4.09 % for the twelve months ended 35 december 31 , 2010. the higher margin for 2010 as compared to 2009 was due to lower funding costs for both deposits and borrowings more than offsetting declines in earning asset yields . higher average federal funds sold during the year ended december 31 , 2010 , as compared to the same period in 2009 , contributed to the lower earning asset yields , as did lower yields on investment securities , due to lower market interest rates and the impact of investment sales . the benefit of noninterest sources funding earning assets declined by 12 basis points to 36 basis points for the twelve months ended december 31 , 2010 as compared to 48 basis points for the same period in 2009 ,
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at the end of the license term , customers may renew their subscription and in each year since the launch of our first solution in 2003 , we have maintained a renewal rate with our existing customers of over 90 % . we derive this retention rate by calculating the total annually recurring subscription revenue from customers currently using our saas platform and dividing it by the total annually recurring subscription revenue from both these current customers as well as all business lost through non-renewal . a growing number of our customers increase their annual subscription fees after their initial purchase by broadening their use of our platform or by adding more users , and these sales have consistently represented greater than 15 % of our billings each year since 2008. we market and sell our solutions worldwide both directly through our sales teams and indirectly through a hybrid model where our sales organization actively assists our network of distributors and resellers . we also derive a lesser portion of our total revenue from the license of our solutions to strategic partners who offer our solutions in conjunction with one or more of their own products or services . our solutions are designed to be implemented , configured and operated without the need for any training or professional services . for those customers that seek to develop deeper expertise in the use of our solutions or would like assistance with complex configurations or the importing of data , we offer various training and professional services . in some cases , we provide a hardware appliance to those customers that elect to host elements of our solution behind their firewall . increasing adoption of virtualization in the data center has led to a decline in the sales of our hardware appliances and a shift towards our software-based virtual appliances , which are delivered as a download via the internet . our hardware and services offerings carry lower margins and are provided as a courtesy to our customers . we expect the overall proportion of revenue derived from the hardware and services offerings to generally remain below 10 % of our total revenue . historically , the majority of our revenue is derived from our customers in the united states . we believe the markets outside of the united states offer an opportunity for growth and we intend to make additional investments in sales and marketing to expand in these markets . revenue from customers outside of the united states grew 24 % for the year ended december 31 , 2015 as compared to prior year . in terms of customer concentration , there were no individual customers or partners that accounted for more than 10 % of our total revenue for the year ended december 31 , 2015. we have not been profitable to date and will need to grow revenue at a rate faster than our investments in cost of revenue and operating expenses in order to achieve profitability , as discussed in more detail below . key opportunities and challenges the majority of costs associated with generating customer agreements are incurred up front . these upfront costs include direct incremental sales commissions , which are recognized upon the billing of the contract . the costs associated with the teams tasked with closing business with new customers and additional business with our existing customers have represented more than 90 % of our total sales and marketing costs since 2008. although we expect customers to be profitable over the duration of the customer relationship , these upfront costs typically exceed related revenue during the earlier periods of a contract . as a result , while our practice of invoicing our customers for the entire amount of the contract at the start of the term provides us with a relatively immediate contribution to cash flow , the revenue is recognized ratably over the term of the contract , and hence contributions toward operating income are limited in the period where these sales and marketing costs are 38 incurred . accordingly , an increase in the mix of new customers as a percentage of total customers would likely negatively impact our near-term operating results . on the other hand , we expect that an increase in the mix of existing customers as a percentage of total customers would positively impact our operating results over time . as we accumulate customers that continue to renew their contracts , we anticipate that our mix of existing customers will increase , contributing to a decrease in our sales and marketing costs as a percentage of total revenue and a commensurate improvement in our operating income . as part of maintaining our saas platform , we provide ongoing updates and enhancements to the platform services both in terms of the software as well as the underlying hardware and data center infrastructure . these updates and enhancements are provided to our customers at no additional charge as part of the subscription fees paid for the use of our platform . while more traditional products eventually become obsolete and require replacement , we are constantly updating and maintaining our cloud-based services and as such they operate with a continuous product life cycle . much of this work is designed to both maintain and enhance the customers ' experience over time while also lowering our costs to deliver the service . our saas platform is a shared infrastructure that is used by all of our customers . accordingly , the costs of the platform are spread in a relatively uniform manner across the entire customer base and no specific infrastructure elements are directly attached to any particular customer . story_separator_special_tag as such , in the event that a customer chooses to not renew its subscription , the underlying resources are reallocated either to new customers or to accommodate the expanding needs of our existing customers and , as a result , we do not believe that the loss of any particular customer has a meaningful impact on our gross profit as long as we continue to grow our customer base . to date , our customers have primarily used our solutions in conjunction with email messaging content . we have developed solutions to address the new and evolving messaging solutions such as social media and file sharing applications , but these solutions are relatively nascent . if customers increase their use of these new messaging solutions in the future , we anticipate that our growth in revenue associated with email messaging solutions may slow over time . although revenue associated with our social media and file sharing applications has not been material to date , we believe that our ability to provide security , archiving , governance and discovery for these new solutions will be viewed as valuable by our existing customers , enabling us to derive revenue from these new forms of messaging and communication . while the majority of our current and prospective customers run their email systems on premise , we believe that there is a trend for large and mid-sized enterprises to migrate these systems to the cloud . while our current revenue derived from customers using cloud-based email systems continues to grow as a percentage of our total revenue , many of these cloud-based email solutions offer some form of threat protection and governance services , potentially mitigating the need for customers to buy these capabilities from third parties such as ourselves . we believe that we can continue to provide security , archiving , governance , and discovery solutions that are differentiated from the services offered by cloud-based email providers , and as such our platform will continue to be viewed as valuable to enterprises once they have migrated their email services to the cloud , enabling us to continue to derive revenue from this new trend toward cloud-based email deployment models . with the majority of our business , we invoice our customers for the entire contract amount at the start of the term and these amounts are recorded as deferred revenue on our balance sheet , with the dollar weighted average duration of these contracts for any given period over the past three years typically ranging from 15 to 22 months . as a result , while our practice of invoicing customers for the entire amount of the contract at the start of the term provides us with a relatively immediate contribution to cash flow , the revenue is recognized ratably over the term of the contract , and hence contributions toward operating income are realized over an extended period . as such , our efforts to improve our profitability require us to invest far less in operating expenses than the cash flow generated by our business might otherwise allow . as we strive to invest in an effort to continue to increase the size and scale of our business , we expect that the level of investment afforded by our growth in revenue should be sufficient to fund the investments needed to drive revenue growth and broaden our product line . considering all of these factors , we do not expect to be profitable based on accounting principles generally accepted in the unites states of america , or gaap , basis in the near term and in order to achieve profitability we will need to grow revenue at a rate faster than our investments in operating expenses and cost of revenue . we intend to grow our revenue through acquiring new customers by investing in our sales and marketing activities . we believe that an increase in new customers in the near term will result in a larger base of renewal customers , which , over time we expect to be more profitable for us . sales and marketing is our largest expense and hence a significant contributing factor to our operating losses . given that our costs to acquire new revenue sources , either in the form of new customers or the sale of additional solutions to existing customers , often exceed the actual revenue recognized in the initial periods , we believe that our opportunity to improve our return on investment in sales and marketing costs relies primarily on our ongoing ability to cost-effectively renew our business with existing customers , thereby lowering our overall sales and marketing costs as a percentage of revenue as the mix of 39 revenue derived from this more profitable renewal activity increases over time . therefore , we anticipate that our initial significant investments in sales and marketing activities will over time generate a larger base of more profitable customers . cost of subscription revenue is also a significant expense for us , and we expect to continue to build on the improvements over the past three years , such as in replacing third-party technology with our proprietary technology and improving the utilization of our fixed investments in equipment and infrastructure , in order to provide the opportunity for improved subscription gross margins over time . although we plan to continue enhancing our solutions , we intend to lower our rate of investment in research and development as a percentage of revenue over time by deriving additional revenue from our existing platform of solutions rather than by adding entirely new categories of solutions . in addition , as personnel costs are one of the primary drivers of the increases in our operating expenses , we plan to reduce our historical rate of headcount growth over time . key metrics we regularly review a number of metrics , including the following key metrics presented in the table below , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions .
| the number of units sold in 2014 increased 76 % as compared to 2013. cost of revenue replace_table_token_14_th cost of subscription revenue increased $ 18.6 million , or 35 % , in 2015 as compared to 2014. the increase in 2015 was primarily due to an increase in operations-related expense of $ 12.4 million as a result of increased headcount , depreciation expense as a result of higher capital expenditures to support our growth , and amortization of intangible assets expense of developed technology from the acquisitions . additionally , support-related expenses increased $ 4.8 million primarily due to higher headcount and consulting costs . data center costs increased $ 1.6 million primarily due to subscription revenue growth in our cloud-based solutions . cost of subscription revenue increased $ 17.7 million , or 50 % , in 2014 as compared to 2013. the increase in 2014 was primarily due to an increase in operations-related expense of $ 8.9 million as a result of increased headcount , depreciation expense as a result of higher capital expenditures to support our growth , and intangible amortization expense of developed technology from the acquisitions . additionally , support-related expenses increased $ 3.9 million primarily due to higher headcount and consulting costs . data center costs increased $ 3.0 million primarily due to subscription revenue growth in our cloud-based solutions . royalty expense increased $ 1.7 million in 2014 as compared to 2013 due to an increase in related revenues , primarily from sendmail acquisition . the change in hardware and services cost was not material in 2015 as compared to 2014. cost of hardware and services revenue increased $ 6.4 million , or 105 % , in 2014 as compared to 2013 primarily due to increases in hardware cost of $ 1.9 million as a result of more units sold as well as $ 4.5 million from increased headcount-related and consulting costs due to the increase in revenue . operating expenses replace_table_token_15_th research and development expenses increased $ 22.6 million and $ 17.5 million , or 43 % and 51 % , for 2015 and 2014 , respectively . the increases were primarily due to personnel-related costs of $ 19.9 million and $ 14.3
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net loss per common share net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding , excluding shares subject to possible redemption , for the period . the weighted average common shares issued and outstanding , excluding shares subject to possible redemption , of 8,080,989 for the period from july 25 , 2014 ( inception ) to december 31 , 2014 takes into effect the 8,625,000 shares issued on july 24 , 2014 to the sponsor ; the 1,725,000 founder shares forfeited as a result of a reduction in the size of the public offering on october 1 , 2014 , the aggregate of 60,000 shares transferred by the sponsor to david gong , p. sue perrotty and dr. robert j. froehlich ( our independent directors ) , on october 1 , 2014 ; 24,000,000 shares sold in our initial public offering and outstanding since october 7 , 2014 ; and the aggregate of 900,000 founder shares forfeited by the initial stockholders on december 4 , 2014 as a result of the underwriters ' election not to exercise their over-allotment option in connection with our initial public offering . the 18,550,000 warrants related to our initial public offering and the sale of the private placement warrants are contingently issuable shares and are excluded from the calculation of diluted earnings per share because they are anti-dilutive . redeemable common stock all of the 24,000,000 shares of common stock sold as part of the units in our initial public offering contain a redemption feature which allows for the redemption of such shares under our liquidation or tender offer/stockholder approval provisions . in accordance with fasb asc 480 , redemption provisions not solely within our control require the security to be classified outside of permanent equity . ordinary liquidation events , which involve the redemption and liquidation of all of the entity 's equity instruments , are excluded from the provisions of fasb asc 480. although we did not specify a maximum redemption 30 threshold , our charter provides that in no event will we redeem the units sold in our initial public offering in an amount that would cause our net tangible assets ( stockholders ' equity ) to be less than $ 5,000,001 . we recognize changes in redemption value immediately as they occur and will adjust the carry value of the security to equal the redemption value at the end of each reporting period . increases or decreases in the carrying amount of redeemable common stock shall be affected by charges against additional paid-in capital in accordance with asc 480. fair value of financial instruments the fair value of our assets and liabilities , which qualify as financial instruments under fasb asc 820 , “ fair value measurements and disclosures , ” approximates the carrying amounts represented in the balance sheet . offering costs we comply with the requirements of fasb asb 340-10-s99-1 and sec staff accounting bulletin ( sab ) topic 5a - `` expenses of offering '' . offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the initial public offering and that were charged to stockholder 's equity upon the completion of the initial public offering . offering costs of $ 13,294,182 ( including $ 13,200,000 in underwriting commissions and advisory fees and $ 94,182 in fees in connection with the initial public offering , which is net of reimbursable offering expenses of $ 500,000 ) have been charged to stockholders ' equity . organizational costs organizational costs include accounting and legal fees and the costs of incorporation . these costs are expensed as incurred . for the period of july 25 , 2014 ( inception ) to december 31 , 2014 , we have incurred organizational costs of $ 22,979. use of estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . income taxes we comply with the accounting and reporting requirements of financial accounting standards board accounting standard codification ( `` fasb asc '' ) 740 , “ income taxes , ” which requires an asset and liability approach to financial accounting and reporting for income taxes . deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts , based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income . a valuation allowance is established when necessary to reduce deferred tax assets when it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized . at december 31 , 2014 , we have a deferred tax asset of approximately $ 134,876 related to startup costs , organizational costs , and net operating loss . management has determined that a full valuation allowance of the deferred tax asset is appropriate at this time.fasb interpretation no . 48 , `` accounting for uncertainty in income taxes '' ( fin 48 ) ( now incorporated into fasb asc 740 , income taxes ) , sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions . this interpretation uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not to be sustained upon examination by taxing authorities . the amount of the benefit is then measured to be the highest tax benefit that is greater than 50 % likely to be realized . based on its analysis , we story_separator_special_tag net loss per common share net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding , excluding shares subject to possible redemption , for the period . the weighted average common shares issued and outstanding , excluding shares subject to possible redemption , of 8,080,989 for the period from july 25 , 2014 ( inception ) to december 31 , 2014 takes into effect the 8,625,000 shares issued on july 24 , 2014 to the sponsor ; the 1,725,000 founder shares forfeited as a result of a reduction in the size of the public offering on october 1 , 2014 , the aggregate of 60,000 shares transferred by the sponsor to david gong , p. sue perrotty and dr. robert j. froehlich ( our independent directors ) , on october 1 , 2014 ; 24,000,000 shares sold in our initial public offering and outstanding since october 7 , 2014 ; and the aggregate of 900,000 founder shares forfeited by the initial stockholders on december 4 , 2014 as a result of the underwriters ' election not to exercise their over-allotment option in connection with our initial public offering . the 18,550,000 warrants related to our initial public offering and the sale of the private placement warrants are contingently issuable shares and are excluded from the calculation of diluted earnings per share because they are anti-dilutive . redeemable common stock all of the 24,000,000 shares of common stock sold as part of the units in our initial public offering contain a redemption feature which allows for the redemption of such shares under our liquidation or tender offer/stockholder approval provisions . in accordance with fasb asc 480 , redemption provisions not solely within our control require the security to be classified outside of permanent equity . ordinary liquidation events , which involve the redemption and liquidation of all of the entity 's equity instruments , are excluded from the provisions of fasb asc 480. although we did not specify a maximum redemption 30 threshold , our charter provides that in no event will we redeem the units sold in our initial public offering in an amount that would cause our net tangible assets ( stockholders ' equity ) to be less than $ 5,000,001 . we recognize changes in redemption value immediately as they occur and will adjust the carry value of the security to equal the redemption value at the end of each reporting period . increases or decreases in the carrying amount of redeemable common stock shall be affected by charges against additional paid-in capital in accordance with asc 480. fair value of financial instruments the fair value of our assets and liabilities , which qualify as financial instruments under fasb asc 820 , “ fair value measurements and disclosures , ” approximates the carrying amounts represented in the balance sheet . offering costs we comply with the requirements of fasb asb 340-10-s99-1 and sec staff accounting bulletin ( sab ) topic 5a - `` expenses of offering '' . offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the initial public offering and that were charged to stockholder 's equity upon the completion of the initial public offering . offering costs of $ 13,294,182 ( including $ 13,200,000 in underwriting commissions and advisory fees and $ 94,182 in fees in connection with the initial public offering , which is net of reimbursable offering expenses of $ 500,000 ) have been charged to stockholders ' equity . organizational costs organizational costs include accounting and legal fees and the costs of incorporation . these costs are expensed as incurred . for the period of july 25 , 2014 ( inception ) to december 31 , 2014 , we have incurred organizational costs of $ 22,979. use of estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . income taxes we comply with the accounting and reporting requirements of financial accounting standards board accounting standard codification ( `` fasb asc '' ) 740 , “ income taxes , ” which requires an asset and liability approach to financial accounting and reporting for income taxes . deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts , based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income . a valuation allowance is established when necessary to reduce deferred tax assets when it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized . at december 31 , 2014 , we have a deferred tax asset of approximately $ 134,876 related to startup costs , organizational costs , and net operating loss . management has determined that a full valuation allowance of the deferred tax asset is appropriate at this time.fasb interpretation no . 48 , `` accounting for uncertainty in income taxes '' ( fin 48 ) ( now incorporated into fasb asc 740 , income taxes ) , sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions . this interpretation uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not to be sustained upon examination by taxing authorities . the amount of the benefit is then measured to be the highest tax benefit that is greater than 50 % likely to be realized . based on its analysis , we
| all of our funds in the trust account are invested in permitted united states “ government securities ” within the meaning of section 2 ( a ) ( 16 ) of the investment company act , having a maturity of 180 days or less or in money market funds meeting certain conditions under rule 2a-7 promulgated under the investment company act which invest only in direct u.s. government treasury obligations . we have entered into an agreement to pay rcs advisory a total of $ 10,000 per month for office space , utilities , secretarial support and administrative services commencing on the date our securities were first listed on nasdaq . we also entered into an agreement to pay our sponsor an amount not to exceed $ 15,000 per month as reimbursement for a portion of the compensation paid to its personnel , including certain of our officers , who work on our behalf , commencing on the date our securities were first listed on nasdaq . upon completion of our initial business combination or our liquidation , we will cease paying these monthly fees . for the period from july 25 , 2014 ( inception ) through december 31 , 2014 , we have incurred a total of $ 74,193 under these agreements , which comprised of $ 29,677 payable to rcs advisory and $ 44,516 payable to our sponsor . liquidity and capital resources for the period from july 25 , 2014 ( inception ) through december 31 , 2014 , we disbursed an aggregate of approximately $ 110,604 out of the proceeds of our initial public offering not held in trust , for legal and accounting fees and filing fees relating to our sec reporting obligations and general corporate matters , and miscellaneous expenses . 29 we believe that we have sufficient available funds outside of the trust account to operate through october 7 , 2016 , assuming that a business combination is not consummated during that time . however , we can not assure you that this will be the case . over this time period , we currently
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in december 2015 , the company received a net cash amount of $ 1,609,349 from the sale of its state nols and research and development tax credits for the period ended october 31 , 2014. in the year ended october 31 , 2014 , we received a net cash amount of $ 625,563 from the sale of its state nols and research and development tax credits for the periods ended october 31 , 2010 and 2011. in december 2014 , we received a net cash amount of $ 1,731,317 from the sale of our state nols and research and development tax credits for the years ended october 31 , 2012 and 2013. net loss we reported a net loss of $ 47.0 million , or $ 1.68 per share basic and diluted for the year ended october 31 , 2015 as compared to a net loss of $ 16.5 million , or $ 0.97 per share basic and diluted , for the year ended october 31 , 2014 . 32 liquidity and capital resources our major sources of cash have been proceeds from various public and private offerings of our common stock and option and warrant exercises . from october 2013 through october 2015 , we raised approximately $ 166.5 million in gross proceeds from various public and private offerings of our common stock . we have not yet commercialized any drug , and we may not become profitable . our ability to achieve profitability depends on a number of factors , including our ability to complete our development efforts , obtain regulatory approvals for our drug , successfully complete any post-approval regulatory obligations , successfully compete with other available treatment options in the marketplace , overcome any clinical holds that the fda may impose and successfully manufacture and commercialize our drug alone or in partnership . we may continue to incur substantial operating losses even after we begin to generate revenues from our drug candidates . we believe our current cash position is sufficient to fund our business plan approximately through calendar year end 2017. the actual amount of cash that we will need to operate is subject to many factors . since our inception through october 31 , 2015 , we reported accumulated net losses of approximately $ 134.1 million and recurring negative cash flows from operations . we anticipate that we will continue to generate significant losses from operations for the foreseeable future . cash used in operating activities for the year ended october 31 , 2015 was approximately $ 24.1 million ( including proceeds from the sale of our state nols and r & d tax credits of approximately $ 1.7 million ) primarily from spending associated with our clinical trial programs and general and administrative spending . cash used in operating activities for the year ended october 31 , 2014 was approximately $ 16.0 million ( including proceeds from the sale of our state nols and r & d tax credits of approximately $ 0.6 million ) primarily from spending associated with our clinical trial programs and general and administrative spending . total spending approximated $ 13.9 million , including one-time non-recurring costs associated with our october 2013 financing , march 2014 financing , certain compensation costs and the settlement of legal claims . cash used in investing activities for the year ended october 31 , 2015 was approximately $ 47.4 million resulting from investments in held-to-maturity investments , purchases of property and equipment to support expansion , legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . cash used in investing activities , for the year ended october 31 , 2014 , was approximately $ 440,000 resulting from legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . cash provided by financing activities for the year ended october 31 , 2015 was approximately $ 120.5 million , resulting primarily from registered direct offerings of 8,806,165 shares of our common stock resulting in net proceeds of approximately $ 63.1 million and a public offering of 2,800,000 shares of common stock resulting in net proceeds of approximately $ 56.7 million . in addition , the company received approximately $ 2.4 million from the proceeds received on option and warrant exercises . this was partially offset by approximately $ 1.6 million of taxes paid related to the net share settlement of equity awards . cash provided by financing activities , for the year ended october 31 , 2014 , was approximately $ 13.6 million , primarily resulting from the public offering of 4,692,000 shares of common stock at $ 3.00 per share , resulting in net proceeds of $ 12.6 million . in addition , we sold 306,122 shares of common stock to aratana at a price of $ 4.90 per share , resulting in net proceeds of approximately $ 1.5 million . we also issued gbp 108,724 shares of common stock pursuant to a stock purchase agreement with gbp , resulting in net proceeds of approximately $ 0.4 million . this was partially offset by approximately $ 0.9 million of taxes paid related to the net share settlement of equity awards . our capital resources and operations to date have been funded primarily with the proceeds from public , private equity and debt financings , nol tax sales and income earned on investments and grants . we have sustained losses from operations in each fiscal year since our inception , and we expect losses to continue for the indefinite future , due to the substantial investment in research and development . story_separator_special_tag as of october 31 , 2015 and october 31 , 2014 , we had an accumulated deficit of $ 134,054,259 and $ 86,991,137 , respectively and shareholders ' equity of $ 115,598,875 and $ 20,629,986 , respectively . the company believes its current cash position is sufficient to fund its business plan approximately through calendar year end 2017. we have based this estimate on assumptions that may prove to be wrong , and we could use available capital resources sooner than currently expected . because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates , we are unable to estimate the amount of increased capital outlays and operating expenses associated with completing the development of our current product candidates . the company recognizes it may need to raise additional capital in order to continue to execute its business plan . there is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the company or whether the company will become profitable and generate positive operating cash flow . if the company is unable to raise sufficient additional funds , it will have to scale back its business plan , extend payables and reduce overhead until sufficient additional capital is raised to support further operations . there can be no assurance that such a plan will be successful . off-balance sheet arrangements as of october 31 , 2015 , we had no off-balance sheet arrangements . critical accounting estimates the preparation of financial statements in accordance with gaap accepted in the u.s. requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : ● it requires assumptions to be made that were uncertain at the time the estimate was made , and ● changes in the estimate of difference estimates that could have been selected could have material impact in our results of operations or financial condition . 33 while we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances , actual results could differ from those estimates and the differences could be material . the most significant estimates impact the following transactions or account balances : stock compensation , warrant liability valuation and impairment of intangibles . revenue recognition the company derived all of its revenue in 2014 from patent licensing . in general , these revenue arrangements provide for the payment of contractually determined fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the company . the intellectual property rights granted may be perpetual in nature , or upon the final milestones being met , or can be granted for a defined , relatively short period of time , with the licensee possessing the right to renew the agreement at the end of each contractual term for an additional minimum upfront payment . the company recognizes licensing fees when there is persuasive evidence of a licensing arrangement , fees are fixed or determinable , delivery has occurred and collectability is reasonably assured . an allowance for doubtful accounts is established based on the company 's best estimate of the amount of probable credit losses in the company 's existing license fee receivables , using historical experience . the company reviews its allowance for doubtful accounts periodically . past due accounts are reviewed individually for collectability . account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote . to date , this is yet to occur . if product development is successful , the company will recognize revenue from royalties based on licensees ' sales of its products or products using its technologies . royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured . if royalties can not be reasonably estimated or collectability of a royalty amount is not reasonably assured , royalties are recognized as revenue when the cash is received . the company recognizes revenue from milestone payments received under collaboration agreements when earned , provided that the milestone event is substantive , its achievability was not reasonably assured at the inception of the agreement , the company has no further performance obligations relating to the event and collection is reasonably assured . if these criteria are not met , the company recognizes milestone payments ratably over the remaining period of the company 's performance obligations under the collaboration agreement . all such recognized revenues are included in collaborative licensing and development revenue in the company 's consolidated statements of operations . stock based compensation we account for stock-based compensation using fair value recognition and record stock-based compensation as a charge to earnings net of the estimated impact of forfeited awards . as such , we recognize stock-based compensation cost only for those stock-based awards that are estimated to ultimately vest over their requisite service period , based on the vesting provisions of the individual grants . the process of estimating the fair value of stock-based compensation awards and recognizing stock-based compensation cost over their requisite service period involves significant assumptions and judgments .
| in addition , stock based compensation costs rose by approximately $ 5.0 million due to a rise in our share price and an increase in the number of shares awarded as a result of an increased headcount . we anticipate a significant increase in research and development expenses on a continuous basis as a result of our intended expanded development and commercialization efforts primarily related to clinical trials and product development . in addition , we expect to incur expenses in the development of strategic and other relationships required to license , manufacture and distribute our product candidates when they are approved . general and administrative expenses general and administrative expenses primarily include salary and benefit costs for employees included in our finance , legal and administrative organizations , outside legal and professional services , and facilities costs . general and administrative expense was $ 24.5 million for the year ended october 31 , 2015 , compared with $ 11.9 million for the year ended october 31 , 2014 , an increase of $ 12.6 million . the increase was due to greater stock based compensation costs of approximately $ 11.0 million attributable to a rise in our share price and an increase in the number of shares awarded as a result of an increased headcount . furthermore , greater legal costs of approximately $ 0.6 million for consultation on a variety of corporate matters and $ 1.4 million in cash payments for investor relations . the aforementioned was partially offset by $ 0.5 million in severance costs related to a former employee in the prior period . we anticipate general and administrative expenses in the near term to remain comparable to current levels , exclusive of the impact of future stock awards . interest income interest income was $ 114,219 for the year ended october 31 , 2015 , compared with $ 36,305 for the year ended october 31 , 2014. interest income earned for the year ended october 31 , 2015 reflected interest income earned on the company 's held-to-maturity investments and savings account
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in accordance with the shipping terms specified in the contracts , these criteria are generally met when the products are shipped from our facilities ( such as the “ ex works ” shipping term ) or delivered to the customers ' locations ( such as the “ delivered duty paid ” shipping term ) . under certain consignment agreements , revenue is not recognized when the products are shipped and delivered to be held at customers ' designated locations because we continue to control the products and retain ownership , and the customers do not have an unconditional obligation to pay . we recognize revenue when the customers pull the products from the locations or , in some cases , after a 60-day period from the delivery date has passed , at which time control transfers to the customers and we invoice them for payment . we account for price adjustment and stock rotation rights as variable consideration that reduces the transaction price , and recognize that reduction in the same period the associated revenue is recognized . three u.s.-based distributors have price adjustment rights when they sell our products to their end customers at a price that is lower than the distribution price invoiced by us . when we receive claims from the distributors that products have been sold to the end customers at the lower price , we issue the distributors credit memos for the price adjustments . we estimate the price adjustments based on an analysis of historical claims , at both the distributor and product level , as well as an assessment of any known trends of product sales mix . other u.s. distributors and non-u.s. distributors , which make up the majority of our total sales to distributors , do not have price adjustment rights . in addition , certain distributors have limited stock rotation rights that permit the return of a small percentage of the previous six months ' purchases in accordance with the contract terms . we estimate the stock rotation returns based on an analysis of historical returns , and the current level of inventory in the distribution channel . we recognize an asset for product returns which represents the right to recover products from the customers related to stock rotations , with a corresponding reduction to cost of revenue . we pay sales commissions based on the achievement of pre-determined product sales targets . as we recognize product sales at a point in time , sales commissions are expensed as incurred . inventory valuation we value our inventories at the lower of the standard cost ( which approximates actual cost on a first-in , first-out basis ) or their current estimated net realizable value . we write down excess and obsolete inventories based on assumptions about future demand and market conditions . if actual demand or market conditions are less favorable than those projected by management , additional inventory write-downs may be required . conversely , if actual demand or market conditions are more favorable , inventories may be sold that were previously reserved . valuation of goodwill and acquisition-related intangible assets we evaluate intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that an impairment may exist . we perform an annual impairment assessment for goodwill in the fourth quarter , or more frequently if indicators of potential impairment exist . impairment of intangible assets is recognized based on the difference between the fair value of the assets and their carrying value . impairment for goodwill occurs if the fair value of a reporting unit including goodwill is less than its carrying value and is recognized based on the difference between the implied fair value of the reporting unit 's goodwill and the carrying value of the goodwill . the assumptions and estimates used to determine the fair value of goodwill and intangible assets are complex and subjective . they can be affected by various factors , including external factors such as industry and economic trends , and internal factors such as changes in our business strategy and revenue forecasts . if there is a significant adverse change in our business in the future , including macroeconomic and market conditions , we may be required to record impairment charges on our goodwill and acquisition-related intangible assets . accounting for income taxes we recognize federal , state and foreign current tax liabilities or assets based on our estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction . we also recognize federal , state and foreign deferred tax assets or liabilities for our estimate of future tax effects attributable to temporary differences and carryforwards . we record a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that , based on available evidence and judgment , are not expected to be realized . our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application of complex tax laws . our estimates of current and deferred tax assets and liabilities may change based , in part , on added certainty , finality or uncertainty to an anticipated outcome , changes in accounting or tax laws in the u.s. or foreign jurisdictions where we operate , or changes in other facts or circumstances . in addition , we recognize liabilities for potential u.s. and foreign income tax for uncertain income tax positions taken on our tax returns if it has less than a 50 % likelihood of being sustained . if we determine that payment of these amounts is unnecessary or if the recorded tax liability is less than our current assessment , we may be required to recognize an income tax benefit or additional income tax expense in our financial statements in the period such determination is made . we have calculated our uncertain tax positions which were attributable to certain estimates and judgments primarily related to transfer pricing , cost sharing and our international tax structure exposure . story_separator_special_tag 30 on december 22 , 2017 , the 2017 tax act was enacted , which significantly changed u.s. corporate income tax law . the 2017 tax act made the following material changes : ( 1 ) reduction of the corporate income tax rate effective january 1 , 2018 ; ( 2 ) replacement of the worldwide tax system with a territorial tax regime , with a one-time mandatory tax on previously deferred foreign earnings ; ( 3 ) amendment on the deductibility of executive performance-based compensation , and ( 4 ) creation of new taxes on certain foreign-sourced earnings . income tax effects resulting from changes in tax laws are accounted for in the period in which the law is enacted . as permitted by staff accounting bulletin no . 118 ( “ sab 118 ” ) issued by the sec on december 22 , 2017 , we recorded provisional amounts based on reasonable estimates for the year ended december 31 , 2017 , with a one-year measurement period to complete the analysis . any subsequent adjustments to these provisional amounts would be recorded to the income tax provision in the period when the analysis was complete . in december 2018 , we have completed our accounting for the tax effects of the 2017 tax act , including the calculation of the deemed repatriation transition tax . see the “ income tax provision ” for further discussion . as of december 31 , 2018 and 2017 , we had a valuation allowance of $ 13.0 million and $ 12.6 million , respectively , attributable to management 's determination that it is more likely than not that the deferred tax assets will not be realized . in the fourth quarter of 2017 , management assessed the realizability of the deferred tax assets and concluded that a full valuation allowance would no longer be needed on the federal deferred tax assets , due principally to the enactment of the 2017 tax act . as a result , we released $ 21.6 million of valuation allowance which was recorded as a benefit in the income tax provision . in the event we determine that it is more likely than not that we would be able to realize other deferred tax assets in the future in excess of our net recorded amount , an adjustment to the valuation allowance for the deferred tax assets would increase income in the period such determination was made . likewise , should it be determined that additional amounts of the net deferred tax assets will not be realized in the future , an adjustment to increase the deferred tax assets valuation allowance will be charged to income in the period such determination is made . contingencies we are a party to actions and proceedings in the ordinary course of business , including potential litigation regarding our shareholders and our intellectual property , challenges to the enforceability or validity of our intellectual property , claims that our products infringe on the intellectual property rights of others , and employment matters . the pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to prosecute and defend . in addition , from time to time , we become aware that we are subject to other contingent liabilities . when this occurs , we will evaluate the appropriate accounting for the potential contingent liabilities to determine whether a contingent liability should be recorded . in making this determination , management may , depending on the nature of the matter , consult with internal and external legal counsel and technical experts . based on the facts and circumstances in each matter , we use our judgment to determine whether it is probable that a contingent loss has occurred and whether the amount of such loss can be estimated . if we determine a loss is probable and estimable , we record a contingent loss . in determining the amount of a contingent loss , we take into account advice received from experts for each specific matter regarding the status of legal proceedings , settlement negotiations , prior case history and other factors . should the judgments and estimates made by management need to be adjusted as additional information becomes available , we may need to record additional contingent losses that could materially and adversely impact our results of operations . alternatively , if the judgments and estimates made by management are adjusted , for example , if a particular contingent loss does not occur , the contingent loss recorded would be reversed which could result in a favorable impact on our results of operations . stock-based compensation we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award . the fair value of restricted stock units ( “ rsus ” ) with service conditions or performance conditions is based on the grant date share price . the fair value of shares issued under the employee stock purchase plan and rsus with a purchase price feature is estimated using the black-scholes model . the fair value of rsus with market conditions , as well as rsus containing both market and performance conditions , is estimated using a monte carlo simulation model . compensation expense related to awards with service conditions is recorded on a straight-line basis over the requisite service period . compensation expense related to awards subject to market or performance conditions is recognized over the requisite service period for each separately vesting tranche . for awards with only market conditions , compensation expense is not reversed if the market conditions are not satisfied . for awards with performance conditions , as well as awards containing both market and performance conditions , we recognize compensation expense when the performance goals are achieved , or when it becomes probable that the performance goals will be achieved .
| revenue for the year ended december 31 , 2017 was $ 470.9 million , an increase of $ 82.2 million , or 21.2 % , from $ 388.7 million for the year ended december 31 , 2016. this increase was driven by higher sales in all of our end markets except for the communications market . overall unit shipments increased by 9 % due to higher market demand , and average sales prices increased by 12 % from the same period in 2016. revenue from the computing and storage market for the year ended december 31 , 2017 increased $ 20.2 million , or 25.1 % , from the same period in 2016. this increase was primarily driven by strength in the solid-state drive storage , cloud computing and high-performance notebook markets . revenue from the automotive market increased $ 19.9 million , or 58.7 % , from the same period in 2016. this increase was primarily driven by higher sales of products for infotainment , safety and connectivity applications . revenue from the industrial market increased $ 7.2 million , or 12.9 % , from the same period in 2016. this increase was primarily driven by higher sales in power source products . revenue from the communications market decreased $ 1.1 million , or 1.7 % , from the same period in 2016. this decrease was primarily due to lower demand in wireless applications . revenue from the consumer market increased $ 36.0 million , or 23.4 % , from the same period in 2016. this increase was primarily driven by higher demand in gaming and home appliance products . cost of revenue and gross margin cost of revenue primarily consists of costs incurred to manufacture , assemble and test our products , as well as warranty costs , inventory-related and other overhead costs , and stock-based compensation expenses . in addition , cost of revenue includes amortization for acquisition-related intangible assets . replace_table_token_6_th cost of revenue was $ 259.7 million , or 44.6 % of revenue , for the year ended december 31 , 2018 , and $ 212.6 million , or
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our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth in `` item 1a – risk factors , '' and elsewhere in this form 10-k. although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update information contained in any forward-looking statement . introduction the following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document , as well as with other sections of this annual report on form 10-k , including `` item 1 – business ; '' `` item 6 – selected financial data ; '' and `` item 8 – financial statements and supplementary data . '' we begin our management 's discussion and analysis of financial condition and results of operations ( md & a ) with a summary of our overall business strategy to give the reader an overview of the goals of our business and the overall direction of our business and products . this is followed by a discussion of the critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results . in the next section , beginning at page 34 , we discuss our results of operations for fiscal 2014 compared to fiscal 2013 , and for fiscal 2013 compared to fiscal 2012. we then provide an analysis of changes in our balance sheet and cash flows , and discuss our financial 28 commitments in the sections titled `` liquidity and capital resources , '' `` contractual obligations '' and `` off-balance sheet arrangements . '' strategy our goal is to be a worldwide leader in providing specialized semiconductor products for a wide variety of embedded control applications . our strategic focus is on the embedded control market , which includes microcontrollers , high-performance analog , interface and mixed signal devices , power management and thermal management devices , connectivity devices , interface devices , serial eeproms , superflash memory products , our patented keeloq ® security devices and flash ip solutions . we provide highly cost-effective embedded control products that also offer the advantages of small size , high performance , low voltage/power operation and ease of development , enabling timely and cost-effective embedded control product integration by our customers . we license our superflash technology to wafer foundries , integrated device manufacturers and design partners throughout the world for use in the manufacture of their advanced microcontroller products . we sell our products to a broad base of domestic and international customers across a variety of industries . the principal markets that we serve include consumer , automotive , industrial , office automation and telecommunications . our business is subject to fluctuations based on economic conditions within these markets . our manufacturing operations include wafer fabrication , wafer probe and assembly and test . the ownership of a substantial portion of our manufacturing resources is an important component of our business strategy , enabling us to maintain a high level of manufacturing control resulting in us being one of the lowest cost producers in the embedded control industry . by owning wafer fabrication facilities and our assembly and test operations , and by employing statistical process control techniques , we have been able to achieve and maintain high production yields . direct control over manufacturing resources allows us to shorten our design and production cycles . this control also allows us to capture a portion of the wafer manufacturing and the assembly and test profit margin . we do outsource a significant portion of our manufacturing requirements to third parties . we employ proprietary design and manufacturing processes in developing our embedded control products . we believe our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs . while many of our competitors develop and optimize separate processes for their logic and memory product lines , we use a common process technology for both microcontroller and non-volatile memory products . this allows us to more fully leverage our process research and development costs and to deliver new products to market more rapidly . our engineers utilize advanced computer-aided design ( cad ) tools and software to perform circuit design , simulation and layout , and our in-house photomask and wafer fabrication facilities enable us to rapidly verify design techniques by processing test wafers quickly and efficiently . we are committed to continuing our investment in new and enhanced products , including development systems , and in our design and manufacturing process technologies . we believe these investments are significant factors in maintaining our competitive position . our current research and development activities focus on the design of new microcontrollers , digital signal controllers , memory , analog and mixed-signal products , flash-ip systems , new development systems , software and application-specific software libraries . we are also developing new design and process technologies to achieve further cost reductions and performance improvements in our products . we market and sell our products worldwide primarily through a network of direct sales personnel and distributors . our distributors focus primarily on servicing the product and technical support requirements of a broad base of diverse customers . we believe that our direct sales personnel combined with our distributors provide an effective means of reaching this broad and diverse customer base . our direct sales force focuses primarily on major strategic accounts in three geographical markets : the americas , europe and asia . we currently maintain sales and support centers in major metropolitan areas in north america , europe and asia . we believe that a strong technical service presence is essential to the continued development of the embedded control market . story_separator_special_tag many of our field sales engineers ( fses ) , field application engineers ( faes ) , and sales management personnel have technical degrees and have been previously employed in an engineering environment . we believe that the technical knowledge of our sales force is a key competitive advantage in the sale of our products . the primary mission of our fae team is to provide technical assistance to strategic accounts and to conduct periodic training sessions for fses and distributor sales teams . faes also frequently conduct technical seminars for our customers in major cities around the world , and work closely with our distributors to provide technical assistance and end-user support . 29 critical accounting policies and estimates general our discussion and analysis of our 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 u.s. we review the accounting policies we use in reporting our financial results on a regular basis . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition , business combinations , share-based compensation , inventories , income taxes , junior subordinated convertible debentures and contingencies . 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 value of assets and liabilities that are not readily apparent from other sources . our results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions . we review these estimates and judgments on an ongoing basis . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . we also have other policies that we consider key accounting policies , such as our policy regarding revenue recognition to original equipment manufacturers ( oems ) ; however , we do not believe these policies require us to make estimates or judgments that are as difficult or subjective as our policies described below . revenue recognition – distributors our distributors worldwide generally have broad price protection and product return rights , so we defer revenue recognition until the distributor sells the product to their customer . revenue is recognized when the distributor sells the product to an end-user , at which time the sales price becomes fixed or determinable . revenue is not recognized upon shipment to our distributors since , due to discounts from list price as well as price protection rights , the sales price is not substantially fixed or determinable at that time . at the time of shipment to these distributors , we record a trade receivable for the selling price as there is a legally enforceable right to payment , relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor , and record the gross margin in deferred income on shipments to distributors on our consolidated balance sheets . deferred income on shipments to distributors effectively represents the gross margin on the sale to the distributor ; however , the amount of gross margin that we recognize in future periods could be less than the deferred margin as a result of credits granted to distributors on specifically identified products and customers to allow the distributors to earn a competitive gross margin on the sale of our products to their end customers and price protection concessions related to market pricing conditions . we sell the majority of the items in our product catalog to our distributors worldwide at a uniform list price . however , distributors resell our products to end customers at a very broad range of individually negotiated price points . the majority of our distributors ' resales require a reduction from the original list price paid . often , under these circumstances , we remit back to the distributor a portion of their original purchase price after the resale transaction is completed in the form of a credit against the distributors ' outstanding accounts receivable balance . the credits are on a per unit basis and are not given to the distributor until they provide information to us regarding the sale to their end customer . the price reductions vary significantly based on the customer , product , quantity ordered , geographic location and other factors and discounts to a price less than our cost have historically been rare . the effect of granting these credits establishes the net selling price to our distributors for the product and results in the net revenue recognized by us when the product is sold by the distributors to their end customers . thus , a portion of the `` deferred income on shipments to distributors '' balance represents the amount of distributors ' original purchase price that will be credited back to the distributor in the future . the wide range and variability of negotiated price concessions granted to distributors does not allow us to accurately estimate the portion of the balance in the deferred income on shipments to distributors account that will be credited back to the distributors . therefore , we do not reduce deferred income on shipments to distributors or accounts receivable by anticipated future concessions ; rather , price concessions are typically recorded against deferred income on shipments to distributors and accounts receivable when incurred , which is generally at the time the distributor sells the product . at march 31 , 2014 , we had approximately $ 222.8 million of deferred revenue and $ 75.0 million in deferred cost of sales recognized as $ 147.8 million of deferred income on shipments to distributors .
| average selling prices for our semiconductor products were up approximately 4 % in fiscal 2014 over fiscal 2013 and were up approximately 5 % in fiscal 2013 over fiscal 2012. the number of units of our semiconductor products sold was up approximately 17 % in fiscal 2014 over fiscal 2013 and up approximately 10 % in fiscal 2013 over fiscal 2012. the average selling prices and the unit volumes of our sales are impacted by the mix of our products sold and overall semiconductor market conditions . key factors impacting the amount of net sales during the last three fiscal years include : global economic conditions in the markets we serve ; semiconductor industry conditions ; our acquisition of smsc in the second quarter of fiscal 2013 ; inventory holding patterns of our customers ; increasing semiconductor content in our customers ' products ; customers ' increasing needs for the flexibility offered by our programmable solutions ; our new product offerings that have increased our served available market ; and continued market share gains in the segments of the markets we address . net sales by product line for fiscal 2014 , 2013 and 2012 were as follows ( dollars in thousands ) : replace_table_token_9_th 34 microcontrollers our microcontroller product line represents the largest component of our total net sales . microcontrollers and associated application development systems accounted for approximately 65.3 % of our total net sales in fiscal 2014 , approximately 65.5 % of our total net sales in fiscal 2013 and 67.1 % of our total net sales in fiscal 2012. net sales of our microcontroller products increased approximately 21.8 % in fiscal 2014 compared to fiscal 2013 , and increased approximately 11.5 % in fiscal 2013 compared to fiscal 2012. the increase in net sales in fiscal 2014 compared to fiscal 2013 resulted primarily from market share gains and general economic and semiconductor industry conditions in the end markets we serve including the consumer , automotive , industrial control , communications and computing markets . the increase in net sales in fiscal 2013 compared to fiscal 2012 resulted primarily from our acquisition of smsc and market share gains which offset weak general economic and semiconductor industry conditions . historically , average selling prices in the semiconductor industry decrease over the life of any particular product . the overall average selling prices of our microcontroller products have remained relatively constant over time due
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the facilities provided under the amended and restated credit agreement were to be used to refinance borrowers prior outstanding revolving loan facility with bank , dated july 3 , 2008 , and for working capital and general corporate purposes . at our option , loans under the facility will bear stated interest based on the base rate plus base rate margin , or floating rate plus floating rate margin ( as those terms are defined in the credit agreement ) . the base rate will be , for any day , a fluctuating rate per annum equal to the higher of ( a ) the federal funds rate plus 0.50 % and ( b ) the bank 's prime rate . the floating rate shall mean , at borrower 's option , a per annum interest rate equal to ( i ) the eurodollar rate plus eurodollar margin , or ( ii ) the base rate plus base rate margin ( as those terms are defined in the amended and restated credit agreement ) . eurodollar borrowings may be for one , two , three , or six months , as selected by the borrowers . the margins for all loans are based on a pricing grid ranging from 0.00 % to 0.75 % for the base rate margin and 2.25 % to 3.00 % for the floating rate margin based on the company 's borrowing base utilization percentage ( as defined in the amended and restated credit agreement ) . on december 15 , 2011 , we entered into a first amendment to amended and restated credit agreement and second amended and restated promissory note in the amount of $ 50,000,000 with the bank . the amendment reflects the addition of rantoul partners , as an additional borrower and adds as additional security for the loans the assets held by rantoul partners . 36 on august 31 , 2012 , we entered into a second amendment to amended and restated credit agreement with the bank . the second amendment : ( i ) increased the borrowing base to $ 7,000,000 , ( ii ) reduced the minimum interest rate to 3.75 % and ( iii ) added additional new leases as collateral for the loan . on november 2 , 2012 , we entered into a third amendment to amended and restated credit agreement with the bank . the third amendment ( i ) increased the borrowing base to $ 12,150,000 and ( ii ) clarified certain continuing covenants and provided a limited waiver of compliance with one of the covenants so clarified for the fiscal quarter ended december 31 , 2011. on january 24 , 2013 , we entered into a fourth amendment to amended and restated credit agreement , which was made effective as of december 31 , 2012 with the bank . the fourth amendment reflects the following changes : ( i ) the bank consented to the restructuring transactions related to the dissolution of rantoul partners , and ( ii ) the bank terminated a limited guaranty , as defined in the credit agreement , executed by rantoul partners in favor of the bank . on april 16 , 2013 , the bank increased our borrowing base to $ 19,500,000. on september 30 , 2013 , we entered into a fifth amendment to the amended and restated credit agreement . the fifth amendment reflects the following changes : it ( i ) expanded the principal commitment amount of the bank to $ 100,000,000 ; ( ii ) increased the borrowing base to $ 38,000,000 ; ( iii ) added black raven energy , inc. to the credit agreement as a borrower party ; ( iv ) added certain collateral and security interests in favor of the bank ; and ( v ) reduced the interest rate to 3.30 % . on november 19 , 2013 , we entered into a sixth amendment to the amended and restated credit agreement . the sixth amendment reflects the following changes : ( i ) the addition of iberia bank as a participant in our credit facility , and ( ii ) a technical correction to our covenant calculations . on may 22 , 2014 , we entered into a seventh amendment to the amended and restated credit agreement . the seventh amendment reflects the bank 's consent to our issuance of up to 850,000 shares of our 10 % series a cumulative redeemable perpetual preferred stock . on august 15 , 2014 , we entered into an eighth amendment to the amended and restated credit agreement . the eighth amendment reflects the following changes : ( i ) the borrowing base was increased from $ 38 million to $ 40 million , and ( ii ) the maturity of the facility was extended by three years to october 3 , 2018. on april 29 , 2015 , we entered into a ninth amendment to the amended and restated credit agreement . in the ninth amendment , the bank ( i ) re-determined the borrowing base based upon the reserve report dated january 1 , 2015 , ( ii ) imposed affirmative obligations on the company to use a portion of proceeds received with regard to future sales of securities or certain assets to repay the loan , ( iii ) consented to non-compliance by the company with certain terms of the credit agreement , ( iv ) waived certain provisions of the credit agreement , and ( v ) agreed to certain other amendments to the credit agreement . story_separator_special_tag on may 1 , 2015 , the borrowers and the banks entered into a letter agreement to clarify that up to $ 1,000,000 in proceeds from any potential future securities offering will be unencumbered by the banks ' liens as described in the credit agreement through november 1 , 2015 , and that , until november 1 , 2015 , such proceeds would not be subject to certain provisions in the credit agreement prohibiting the company from declaring and paying dividends that may be due and payable to holders of securities issued in such potential offerings or issued prior to the letter agreement . on august 12 , 2015 , we entered into a tenth amendment to the amended and restated credit agreement . the tenth amendment reflects the following changes : ( i ) allow the company to sell certain oil assets in kansas , ( ii ) allow for approximately $ 1,300,000 of the proceeds from the sale to be reinvested in company owned oil and gas projects and ( iii ) apply not less than $ 1,500,000 from the proceeds of the sale to outstanding loan balances . on november 13 , 2015 , the company entered into a eleventh amendment to the amended and restated credit agreement . the eleventh amendment reflects the following changes : ( i ) waived certain provisions of the credit agreement , ( ii ) suspended certain hedging requirements , and ( iii ) made certain other amendments to the credit agreement . on april 1 , 2016 , the company informed the bank that it would cease making the mandatory monthly borrowing base reduction payments and did not make the required april 1 , 2016 payment . the company made its mandatory quarterly interest payments on april 6 , 2016 and may 2 , 2016. on april 7 , 2016 , the company entered into a forbearance agreement whereby the bank agreed to not exercise remedies and rights afforded it under the amended and restated credit agreement for thirty days . the thirty day period was to be used by the company to pursue strategic alternatives . 37 on april 28 , 2016 , the bank informed the company that it would extend the above forbearance agreement period to may 31 , 2016 upon effecting a principal reduction of $ 125,000. in addition , the company will receive an automatic extension to september 15 , 2016 upon meeting certain terms and conditions specified by the bank . on may 31 , 2016 , the company and the bank amended the forbearance agreement to extend the forbearance period to august 31 , 2016. on july 29 , 2016 , the company and the bank amended the forbearance agreement to extend the forbearance period to october 1 , 2016. on october 1 , 2016 , the company and the bank could not reach an agreement to extend the third amendment to the forbearance agreement . following this outcome , the company decided to discontinue payment of interest on its outstanding loan obligations with the bank . the company continued to evaluate plans to restructure , amend or refinance existing debt through private options . on february 10 , 2017 , the company , tcb and iberiabank ( collectively , “ sellers ” ) , and pwcm investment company ic llc , and certain financial institutions ( collectively , “ buyers ” ) entered into a loan sale agreement ( “ lsa ” ) , pursuant to which sellers sold to buyers , and buyers purchased from sellers , all of sellers ' right , title and interest in , to and under the credit agreement and loan documents , in exchange for ( i ) a cash payment of $ 5,000,000 ( the “ cash purchase price ” ) , ( ii ) a synthetic equity interest equal to 10 % of the proceeds , after buyer 's realization of a 150 % return on the cash purchase price within five ( 5 ) years of the closing date of the sale , with payment being distributed 65.78947368 % to tcb and 34.21052632 % to iberiabank , and ( iii ) at any time prior to february 10 , 2022 , buyer may acquire the interest in clause ( ii ) above . in connection with the lsa , the company released sellers and its successors as holders of the rights under the credit agreement and loan documents , including buyers , from any and all claims under the credit agreement and loan documents . also on february 10 , 2017 , the company and its subsidiaries , and successor lender entered into a binding letter agreement dated february 10 , 2017 , which was subsequently amended on march 30 , 2017 ( as amended , the “ letter agreement ” ) pursuant to which : 1. the successor lender agreed to forgive our existing secured loan in the approximate principal amount of $ 17,295,000 , and in exchange entered into a secured promissory note ( which we refer to as the “ restated secured note ” ) in the original principal amount of $ 4,500,000 . 2. we : a. conveyed our oil and gas properties and associated performance and surety bonds in colorado , texas , and nebraska ; b. conveyed all of our shares of oakridge energy , inc. ( together ( a ) and ( b ) , the “ conveyed oil and gas assets ” ) ; and c. retained our assets in kansas and continued as a going concern . the kansas assets currently provide most of our current operating revenue .
| ( 3 ) depletion expense per boe increased 85 % or $ 3.26 per boe from $ 3.82 per boe in 2016 to $ 7.08 per boe in 2017. during 2017 , depletion expense decreased approximately $ 14,000 to approximately $ 240,000 from $ 254,000 in 2016 . ( 4 ) professional fees increased 348 % or approximately $ 1.1 million from approximately $ 310,500 in 2016 to approximately $ 1,390,512 in 2017. the use of consultants , to replace the reduction in employees , accounted for $ 765,000 of this increase . in addition , legal fees increased by $ 309,000 . ( 5 ) salaries decreased 80 % or approximately $ 1.4 million . the decrease was due primarily to decreased head counts following the lsa transaction . ( 6 ) administrative expenses increased approximately $ 87,000 or 19 % . the increase was due primarily to increased spending on sec matters of $ 104,000. reserves replace_table_token_6_th of the 0.5 million boe of total proved reserves , approximately 14.7 % are classified as proved developed producing and approximately 85.3 % are classified as proved undeveloped . the following table presents summary information regarding our estimated net proved reserves as of december 31 , 2017. all calculations of estimated net proved reserves have been made in accordance with the rules and regulations of the sec , and , except as otherwise indicated , give no effect to federal or state income taxes . the estimates of net proved reserves are based on the reserve reports prepared by cobb & associates inc. , our independent petroleum consultants . for additional information regarding our reserves , please see note 14 to our audited financial statements for the fiscal year ended december 31 , 2017. summary of proved oil and gas reserves december 31 , 2017 gross net natural gas oil natural gas oil proved reserves crude oil liquids natural gas equivalents crude oil liquids natural gas equivalents pv 10 ( 1 ) category bbl 's bbl 's mcf 's boe 's bbl 's bbl 's mcf 's boe 's ( before tax ) proved , developed 94,100 — — 94,100 66,810 — — 66,810 511,740 proved , undeveloped < td style= '' font : 10pt times
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we also expect some variability in accounts payable days over time since they are affected by several factors , including the mix of product sales , the mix of sales by third-party sellers , the mix of suppliers , seasonality , and changes in payment terms over time , including the effect of balancing pricing and timing of payment terms with suppliers . we expect spending in technology and content will increase over time as we add computer scientists , designers , software and hardware engineers , and merchandising employees . our technology and content investment and capital spending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems and operations . we seek to invest efficiently in several areas of technology and content , including aws , and expansion of new and existing product categories and service offerings , as well as in technology infrastructure to enhance the customer experience and improve our process efficiencies . we believe that advances in technology , specifically the speed and reduced cost of processing power and the advances of wireless connectivity , will continue to improve the consumer experience on the internet and increase its ubiquity in people 's lives . to best take advantage of these continued advances in technology , we are investing in initiatives to build and deploy innovative and efficient software and electronic devices . we are also investing in aws , which offers a broad set of global compute , storage , database , and other service offerings to developers and enterprises of all sizes . we seek to efficiently manage shareholder dilution while maintaining the flexibility to issue shares for strategic purposes , such as financings , acquisitions , and aligning employee compensation with shareholders ' interests . we utilize restricted stock units as our primary vehicle for equity compensation because we believe this compensation model aligns the long-term interests of our shareholders and employees . in measuring shareholder dilution , we include all vested and unvested stock awards outstanding , without regard to estimated forfeitures . total shares outstanding plus outstanding stock awards were 504 million and 507 million as of december 31 , 2017 and 2018 . our financial reporting currency is the u.s. dollar and changes in foreign exchange rates significantly affect our reported results and consolidated trends . for example , if the u.s. dollar weakens year-over-year relative to currencies in our international locations , our consolidated net sales and operating expenses will be higher than if currencies had remained constant . likewise , if the u.s. dollar strengthens year-over-year relative to currencies in our international locations , our consolidated net sales and operating expenses will be lower than if currencies had remained constant . we believe that our increasing diversification beyond the u.s. economy through our growing international businesses benefits our shareholders over the long-term . we also believe it is useful to evaluate our operating results and growth rates before and after the effect of currency changes . in addition , the remeasurement of our intercompany balances can result in significant gains and losses associated with the effect of movements in foreign currency exchange rates . currency volatilities may continue , which may significantly impact ( either positively or negatively ) our reported results and consolidated trends and comparisons . for additional information about each line item addressed above , refer to item 8 of part ii , “ financial statements and supplementary data — note 1 — description of business and accounting policies. ” _ ( 3 ) the operating cycle is the number of days of sales in inventory plus the number of days of sales in accounts receivable minus accounts payable days . 19 critical accounting judgments the preparation of financial statements in conformity with generally accepted accounting principles of the united states ( “ gaap ” ) requires estimates and assumptions that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes . the sec has defined a company 's critical accounting policies as the ones that are most important to the portrayal of the company 's financial condition and results of operations , and which require the company to make its most difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . based on this definition , we have identified the critical accounting policies and judgments addressed below . we also have other key accounting policies , which involve the use of estimates , judgments , and assumptions that are significant to understanding our results . for additional information , see item 8 of part ii , “ financial statements and supplementary data — note 1 — description of business and accounting policies. ” although we believe that our estimates , assumptions , and judgments are reasonable , they are based upon information presently available . actual results may differ significantly from these estimates under different assumptions , judgments , or conditions . inventories inventories , consisting of products available for sale , are primarily accounted for using the first-in first-out method , and are valued at the lower of cost and net realizable value . this valuation requires us to make judgments , based on currently available information , about the likely method of disposition , such as through sales to individual customers , returns to product vendors , or liquidations , and expected recoverable values of each disposition category . these assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future . as a measure of sensitivity , for every 1 % of additional inventory valuation allowance as of december 31 , 2018 , we would have recorded an additional cost of sales of approximately $ 190 million . in addition , we enter into supplier commitments for certain electronic device components and certain products . these commitments are based on forecasted customer demand . story_separator_special_tag if we reduce these commitments , we may incur additional costs . income taxes we are subject to income taxes in the u.s. ( federal and state ) and numerous foreign jurisdictions . tax laws , regulations , administrative practices , principles , and interpretations in various jurisdictions may be subject to significant change , with or without notice , due to economic , political , and other conditions , and significant judgment is required in evaluating and estimating our provision and accruals for these taxes . there are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain . our effective tax rates could be affected by numerous factors , such as changes in our business operations , acquisitions , investments , entry into new businesses and geographies , intercompany transactions , the relative amount of our foreign earnings , including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates , losses incurred in jurisdictions for which we are not able to realize related tax benefits , the applicability of special tax regimes , changes in foreign currency exchange rates , changes in our stock price , changes in our deferred tax assets and liabilities and their valuation , changes in the laws , regulations , administrative practices , principles , and interpretations related to tax , including changes to the global tax framework , competition , and other laws and accounting rules in various jurisdictions . in addition , a number of countries are actively pursuing changes to their tax laws applicable to corporate multinationals , such as the u.s. tax reform legislation commonly known as the u.s. tax cuts and jobs act of 2017 ( the “ u.s . tax act ” ) . finally , foreign governments may enact tax laws in response to the u.s. tax act that could result in further changes to global taxation and materially affect our financial position and results of operations . the u.s. tax act significantly changed how the u.s. taxes corporations . the u.s. tax act requires complex computations to be performed that were not previously required by u.s. tax law , significant judgments to be made in interpretation of the provisions of the u.s. tax act , significant estimates in calculations , and the preparation and analysis of information not previously relevant or regularly produced . the u.s. treasury department , the irs , and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the u.s. tax act will be applied or otherwise administered . as future guidance is issued , we may make adjustments to amounts that we have previously recorded that may materially impact our provision for income taxes in the period in which the adjustments are made . we are also currently subject to tax controversies in various jurisdictions , and these jurisdictions may assess additional income tax liabilities against us . developments in an audit , investigation , or other tax controversy could have a material effect on our operating results or cash flows in the period or periods for which that development occurs , as well as for prior and subsequent periods . we regularly assess the likelihood of an adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals . although we believe our tax estimates are reasonable , the final outcome of audits , investigations , and any other tax controversies could be materially different from our historical income tax provisions and accruals . 20 recent accounting pronouncements see item 8 of part ii , “ financial statements and supplementary data — note 1 — description of business and accounting policies. ” liquidity and capital resources cash flow information , which reflects retrospective adjustments to our consolidated statements of cash flows as described in item 8 of part ii , “ financial statements and supplementary data — note 1 — description of business and accounting policies , ” is as follows ( in millions ) : replace_table_token_3_th our principal sources of liquidity are cash flows generated from operations and our cash , cash equivalents , and marketable securities balances , which , at fair value , were $ 26.0 billion , $ 31.0 billion , and $ 41.3 billion as of december 31 , 2016 , 2017 , and 2018 . amounts held in foreign currencies were $ 9.1 billion , $ 11.1 billion , and $ 13.8 billion , as of december 31 , 2016 , 2017 , and 2018 , and were primarily euros , british pounds , and japanese yen . cash provided by ( used in ) operating activities was $ 17.2 billion , $ 18.4 billion , and $ 30.7 billion in 2016 , 2017 , and 2018 . our operating cash flows result primarily from cash received from our consumer , seller , developer , enterprise , and content creator customers , and advertisers , offset by cash payments we make for products and services , employee compensation , payment processing and related transaction costs , operating leases , and interest payments on our long-term obligations . cash received from our customers and other activities generally corresponds to our net sales . because consumers primarily use credit cards to buy from us , our receivables from consumers settle quickly . the increase in operating cash flow in 2017 and 2018 , compared to the comparable prior years , is primarily due to the increase in net income , excluding non-cash charges such as depreciation , amortization , and stock-based compensation . cash provided by ( used in ) operating activities is also subject to changes in working capital . working capital at any specific point in time is subject to many variables , including seasonality , inventory management and category expansion , the timing of cash receipts and payments , vendor payment terms , and fluctuations in foreign exchange rates .
| the sales growth in each year primarily reflects increased unit sales , including sales by third-party sellers . increased unit sales were driven largely by our continued efforts to reduce prices for our customers , including from our shipping offers , increased in-stock inventory availability , and increased selection . changes in foreign currency exchange rates impacted international net sales by $ ( 489 ) million , $ 138 million , and $ 1.3 billion in 2016 , 2017 , and 2018 . aws sales increased 43 % and 47 % in 2017 and 2018 , compared to the comparable prior years . the sales growth in each year primarily reflects increased customer usage , partially offset by pricing changes . pricing changes were driven largely by our continued efforts to reduce prices for our customers . 23 operating income ( loss ) operating income ( loss ) by segment is as follows ( in millions ) : replace_table_token_5_th operating income was $ 4.2 billion , $ 4.1 billion , and $ 12.4 billion for 2016 , 2017 , and 2018 . we believe that operating income ( loss ) is a more meaningful measure than gross profit and gross margin due to the diversity of our product categories and services . the increase in north america operating income in absolute dollars in 2017 and 2018 , compared to the comparable prior years , is primarily due to increased unit sales , including sales by third-party sellers , advertising sales , and slower growth in certain operating expenses , partially offset by costs to expand our fulfillment network . changes in foreign exchange rates impacted operating income by $ 27 million , $ ( 4 ) million , and $ 17 million for 2016 , 2017 , and 2018 . the decrease in international operating loss in absolute dollars in 2017 and 2018 , compared to the comparable prior years , is primarily due to increased unit sales , including sales by third-party sellers , advertising sales , and slower growth in certain operating expenses , partially offset
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in assessing the realizability of the deferred tax assets , we consider whether it is more likely than not that some or all of the deferred tax assets will be realized . in evaluating the ability to utilize our deferred tax assets , we consider all available evidence , both positive and negative , in determining future taxable income on a jurisdiction by jurisdiction basis . trends and uncertainties affecting our business we believe our operating and business performance is driven by various factors affecting airlines and their markets , trends affecting the broader travel industry and trends affecting the specific markets and customer base that we target . the following key factors may affect our future performance . 41 ability to execute our growth strategy . over recent years , we have pursued a high-growth strategy , which we expect to continue . execution of such a strategy requires us to effectively deploy new flying into our network , as new routes or increased frequency of existing routes develop . new flying may not perform as well as expected or may result in a competitive reaction . moreover , our growth strategy depends on the timely delivery of aircraft and engines in accordance with the intended delivery schedule in accordance with the applicable agreement . delivery delays , as we have experienced from time to time in recent years , may cause us to scale back our growth , unless we are able to replace delayed aircraft in the secondary market or otherwise . finally , our growth strategy relies in part on our ability to obtain additional facilities in airports , some of which are constrained , as well as additional flight crew , maintenance , and other personnel . we expect to experience an increase in our compensation expense to attract and retain qualified personnel . ability to maintain or grow capacity . we pursue a high-growth strategy that expands revenue and maintains lower cost due to economies of scale and lower initial expense for aircraft and labor . execution of such a strategy depends on the ability to maintain efficient utilization of existing capacity and the timely delivery of new aircraft and engines . in recent years , we have experienced aircraft operational reliability and delivery delays particularly regarding our a320neo aircraft . the new generation aircraft provide fuel burn and other efficiencies , as compared to the older a320ceo aircraft , and the ability to serve additional markets with greater operating range . however , ongoing or expanded reliability and delivery issues could materially impact our operations , costs and net results . competition . the airline industry is highly competitive . the principal competitive factors in the airline industry are fare pricing , total price , flight schedules , aircraft type , passenger amenities , number of routes served from a city , customer service , safety record , reputation , code-sharing relationships , frequent flyer programs and redemption opportunities . price competition occurs on a market-by-market basis through price discounts , changes in pricing structures , fare matching , target promotions and frequent flyer initiatives . airlines typically use discount fares and other promotions to stimulate traffic during normally slower travel periods in efforts to maximize unit revenue . the prevalence of discount fares can be particularly acute when a competitor has excess capacity that it is under financial pressure to sell . beginning in 2015 , and continuing into 2019 , the airline industry saw greater and more persistent price discounting than in the preceding several years . in addition , significant airline capacity increases in certain major cities exerted strong downward price pressure in those markets . finally , beginning in mid-2015 network carriers began matching low-cost carrier and ulcc pricing on portions of their marginal unsold capacity , particularly in their key hub markets . we expect the discounting trend to continue for the foreseeable future . moreover , the network carriers have developed a fare-class pricing approach , in which a portion of available seats may be sold at or near ulcc prices , but without most product features available to their passengers paying at higher fare levels on the same flight . broad fare discounting may have the effect of diluting the profitability of revenues of high-cost carriers but the fare-class approach may allow network carriers to continue offering a competitive price to ulccs on some flights or routes , while maintaining higher pricing to their traditional constituencies of corporate and less price-sensitive travelers . refer to “ risk factors—risks related to our industry—we operate in an extremely competitive industry . '' seasonality and volatility . our results of operations for any interim period are not necessarily indicative of those for the entire year because the air transportation business is subject to significant seasonal fluctuations . we generally expect demand to be greater in the second and third quarters compared to the rest of the year . the air transportation business is also volatile and highly affected by economic cycles and trends . consumer confidence and discretionary spending , fear of terrorism or war , weakening economic conditions , fare initiatives , fluctuations in fuel prices , labor actions , changes in governmental regulations on taxes and fees , weather and other factors have resulted in significant fluctuations in revenues and results of operations in the past . we believe demand for business travel historically has been more sensitive to economic pressures than demand for low-price travel . finally , a significant portion of our operations are concentrated in markets such as south florida , the caribbean , latin america and the northeast and northern midwest regions of the united states , which are particularly vulnerable to weather , airport traffic constraints and other delays . aircraft fuel . fuel costs represents one of our largest operating expenses , as it does for most airlines . fuel costs have been subject to wide price fluctuations in recent years . story_separator_special_tag fuel availability and pricing are also subject to refining capacity , periods of market surplus and shortage and demand for heating oil , gasoline and other petroleum products , as well as meteorological , economic and political factors and events occurring throughout the world , which we can neither control nor accurately predict . we source a significant portion of our fuel from refining resources located in the southeast united states , particularly facilities adjacent to the gulf of mexico . gulf coast fuel is subject to volatility and supply disruptions , particularly in hurricane season when refinery shutdowns have occurred , or when the threat of weather-related disruptions has caused gulf coast fuel prices to spike above other regional sources . our fuel hedging practices are dependent upon many factors , including our assessment of market conditions for fuel , our access to the capital necessary to support margin requirements , the pricing of hedges and other derivative products in the market , our overall appetite for risk and applicable regulatory policies . as of december 31 , 2019 , we 42 had no outstanding jet fuel derivatives and we have not engaged in fuel derivative activity since 2015. as of december 31 , 2019 , we purchased a majority of our aircraft fuel under a single fuel service contract . the cost and future availability of jet fuel can not be predicted with any degree of certainty . labor . the airline industry is heavily unionized . the wages , benefits and work rules of unionized airline industry employees are determined by collective bargaining agreements , or cbas . relations between air carriers and labor unions in the united states are governed by the rla . under the rla , cbas generally contain “ amendable dates ” rather than expiration dates , and the rla requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining processes overseen by the nmb . this process continues until either the parties have reached agreement on a new cba , or the parties have been released to “ self-help ” by the nmb . in most circumstances , the rla prohibits strikes ; however , after release by the nmb , carriers and unions are free to engage in self-help measures such as strikes and lockouts . we have five union-represented employee groups comprising approximately 81 % of our employees at december 31 , 2019 . our pilots are represented by the air line pilots association , international , or alpa , our flight attendants are represented by the association of flight attendants , or afa-cwa , our dispatchers are represented by the professional airline flight control association , or pafca , our ramp service agents are represented by the international association of machinists and aerospace workers , or iamaw , and our passenger service agents are represented by the transport workers union , or twu . conflicts between airlines and their unions can lead to work slowdowns or stoppages . during 2017 , we experienced operational disruption from pilot-related work action which adversely impacted our results . we obtained a temporary restraining order to enjoin further illegal labor action . in january 2018 , under the guidance of the nmb assigned mediators , the parties reached a tentative agreement and in february 2018 , the pilot group voted to approve the current five-year agreement with the company . in connection with this agreement , we incurred a one-time ratification incentive of $ 80.2 million , including payroll taxes , and an $ 8.5 million adjustment related to other contractual provisions . these amounts were recorded in special charges within operating expenses in the statement of operations for the year ended december 31 , 2018. for further information , refer to “ notes to the financial statements—4 . special charges. ” in march 2016 , with the help of the nmb , we reached a tentative agreement for a five -year contract with our flight attendants . in may 2016 , the flight attendants voted to approve the new five-year contract with the company . our dispatchers are represented by the pafca . in june 2018 , we commenced negotiations with pafca for an amended agreement with our dispatchers . in october 2018 , we reached a tentative agreement for a new five-year agreement with our dispatchers , which was ratified by the pafca members in october 2018. in july 2014 , certain ramp service agents directly employed by the company voted to be represented by the iamaw . in may 2015 , we entered into a five -year interim collective bargaining agreement with the iamaw , covering material economic terms . in june 2016 , with the help of the iamaw , we reached an agreement on the remaining terms of the collective bargaining agreement , which is amendable in june 2020 . our passenger service agents are represented by the twu , but the representation applies only to the fort lauderdale station where we have direct employees in the passenger service classification . we began meeting with the twu in late october 2018 to negotiate an initial collective bargaining agreement . as of december 31 , 2019 , we continued to negotiate with the twu . we believe the five-year term of our cbas is valuable in providing stability to our labor costs and provide us with competitive labor costs compared to other u.s.-based low-cost carriers . if we are unable to reach agreement with any of our unionized work groups in current or future negotiations regarding the terms of their cbas , we may be subject to work interruptions or stoppages , such as the strike by our pilots in june 2010. a strike or other significant labor dispute with our unionized employees is likely to adversely affect our ability to conduct business . any agreement we do reach could increase our labor and related expenses . in 2010 , the patient protection and affordable care act was passed into law .
| fare revenue per passenger flight segment decrease d 6.0 % partially offset by a 1.9 % increase in non-ticket revenue per passenger flight segment , as compared to the prior year . in addition to the stage length , the decrease in fare revenue per passenger flight segment was driven by lower fares and competitive pricing during the period . the increase in non-ticket revenue per passenger flight segment was primarily attributable to higher passenger usage fee , higher seat revenue and higher bag revenue per passenger flight segment , as compared to the prior year . our operating cost structure is a primary area of focus and is at the core of our ulcc business model . our unit operating costs continue to be among the lowest of any airline in the united states . during 2019 , our adjusted casm ex-fuel increase d by 4.7 % to 5.55 cent s. the increase on a per-asm basis was primarily due to increases in other operating expense per asm , salaries , wages and benefits expense per asm and depreciation and amortization expense per asm . during 2019 , we took delivery of 4 new aircraft financed under secured debt arrangements , 6 aircraft under sale-leaseback transactions and 7 aircraft under direct operating leases . in addition , we purchased 5 previously leased aircraft . in addition , we took delivery of 4 engines through cash purchases and purchased 2 previously leased engines . as of december 31 , 2019 , our 145 airbus a320-family aircraft fleet was comprised of 31 a319ceos , 64 a320ceos , 20 a320neos and 30 a321ceos of which 64 aircraft are financed through secured debt , 52 are financed under operating leases , 2 are financed under finance leases , and 27 are unencumbered . as of december 31 , 2019 , our aircraft orders consisted of 147 a320 family aircraft scheduled for delivery through 2027 . operating revenues our operating revenues are comprised of passenger revenues and other revenues . passenger revenues fare revenues . tickets sold are initially deferred within air traffic liability on the company 's balance sheet . passenger fare revenues are recognized at
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research meyers research llc ( “ meyers ” ) , a kennedy wilson company , is a premier consulting practice and the industry 's leading provider of data and analytics for the residential real estate development and new home construction industry . meyers ' proprietary ipad application , zonda , launched in 2013 and provides market insight for the homebuilding industry with real-time data on over 250 metrics impacting the housing market on a national and local level . auction and conventional sales the auction and conventional sales group provides innovative marketing and sales strategies for all types of commercial and residential real estate , including single family homes , mixed-use developments , estate homes , multifamily dwellings , new home projects , conversions and scattered properties . brokerage the brokerage group specializes in innovative marketing programs tailored to client objectives for all types of investment grade and income producing real estate . financial measures and descriptions our key financial measures and indicators are discussed below . please refer to the critical accounting policies in the notes to the consolidated financial statements for additional detail regarding the gaap recognition policies associated with the captions described below . revenues investment management , property services and research fees - investment management , property services , and research fees are primarily comprised of base asset management fees , performance based fees , and acquisition fees generated by our investment management division , property management fees generated by our property services division , leasing fees and sales commissions generated by our brokerage and auction divisions , and consulting fees generated by meyers . rental and hotel income - rental and hotel income is comprised of rental income earned by our consolidated real estate investments and hotel revenue earned by our consolidated hotels . loans and other income - loans and other income is primarily composed of interest income earned on the company 's loan originations and investments in discounted loan purchases . sale of real estate - sales of real estate consists of gross sales proceeds received on the sale of consolidated real estate that is not defined as a business by generally accepted accounting principles . this typically includes the sale of condominium units . expenses commission and marketing expenses - commission and marketing expenses includes fees paid to third party sales and leasing agents as well as business development costs necessary to generate revenues . 27 rental and hotel operating expenses - rental and hotel operating expenses consists of operating expenses of our consolidated real estate investments , including items such as property taxes , insurance , maintenance and repairs , utilities , supplies , salaries and management fees . compensation and related expenses - compensation and related expenses include : ( a ) employee compensation , comprising of salary , bonus , employer payroll taxes and benefits paid on behalf of employees and ( b ) share-based compensation associated with the grants of share-based awards . general and administrative - general and administrative expenses represent administrative costs necessary to run kw group 's business and include things such as occupancy and equipment expenses , professional fees , public company costs , travel and related expenses , and communications and information services . depreciation and amortization - depreciation and amortization is comprised of depreciation expense which is recognized ratably over the useful life of an asset and amortization expense which primarily consist of the amortization of assets allocated to the value of in-place leases upon acquisition of a consolidated real estate asset or the amortization of loan fees . non-operating income ( expense ) income from unconsolidated investments - income from unconsolidated investments consists of ( a ) the company 's share of income or loss earned on investments in which the company can exercise significant influence but does not have control , and ( b ) interest income from unconsolidated loan pool participations . additionally , interest income from loan pool participations are recognized on a level yield basis , where a level yield model is utilized to determine a yield rate which , based upon projected future cash flows , accretes interest income over the estimated holding period . see the unconsolidated investments footnote of the attached notes to the consolidated financial statements for summarized financial data , including balance sheet and income statement information of the underlying investments . acquisition-related gains - acquisition-related gains consist of non-cash gains recognized by the company upon a gaap required fair value remeasurement due to a business combination . these gains are typically recognized when the company converts a loan into consolidated real estate owned and the fair value of the underlying real estate exceeds the basis in the previously held loan . these gains also arise when there is a change of control of an existing investment . the gain amount is based upon the fair value of the company 's equity in the investment in excess of the carrying amount of the equity directly preceding the change of control . acquisition-related expenses - acquisition-related expenses consists of the costs incurred to acquire assets , such as stamp duty taxes on foreign transactions , as well as the write off of any costs associated with acquisitions which did not materialize . interest expense - corporate debt - interest expense - corporate debt represents interest costs associated with our senior notes payable , junior subordinated debentures and line of credit facility . this debt is unsecured and we typically use the funds generated from corporate borrowings to fund new investments . interest expense - investment - interest expense -investment represents interest costs associated with mortgages on our consolidated real estate . these mortgages are typically secured by the underlying real estate collateral . story_separator_special_tag other income - other income includes the realized foreign currency exchange income or loss relating to the settlement of foreign transactions during the year which arise due to changes in currency exchange rates , realized gains or losses related to the settlement of derivative instruments , the gain or loss on the sale of marketable securities , and other non-operating interest income . income taxes - the company 's services business operates globally as corporate entities subject to federal , state , and local income taxes and the investment business operates through various partnership structures to participate in multifamily , office and residential property acquisitions as well as originate loans and purchases loan pools . the company 's distributive share of income from its partnership investments will be subject to federal , state , and local taxes at the entity level and the related tax provision attributable to the company 's share of the income tax is reflected in the consolidated financial statements . noncontrolling interests - noncontrolling interests represents income or loss attributable to equity partners for their ownership in investments which the company controls . income or loss is attributed to noncontrolling interest partners based on their respective ownership interest in an investment . accumulated other comprehensive income - accumulated other comprehensive income represents the company 's share of foreign currency movement on translating kw group 's foreign subsidiaries from their functional currency into the company 's 28 reporting currency . these amounts are offset by kw group 's effective portion of currency related hedge instruments . unrealized changes in fair value on the company 's investment in marketable securities are also included in this account . foreign currency as of december 31 , 2014 , approximately 45 % of our investment account is invested through our foreign platforms in their local currencies . investment level debt is generally incurred in local currencies and there we consider our equity investment as the appropriate exposure to evaluate for hedging purposes . fluctuations in foreign exchanges rates may have a significant impact on the results of our operations . in order to manage the effect of these fluctuations , we generally hedge our book equity exposure to foreign currencies through currency forward contracts and options . we typically hedge 50 % -100 % of book equity exposure against these foreign currencies . non-gaap measures and certain definitions ebitda and adjusted ebtida consolidated ebitda ( 1 ) - consolidated ebitda represents net income before interest expense , our share of interest expense included in income from investments in joint ventures and loan pool participations , depreciation and amortization , our share of depreciation and amortization included in income from investments in joint ventures , loss on early extinguishment of corporate debt and income taxes . we do not adjust consolidated ebitda for gains or losses on the extinguishment of mortgage debt as we are in the business of purchasing discounted notes secured by real estate and , in connection with these note purchases , we may resolve these loans through discounted payoffs with the borrowers . our management believes consolidated ebitda is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of consolidated ebitda generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisitions . adjusted ebitda ( 1 ) - represents consolidated ebitda , as defined above , adjusted to exclude merger related compensation expenses , share based compensation expense , and ebitda attributable to noncontrolling interests . our management uses adjusted ebitda to analyze our business because it adjusts ebitda for items we believe do not accurately reflect the nature of our business going forward or that relate to non-cash compensation expense or noncontrolling interests . additionally , we believe adjusted ebitda is useful to investors to assist them in getting a more accurate picture of our results from operations . such items may vary for different companies for reasons unrelated to overall operating performance . adjusted fees refers to kennedy wilson 's investment management , property services and research fees adjusted to include fees eliminated in consolidation and kennedy wilson 's share of fees in unconsolidated service businesses . adjusted net asset value is calculated by kwe as net asset value adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystallize in a long-term investment property business model such as the fair value of financial derivatives and deferred taxes on property valuation surpluses . adjusted net income represents consolidated adjusted net income as defined below , adjusted to exclude net income attributable to noncontrolling interests , before depreciation and amortization . consolidated adjusted net income represents net income before depreciation and amortization , our share of depreciation and amortization included in income from unconsolidated investments and share based compensation expense . consolidated investment account refers to the sum of kennedy wilson 's equity in : cash held by consolidated investments , consolidated real estate and acquired in-place leases , unconsolidated investments and consolidated loans gross of accumulated depreciation and amortization . equity partners refers to subsidiaries that we consolidate in our financial statements under u.s. gaap ( other than wholly-owned subsidiaries ) , including kwe , and third-party equity providers . investment account refers to the consolidated investment account presented after noncontrolling interest on invested assets gross of accumulated depreciation . ( 1 ) consolidated ebitda , as defined above , is not a recognized term under gaap and does not purport to be an alternative to net earnings as a measure of operating performance or to cash flows from operating activities as a measure of liquidity . additionally , consolidated ebitda is not intended to be a measure of free cash flow available for management 's discretionary use , as it does not remove all non-cash items ( such as acquisition related gains ) or consider certain cash requirements such as 29 interest payments , tax payments and debt service requirements .
| the following summarizes revenue , operating expenses , non-operating expenses , operating income ( loss ) and net income ( loss ) and calculates consolidated ebitda and adjusted ebitda by our investments , services and corporate operating segments years ended december 31 , 2014 , 2013 , and 2012 : 32 replace_table_token_14_th — ( 1 ) see definitions in non-gaap measures discussion above . replace_table_token_15_th — ( 1 ) see definitions in non-gaap measures discussion above . 33 replace_table_token_16_th — ( 1 ) see definitions in non-gaap measures discussion above . the following table shows adjusted fees for the years ended december 31 , 2014 and 2013 : replace_table_token_17_th — ( 1 ) the years ended december 31 , 2014 and 2013 includes $ 14.3 million and $ 0 million of fees recognized in net ( income ) attributable to noncontrolling interests relating to the portion of fees paid by noncontrolling interest holders in kwe and other consolidated equity partner investments . there is no comparable activity in the prior period since kwe and the consolidation of non-wholly owned investments occurred during 2014 . ( 2 ) included in income from unconsolidated investments relating to the company 's investment in a servicing platform in spain . the investment was made during the fourth quarter of 2013 . 34 the following compares results of operations for the years ended december 31 , 2014 and december 31 , 2013 and years ended december 31 , 2013 and december 31 , 2012 . kw group consolidated financial results and comparison of the years ended december 31 , 2014 and 2013 kw group 's revenues for the years ended december 31 , 2014 and 2013 were $ 398.6 million and $ 123.1 million , respectively . total operating expenses ( which includes depreciation and amortization of $ 104.5 million and $ 17.4 million , respectively ) for the same periods were $ 403.1 million and $ 149.1 million , respectively . net income attributable to our common shareholders was $ 13.8 million in 2014 compared to a net loss of $ 14.5 million in 2013. consolidated ebitda was $ 440.3 million and $ 177.6 million in 2014 and 2013 , respectively . adjusted ebitda was $ 317.8 million and $ 159.1 million in 2014 and
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our cable edge strategy is to become a major player in the converged cable access platform ( “ ccap ” ) market by delivering disruptive new virtualized docsis 3.1 cmts technology and related ccap architectures , which we collectively refer to as cableos . in the meantime , our cable edge segment is experiencing declining demand as our customers have decreased spending on our legacy cable edge products to prepare for the adoption of new virtualized docsis 3.1 cmts solutions and distributed access architectures . while these trends present near-term challenges for us , we continue to make progress in the development of cableos solutions and growth of our cableos business with expanded commercial deployments , field trials , and customer engagements since our first cableos shipments in the fourth quarter of 2016. to support our cable edge strategy and foster the further development and growth of this segment , in september 2016 , we issued comcast a warrant to further incentivize them to purchase our products and adopt our technologies , particularly our cableos ccap systems . pursuant to the warrant , comcast may , subject to certain vesting provisions , purchase up to 7,816,162 shares of our common stock , for a per share exercise price of $ 4.76. because the warrant is considered an incentive for comcast to purchase certain of the company 's products , the value of the warrant is recorded as a reduction in the company 's net revenues to the extent such value does not exceed net revenues from pertinent sales to comcast . ( see note 16 , “ warrants , ” of the notes to our consolidated financial statements for additional information ) . as a result of the continued uncertainty regarding the timing of our customers ' investment decisions , we implemented restructuring plans , including our 2016 , 2017 and 2018 restructuring plans , to better align the company 's resources and strategic goals , while simultaneously implementing an extensive company-wide expense control program . ( see note 10 , “ restructuring and related charges ” and note 20 , “ subsequent event ” , of the notes to our consolidated financial statements for additional information ) . our aggregate balance of cash and cash equivalents as of december 31 , 2017 was $ 57.0 million and during the fiscal year 2017 , we generated $ 3.1 million of cash from operations . we also entered into a $ 15 million line of credit with silicon valley bank in september 2017. we expect that our current sources of liquidity will provide us adequate liquidity based on our current plan for the next twelve months . critical accounting policies , judgments and estimates the preparation of financial statements and related disclosures requires harmonic to make judgments , assumptions and estimates that affect the reported amounts of assets and liabilities , the disclosure of contingencies and the reported amounts of revenue and expenses in the financial statements and accompanying notes . material differences may result in the amount and timing of revenue and expenses if different judgments or different estimates were made . see note 2 of the notes to our consolidated financial statements for details of our accounting policies . critical accounting policies , judgments and estimates that we believe have the most significant impact on harmonic 's financial statements are set forth below : revenue recognition ; valuation of inventories ; business combination ; impairment of goodwill or long-lived assets ; assessment of the probability of the outcome of current litigation ; accounting for income taxes ; and stock-based compensation . revenue recognition harmonic 's principal sources of revenue are from the sale of hardware , software , hardware and software maintenance contracts , and the sale of end-to-end solutions , encompassing design , manufacture , test , integration and installation of products . we also derive subscription revenues , which are comprised of subscription fees from customers utilizing the company 's cloud- 37 table of content based media processing solutions . harmonic recognizes revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been provided , the sale price is fixed or determinable , and collectability is reasonably assured . subscription revenue is recognized based on usage . we generally use contracts and customer purchase orders to determine the existence of an arrangement . shipping documents and customer acceptance , when applicable , are used to verify delivery . we assess whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the price is subject to refund or adjustment . we assess collectability based primarily on the creditworthiness of the customer , as determined by credit checks and analysis , as well as the customer 's payment history . significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period . because of the concentrated nature of our customer base , different judgments or estimates made for any one large contract or customer could result in material differences in the amount and timing of revenue recognized in any particular period . we have multiple-element revenue arrangements that include hardware and software essential to the hardware product 's functionality , non-essential software , services and support . we allocate revenue to all deliverables based on their relative selling prices . we determine the relative selling prices by first considering vendor-specific objective evidence of fair value ( “ vsoe ” ) , if it exists ; otherwise third-party evidence ( “ tpe ” ) of the selling price is used . when we are unable to establish selling price using vsoe or tpe , we use our best estimate of selling price ( “ besp ” ) in our allocation of arrangement consideration . the objective of besp is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . story_separator_special_tag besp is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings . the company 's process for determining besp involves management 's judgment , and considers multiple factors that may vary over time , depending upon the unique facts and circumstances related to each deliverable . if the facts and circumstances underlying the factors considered change or should future facts and circumstances lead the company to consider additional factors , the company 's besp may also change . once revenue is allocated to all deliverables based on their relative selling prices , revenue related to hardware elements ( hardware , essential software and related services ) are recognized using a relative selling price allocation and non-essential software and related services are recognized under the residual method . sales of stand-alone software that are not considered essential to the functionality of the hardware continue to be subject to the software revenue recognition guidance . in accordance with the software revenue recognition guidance , the company applies the residual method to recognize revenue for the delivered elements in stand-alone software transactions . under the residual method , the amount of revenue allocated to delivered elements equals the total arrangement consideration , less the aggregate fair value of any undelivered elements , typically maintenance , provided that vsoe of fair value exists for all undelivered elements . we establish fair value by reference to the price the customer is required to pay when an item is sold separately , using contractually stated , substantive renewal rates , when applicable , or the price of recently completed stand alone sales transactions . accordingly , the determination as to whether appropriate objective and reliable evidence of fair value exists can impact the timing of revenue recognition for an arrangement . solution sales for the design , manufacture , test , integration and installation of products are accounted for in accordance with applicable guidance on accounting for performance of construction/production contracts , using the percentage-of-completion method of accounting when various requirements for the use of this accounting guidance exist . under the percentage-of-completion method , our revenue recognized reflects the portion of the anticipated contract revenue that has been earned , equal to the ratio of actual labor hours expended to total estimated labor hours to complete the project . costs are recognized proportionally to the labor hours incurred . management believes that , for each such project , labor hours expended in proportion to total estimated hours at completion represents the most reliable and meaningful measure for determining a project 's progress toward completion . this requires us to estimate , at the outset of each project , a detailed project plan and associated labor hour estimates for that project . for contracts that include customized services for which labor costs are not reasonably estimable , the company uses the completed contract method of accounting . under the completed contract method , 100 % of the contract 's revenue and cost is recognized upon the completion of all services under the contract . if the estimated costs to complete a project exceed the total contract amount , indicating a loss , the entire anticipated loss is recognized . our application of the percentage-of-completion method of accounting is subject to our estimates of labor hours to complete each project . in the event that actual results differ from these estimates or we adjust these estimates in future periods , our operating results , financial position or cash flows for a particular period could be adversely affected . revenue on shipments to resellers and systems integrators is generally recognized on delivery . resellers and systems integrators purchase our products for specific capital equipment projects of the end-user and do not hold inventory as a standard operating practice . they perform functions that include importation , delivery to the end-customer , installation or integration , and post-sales service and support . our agreements with these resellers and systems integrators have terms which are generally consistent with the standard terms and conditions for the sale of our equipment to end users and do not provide for product rotation or pricing allowances , as are typically found in agreements with stocking resellers . we have long-term relationships 38 table of content with most of these resellers and systems integrators and substantial experience with similar sales of similar products . we do have instances of accepting product returns from resellers and system integrators . however , such returns typically occur in instances where the system integrator has designed a product into a project for the end user , but the integrator requests permission to return the component as it does not meet the specific project 's functional requirements . such returns are made solely at our discretion , as our agreements with resellers and system integrators do not provide for return rights . we have sufficient experience monitoring product returns from our resellers , and , accordingly , we have concluded that we should use a sell-in model for our reseller sales . valuation of inventories we state inventories at the lower of cost or net realizable value . cost is computed using standard cost , which approximates actual cost , on a first-in , first-out basis . we write down the cost of excess or obsolete inventory to net realizable value based on future demand forecasts and historical consumption . if there were to be a sudden and significant decrease in demand for our products , or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements , we could be required to record additional charges for excess and obsolete inventory and our gross margin could be adversely affected . inventory management is of critical importance in order to balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements .
| the decrease in our video segment net revenue in 2017 reflects our customers ' transition from our traditional linear broadcast products to our new ott technologies and saas solutions , partially offset by higher revenue due to the inclusion of two additional months of tvn post-acquisition revenue , compared to 2016. video segment operating margin decreased 4.0 % in 2017 , compared to 2016 , primarily due to decrease in video product revenue which led to higher unabsorbed factory overhead and higher inventory obsolescence charges for our legacy broadcast video inventory , offset partially by a decrease in discretionary operating expenses . our video segment net revenue increased $ 59.7 million , or 20 % , in 2016 compared to 2015. this increase was primarily attributable to a $ 40.6 million increase in video product revenue and a $ 19.1 million increase in video service revenue , and such increases were primarily due to the acquisition of tvn which contributed approximately $ 60.0 million of revenue in 2016. video segment operating margin decreased 1.2 % in 2016 , compared to 2015 , primarily due to unfavorable product mix and the inclusion of tvn 's lower gross margins and higher headcount and facilities costs related to the tvn acquisition . cable edge our cable edge segment net revenue decreased $ 15.6 million , or 29 % in 2017 , compared to 2016 , primarily due to continuing lower demand for our legacy edgeqam technologies as some of our customers defer purchases as they plan for a migration to next generation docsis 3.1 technologies and ccap architectures . cable edge segment operating margin decreased 37.4 % in 2017 , compared to 2016 , due to the reduced demand for our legacy edgeqam products as well as higher service costs related to increased cableos trial activity and new product introduction costs , as well as higher research and development expenses for cableos development in 2017. our cable edge segment net revenue decreased $ 30.8 million , or 36 % , in 2016 compared to 2015. the decrease was primarily due to reduce in demand as some of our customers are deferring purchases
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in addition , certain of our products are only utilized in heavy-duty ( class 8 ) trucks , such as our storage systems , sleeper boxes , sleeper bunks and privacy curtains , and , as a result , changes in demand for heavy-duty ( class 8 ) trucks or the mix of options on a vehicle can have a greater impact on our business than changes in the overall demand for commercial vehicles . to the extent that demand for higher content vehicles increases or decreases , our revenues and gross profit will be impacted positively or negatively . demand for our construction products is dependent on the overall vehicle demand for new commercial vehicles in the global construction equipment market and generally follows certain economic conditions around the world . our products are primarily used in the medium/heavy construction equipment markets ( weighing over 12 metric tons ) . demand in the medium/heavy construction equipment market is typically related to the level of larger scale infrastructure development projects such as highways , dams , harbors , hospitals , airports and industrial development , as well as activity in the mining , forestry and other raw material based industries . during 2009 , we experienced a significant decline in global construction equipment production levels as a result of the global economic downturn and related reduction in new equipment orders . during 2010 and continuing in 2011 , the global construction market has shown signs of recovery . along with the u.s. , we have operations in europe , asia , australia and mexico . our operating results are , therefore , impacted by exchange rate fluctuations to the extent we translate our foreign operations from their local currencies into u.s. dollars . changes in these foreign currencies as compared to the u.s. dollar resulted in an approximate $ 9.7 million increase in our revenues in 2011 as compared to 2010 and changes to these foreign currencies as compared to the u.s. dollar resulted in an approximate $ 2.4 million reduction in our revenues in 2010 as compared to 2009. because our costs were generally impacted to the same degree as our revenue , this exchange rate fluctuation did not have a material impact on our net income in 2011 as compared to 2010 and in 2010 as compared to 2009. we continuously seek ways to improve our operating performance by lowering costs . these efforts include , but are not limited to , the following : adjusting our hourly and salaried workforce to optimize costs in line with our production levels ; sourcing efforts in mexico , europe and asia ; consolidating our supply base to improve purchasing leverage ; eliminating excess production capacity through the closure and consolidation of manufacturing , warehousing or assembly facilities ; improving our manufacturing cost basis by locating production in low-cost regions of the world ; and implementing lean manufacturing and tqps initiatives to improve operating efficiency and product quality . 41 in the three months ended december 31 , 2009 , we announced restructuring plans for the closure and consolidation of one of our facilities located in liberec , czech republic and the closing of our norwalk , ohio truck cab assembly facility . the closure and consolidation of our liberec , czech republic facility was a result of management 's continued focus on reducing fixed costs and eliminating excess capacity . the closure of this facility was substantially completed as of december 31 , 2009. the closure of our norwalk , ohio facility was a result of navistar 's decision to source the cab assembly operations into its existing assembly facility in escobedo , mexico . we substantially completed the norwalk closure by september 2010. although oem demand for our products is directly correlated with new vehicle production , we also have the opportunity to grow through increasing our product content per vehicle through cross selling and bundling of products . we generally compete for new business at the beginning of the development of a new vehicle platform and upon the redesign of existing programs . new platform development generally begins at least one to three years before the marketing of such models by our customers . contract durations for commercial vehicle products generally extend for the entire life of the platform , which is typically five to seven years . in sourcing products for a specific platform , the customer generally develops a proposed production timetable , including current volume and option mix estimates based on their own assumptions , and then sources business with the supplier pursuant to written contracts , purchase orders or other firm commitments in terms of price , quality , technology and delivery . in general , these contracts , purchase orders and commitments provide that the customer can terminate if a supplier does not meet specified quality and delivery requirements and , in many cases , they provide that the price will decrease over the proposed production timetable . awarded business generally covers the supply of all or a portion of a customer 's production and service requirements for a particular product program rather than the supply of a specific quantity of products . accordingly , in estimating awarded business over the life of a contract or other commitment , a supplier must make various assumptions as to the estimated number of vehicles expected to be produced , the timing of that production , mix of options on the vehicles produced and pricing of the products being supplied . the actual production volumes and option mix of vehicles produced by customers depend on a number of factors that are beyond a supplier 's control . critical accounting policies and estimates our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america ( u.s . gaap ) . story_separator_special_tag for a comprehensive discussion of our significant accounting policies , see note 2 to our consolidated financial statements in item 8 in this annual report on form 10-k. the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we evaluate our estimates and assumptions on an ongoing basis , particularly relating to revenue recognition and sales commitments , inventory reserves , intangible and long-lived assets , income taxes , warranty reserves and pension and other post-retirement benefit plans . we base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets , liabilities and equity that are not readily apparent from other sources . actual results and outcomes could differ materially from these estimates and assumptions . see item 1a risk factors in this annual report on form 10-k for additional information regarding risk factors that may impact our estimates . revenue recognition and sales commitments we recognize revenue when ( 1 ) delivery has occurred or services have been rendered , ( 2 ) persuasive evidence of an arrangement exists , ( 3 ) there is a fixed or determinable price and ( 4 ) collectability is reasonably assured . our products are generally shipped from our facilities to our customers , which is when legal title passes to the customer for substantially all of our revenues . we enter into agreements with our customers at the beginning of a given platform 's life to supply products for 42 that platform . once we enter into such agreements , fulfillment of our purchasing requirements is our obligation for the entire production life of the platform , with terms generally ranging from five to seven years , and we have no provisions to terminate such contracts . provisions for anticipated contract losses are recognized at the time they become evident . in certain instances , we may be committed under existing agreements to supply product to our customers at selling prices that are not sufficient to cover the cost to produce such product . in such situations , we record a provision for the estimated future amount of such losses . such losses are recognized at the time that the loss is probable and reasonably estimable and are recorded at the minimum amount necessary to fulfill our obligations to our customers . we had a provision for anticipated contract losses of $ 0.7 million as of december 31 , 2011. we had a provision of $ 1.7 million for such losses as of december 2010 and $ 2.6 million as of december 31 , 2009. inventory reserves inventories are valued at the lower of first-in , first-out ( fifo ) cost or market . cost includes applicable material , labor and overhead . we value our finished goods inventory at a standard cost that is periodically adjusted to approximate actual cost . inventory quantities on-hand are regularly reviewed , and where necessary , provisions for excess and obsolete inventory are recorded based primarily on our estimated production requirements driven by expected market volumes . excess and obsolete provisions may vary by product depending upon future potential use of the product . intangible and long-lived assets we review definite-lived intangible and long-lived assets for recoverability whenever events or changes in circumstances indicate that carrying amounts may not be recoverable . if an indicator exists , a determination is made by management to ascertain whether property and equipment and certain definite-lived intangibles are recoverable based on the sum of expected future undiscounted cash flows from operating activities . determining the fair value of these assets is judgmental in nature and involves the use of significant estimates and assumptions . if the estimated undiscounted net cash flows are less than the carrying amount of such assets , we will recognize an impairment loss in an amount necessary to write down the assets to fair value as determined from expected discounted future cash flows . we base our fair value estimates on assumptions we believe to be reasonable , but that are inherently uncertain . for further information on our goodwill and intangible asset impairment , see notes 2 and 10 to our consolidated financial statements in item 8 in this annual report on form 10-k. income taxes as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . in addition , tax expense includes the impact of differing treatment of items for tax and accounting purposes which results in deferred tax assets and liabilities which are included in our consolidated balance sheet . to the extent that recovery of deferred tax assets is not likely , we must establish a valuation allowance . significant judgment is required in determining our provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . as of december 31 , 2011 , we determined that a valuation allowance of $ 69.4 million was needed against our deferred tax assets . this amount represents our total net deferred assets less deferred assets in certain state and international jurisdictions that do not have a multiple year cumulative loss . where we have a multiple year cumulative loss , we believe that it is appropriate to establish a valuation allowance . in the event that our actual results differ from our estimates or we adjust these estimates in future periods , the effects of these adjustments could materially impact our financial position and results of operations . as of december 31 , 2011 , our net deferred tax asset position is approximately $ 1.0 million in our financials .
| selling , general and administrative expenses increased $ 9.4 million , or 16.8 % , to $ 65.5 million for the year ended december 31 , 2011 from $ 56.1 million for the year ended december 31 , 2010. the increase resulted primarily from increased wages and benefits and increased travel and development costs to support new product initiatives and future programs . amortization expense . amortization expense increased to approximately $ 0.3 million for the year ended december 31 , 2011 from approximately $ 0.2 million for the year ended december 31 , 2010. this increase was primarily the result of the increase of our definite-lived intangible assets relating to trademarks/tradenames from our acquisitions of bostrom seating and stratos in the year ended december 31 , 2011. restructuring costs . we recorded restructuring charges for the year ended december 31 , 2011 of $ 0.7 million relating to the closure of certain manufacturing , warehousing and assembly facilities . we recorded restructuring charges for the year ended december 31 , 2010 of $ 1.7 million relating to the closure of certain manufacturing , warehousing and assembly facilities . other ( income ) expense . we use forward exchange contracts to hedge foreign currency transaction exposures . we estimate our projected revenues and purchases in certain foreign currencies or locations and will hedge a portion or all of the anticipated long or short position . all existing forward foreign exchange contracts have been marked-to-market and the fair value of contracts recorded in the consolidated balance sheets with the offsetting non-cash gain or loss recorded in our consolidated statements of operations . the $ 0.4 million of expense for the year ended december 31 , 2011 and the $ 4.8 million of income for the year ended december 31 , 2010 are primarily related to the noncash change in value of the forward exchange contracts in existence at the end of each period . interest expense . interest expense increased $ 2.8 million to $ 19.6 million for the year ended december 31 , 2011 from $ 16.8 million for the year ended december 31 , 2010. this increase was primarily the result
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product candidates in later stages of clinical development generally have a higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we complete our ongoing clinical trials , initiate new clinical trials , continue to discover and develop additional product candidates and prepare regulatory filings for any product candidates that successfully complete clinical development . the successful development of our product candidates is highly uncertain . at this time , we can not determine with certainty the duration and costs of our existing and future clinical trials of our product candidates or any other product candidate we may develop or if , when , or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval . we may never succeed in obtaining marketing approval for any product candidate . the duration , costs and timing of clinical trials and development of our product candidates and any other product candidate we may develop in the future will depend on a variety of factors , including : per patient trial costs ; the number of patients who enroll in each trial ; the number of trials required for approval ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to enroll eligible patients ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring requested by regulatory agencies ; the duration of patient participation in the trials and follow-up ; the phase of development of the product candidate ; and the efficacy and safety profile of the product candidate . 120 our expenditures are subject to additional uncertainties , including the terms and timing of regulatory approvals , and the expense of filing , prosecuting , defending and enforcing any patent claims or other intellectual property rights . we may never succeed in achieving regulatory approval for our product candidates . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay or modify clinical trials of our product candidates . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in our clinical trials due to patient enrollment or other reasons , we would be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs for personnel in our executive , finance , business development and administrative functions . general and administrative expenses also include legal fees relating to intellectual property and corporate matters , professional fees for accounting , auditing , tax and consulting services ; insurance costs , travel expenses and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our expanded infrastructure , including the development of a commercialization infrastructure for any product candidates for which we may obtain regulatory approval . we also expect to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with stock exchange and sec requirements , director and officer insurance costs and investor and public relations costs . we anticipate the additional costs for these services will increase our general and administrative expenses by between $ 1.0 million and $ 2.0 million on an annual basis . interest expense interest expense consists of interest due on our convertible promissory notes that were outstanding during the period prior to the conversion of the notes into series b convertible preferred stock in august 2019. income taxes since our inception in january 2017 , we have generated cumulative federal and state net operating loss for which we have not recorded any net tax benefit due to uncertainty around utilizing these tax attributes within their respective carryforward periods . as of december 31 , 2020 , we had federal net operating loss carryforwards , or nols , of $ 43.9 million and state nols of $ 43.9 million that may be available to offset future taxable income . the federal nols include $ 2.1 million available to reduce 100 % of future taxable income , which will begin to expire in 2037 , if not utilized , and $ 41.8 million , which can be carried forward indefinitely . the state nols will begin to expire in 2037 , if not utilized . utilization of the net operating losses and credits may be subject to a substantial annual limitation due to ownership change limitations provided by the internal revenue code of 1986 , as amended . the annual limitation may result in the expiration of our net operating losses and credits before we can use them . we have recorded a valuation allowance on our net deferred tax assets , including our deferred tax assets related to our net operating loss and research and development tax credit carryforwards . other income , net other income , net consists of interest income received from marketable securities . 121 story_separator_special_tag million from the issuance of our convertible promissory notes that were subsequently converted into series b convertible preferred stock . story_separator_special_tag 123 funding requirements to date , we have not generated any revenues from the commercial sale of approved drug products , and we do not expect to generate substantial revenue for at least the next few years . if we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval , our ability to generate future revenue will be compromised . we do not know when , or if , we will generate any revenue from our product candidates , and we do not expect to generate significant revenue unless and until we obtain regulatory approval of , and commercialize , our product candidates . we expect our expenses to increase in connection with our ongoing activities , particularly as we continue the research and development of , continue or initiate clinical trials of and seek marketing approval for our product candidates . in addition , if we obtain approval for any of our product candidates , we expect to incur significant commercialization expenses related to sales , marketing , manufacturing and distribution . furthermore , we expect to incur additional costs associated with operating as a public company . we anticipate that we will need substantial additional funding in connection with our continuing operations . if we are unable to raise capital when needed or on attractive terms , we could be forced to delay , reduce or eliminate our research and development programs or future commercialization efforts . identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming , expensive and uncertain process that takes many years to complete , and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales . in addition , our product candidates , if approved , may not achieve commercial success . our commercial revenues , if any , will be derived from sales of product candidates that we do not expect to be commercially available in the near term , if at all . we believe that the existing cash and cash equivalents , will enable us to fund our operating expenses and capital expenditure requirements into 2023. we have based these estimates on assumptions that may prove to be imprecise , and we could utilize our available capital resources sooner than we expect . because of the numerous risks and uncertainties associated with research , development and commercialization of pharmaceutical drugs , it is difficult to estimate with certainty the amount of our working capital requirements . our future funding requirements will depend on many factors , including : the scope , progress , costs and results of our ongoing and planned clinical trials of bt-11 and nx-13 ; the costs and results of discovery work using our lance precision medicine platform ; the scope , progress , costs and results of preclinical development , laboratory testing and clinical trials for any future product candidates we may decide to pursue ; the extent to which we in-license or acquire rights to other products , product candidates or technologies ; the costs and timing of process development and manufacturing scale-up activities associated with our product candidates and other programs we advance them through preclinical and clinical development ; the number and development requirements of other product candidates that we may pursue ; the costs , timing and outcome of regulatory review of our product candidates ; the costs and timing of future commercialization activities , including product manufacturing , marketing , sales and distribution , for any of our product candidates for which we receive marketing approval ; the revenue , if any , received from commercial sales of our product candidates for which we receive marketing approval ; our ability to establish and maintain strategic collaborations , licensing or other agreements and the financial terms of such agreements ; and the costs and timing of preparing , filing and prosecuting patent applications , maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims . further , our operating results may change in the future , and we may need additional funds to meet operational needs and capital requirements associated with such operating plans . 124 our future commercial revenue , if any , will be derived from sales of products that we do not expect to be commercially available for several years , if at all . until such time , if ever , that we can generate product revenue sufficient to achieve profitability , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaboration agreements , other third-party funding , strategic alliances , licensing arrangements and marketing and distribution arrangements . adequate additional financing may not be available to us on acceptable terms , or at all . we currently have no credit facility or committed sources of capital . to the extent that we raise additional capital through the sale of equity or convertible debt securities , your ownership interest will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder . debt financing and preferred equity financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise additional funds through other third-party funding , collaboration agreements , strategic alliances , licensing arrangements or marketing and distribution arrangements , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or grant licenses on terms that may not be favorable to us .
| we expect that our research and development and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future research programs and product candidates , including bt-11 and nx-13 , discovering and developing new product candidates using the lance precision medicine platform , contracting with cmos to support preclinical studies and clinical trials , expanding our intellectual property portfolio , and providing general and administrative support for our operations . as a result , we will need additional capital to fund our operations , which we may obtain from additional equity or debt financings , collaborations , licensing arrangements , or other sources . we do not currently have any approved products and have never generated any revenue from product sales . to date , we have financed our operations primarily through equity financings . as of december 31 , 2020 , we had $ 28.1 million in cash , cash equivalents and marketable securities and an accumulated deficit of $ 55.7 million . we had no indebtedness as of december 31 , 2020. as of december 31 , 2019 , we had $ 50.0 million in cash , cash equivalents and marketable securities and an accumulated deficit of $ 25.6 million . we had no indebtedness as of december 31 , 2020 and 2019. on february 3 , 2021 , we completed our initial public offering ( “ ipo ” ) in which we issued and sold 6,250,000 shares of our common stock at a public offering price of $ 16 per share . the company received net proceeds of $ 91.2 million from the ipo , after deducting underwriters ' discounts and commissions . the following table summarizes our sources and uses of cash for each of the periods set forth below : replace_table_token_12_th operating activities net cash used in operating activities for the year ended december 31 , 2020 was $ 23 million , consisting primarily of our net loss of $ 30.1 million as we incurred expenses associated with research activities for our lead product candidates and incurred general and administrative expenses . net cash used in operating activities for the year ended december 31 , 2019 was $ 9.9 million , consisting primarily of our net loss of $ 13.5 million as
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as a result , products that become part of the manufacturing specifications of a late-stage clinical or commercial process can be very sticky due to the costs and uncertainties associated with displacing them . critical accounting policies and estimates while our significant accounting policies are more fully described in the notes to our financial statements , we have identified the policies and estimates below as being critical to our business operations and the understanding of our results of operations . the impact of and any associated risks related to these policies on our business operations are discussed throughout management 's discussion and analysis of financial condition , including in the results of operations section , where such policies affect our reported and expected financial results . revenue recognition product sales we generate revenue from the sale of bioprocessing products , equipment devices , and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries . on product sales to end customers , revenue is recognized , net of discounts , when both the title and risk of loss have transferred to the customer , as determined by the shipping terms provided there are no uncertainties regarding acceptance , and all obligations have been completed . generally , our product arrangements for equipment sales are multiple element arrangements , and may include services , such as installation and training , and multiple products , such as consumables and spare parts . in accordance with asc 605-25 , based on terms and conditions of the product arrangements , the company believes that these services and undelivered products can be accounted for separately from the delivered product element as the delivered products have value to our customers on a standalone basis . accordingly , revenue for services not yet performed at the time of product shipment are deferred and recognized as such services are performed . the relative selling price of any undelivered products is also deferred at the time of shipment and recognized as revenue when these products are delivered . for product sales to distributors , the company recognizes revenue for both equipment and consumables upon delivery to the distributors unless direct shipment to the end user 's is requested . in this case , revenue is recognized upon delivery to the end user 's location . in general , distributors are responsible for shipment to the end customer along with installation , training and acceptance of the equipment by the end customer . shipments to distributors are not contingent upon resale of the product . we have a few longstanding customers who comprise the majority of revenue and have excellent payment histories and therefore we do not require collateral . we have had no significant write-offs of uncollectible invoices in the periods presented . at the time of sale , we also evaluate the need to accrue for warranty and sales returns . the supply agreements we have with our customers and related purchase orders identify the terms and conditions of each sale and the price of the goods ordered . due to the nature of the sales arrangements , inventory produced for sale is tested for 30 quality specifications prior to shipment . since the product is manufactured to order and in compliance with required specifications prior to shipment , the likelihood of sales return , warranty or other issues is largely diminished . furthermore , there is no customer right of return in our sales agreements . sales returns and warranty issues are infrequent and have not had a material impact on our financial statements historically . shipping and handling fees are recorded as a component of product revenue , with the associated costs recorded as a component of cost of product revenue . pfizer license agreement in december 2012 , we entered into an exclusive worldwide licensing agreement ( the license agreement ) with pfizer , inc. ( pfizer ) to advance the sma program , which is led by rg3039 and also includes backup compounds and enabling technologies . under the terms of the license agreement , we received $ 5 million from pfizer as an upfront payment on january 22 , 2013 , a $ 1 million milestone payment on september 4 , 2013 and a $ 1 million milestone payment on december 28 , 2014. on january 26 , 2015 , pfizer sent us a termination notice , and the license agreement expired on april 25 , 2015. on march 17 , 2016 , we terminated our licensing agreement with curesma and returned all patent rights and related data and materials to curesma . biomarin license agreement on january 21 , 2014 , we out-licensed our histone deacetylase inhibitor ( hdaci ) portfolio , which includes the friedreich 's ataxia program , to biomarin pharmaceuticals inc. ( biomarin ) . under the terms of the agreement , we received an upfront payment of $ 2 million in january 2014 from biomarin and a $ 125,675 payment in september 2014 upon tech transfer , and we have the potential to receive up to $ 160 million in future milestone payments for the development , regulatory approval and commercial sale of portfolio compounds included in the agreement . in addition , we are eligible to receive royalties on sales of qualified products developed . inventories inventories relate to our bioprocessing business . we value inventory at cost or , if lower , fair market value , using the first-in , first-out method . we review our inventory at least quarterly and record a provision for excess and obsolete inventory based on our estimates of expected sales volume , production capacity and expiration dates of raw materials , work-in-process and finished products . expected sales volumes are determined based on supply forecasts provided by key customers for the next three to 12 months . story_separator_special_tag we write down inventory that has become obsolete , inventory that has a cost basis in excess of its expected net realizable value , and inventory in excess of expected requirements to cost of product revenue . manufacturing of bioprocessing finished goods is done to order and tested for quality specifications prior to shipment . a change in the estimated timing or amount of demand for our products could result in additional provisions for excess inventory quantities on hand . any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results . during all periods presented in the accompanying consolidated financial statements , there have been no material adjustments related to a revised estimate of inventory valuations . business combinations amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed , if any , based on their fair values at the dates of acquisition . the fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management . any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill . the fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made , the extent of royalties to be earned in excess of the defined minimum 31 royalties , etc . management updates these estimates and the related fair value of contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments . to the extent our estimates change in the future regarding the likelihood of achieving these targets we may need to record material adjustments to our accrued contingent consideration . changes in the fair value of contingent consideration are recorded in our consolidated statement of operations . we have accrued approximately $ 6.1 million as of december 31 , 2016 related to sales targets as part of the refine acquisition and the atoll acquisition . we use the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology . this approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value . we base our assumptions on estimates of future cash flows , expected growth rates , expected trends in technology , etc . we base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors . we believe the estimated purchased customer relationships , developed technologies , trademark / tradename , patents , and in process research and development amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets . intangible assets and goodwill intangible assets we amortize our intangible assets that have finite lives using the straight-line method . amortization is recorded over the estimated useful lives ranging from 2 to 20 years . we review our intangible assets subject to amortization to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life . further , we also review our indefinite-lived intangible assets not subject to amortization to determine if any adverse conditions exist or a change in circumstances occurred that would indicate an impairment . if the carrying value of an asset exceeds its estimated undiscounted cash flows , we will write-down the carrying value of the intangible asset to its fair value in the period identified . in assessing fair value , we must make assumptions regarding estimated future cash flows and discount rates . if these estimates or related assumptions change in the future , we may be required to record impairment charges . we generally calculate fair value as the present value of estimated future cash flows to be generated by the asset using a risk-adjusted discount rate . if the estimate of an intangible asset 's remaining useful life is changed , we will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life . goodwill we test goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value . events that would indicate impairment and trigger an interim impairment assessment include , but are not limited to current economic and market conditions , including a decline in market capitalization , a significant adverse change in legal factors , business climate or operational performance of the business , and an adverse action or assessment by a regulator . our annual impairment test date is the last day of our fiscal year , december 31 , 2016. the company performed its annual impairment test over the company 's one reporting unit and concluded that goodwill was not impaired . accrued liabilities we estimate accrued liabilities by identifying services performed on our behalf , estimating the level of service performed and determining the associated cost incurred for such service as of each balance sheet date . for example , we would accrue for professional and consulting fees incurred with law firms , audit and accounting 32 service providers and other third party consultants . these expenses are determined by either requesting those service providers to estimate unbilled services at each reporting date for services incurred or tracking costs incurred by service providers under fixed fee arrangements . we have processes in place to estimate the appropriate amounts to record for accrued liabilities , which principally involve the applicable personnel reviewing the services provided .
| for fiscal 2016 , bioprocessing product sales increased by $ 20,904,000 or 25 % as compared to fiscal 2015 , due largely to increased volumes in our filtration and chromatography products , as well as from revenues generated from the atoll acquisition . we sell our various bioprocessing products at different price points . the mix of products sold varies and impacts the fluctuations in total product revenue and cost of product revenues from period to period . for fiscal 2015 , bioprocessing product sales increased by $ 23,106,000 or 38 % as compared to fiscal 2014 , due largely to increased volumes in our protein , chromatography and filtration products . we sell our various bioprocessing products at different price points . the mix of products sold varies and impacts the fluctuations in total product revenue and cost of product revenues from period to period . royalty revenues we recognized $ 2,126,000 of revenue for fiscal 2014 from the out-license of our hdaci portfolio to biomarin on january 21 , 2014. we also recognized $ 1,000,000 of revenue for fiscal 2014 from the out-license of our spinal muscular atrophy program to pfizer on december 28 , 2012. we did not recognize any such revenue in fiscal 2015 and 2016 , and we do not expect to recognize any research and license revenue or to receive any incremental funding for our therapeutic development programs going forward . costs and operating expenses total costs and operating expenses for fiscal years 2016 , 2015 , and 2014 were comprised of the following : replace_table_token_8_th cost of product revenue for fiscal 2016 , cost of product revenue increased $ 11,866,000 or 34 % as compared to fiscal 2015. this increase is primarily due to the increase in product revenues noted above . for fiscal 2015 , cost of product revenue increased $ 7,229,000 or 26 % as compared to fiscal 2014. this increase is primarily due to the increased product revenue noted above . gross margins were 55 % , 58 % , and 54 % for fiscal 2016 , 2015 , and 2014 , respectively . during fiscal 2016 , gross margins decreased slightly compared to fiscal 2015 due to product
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our vision is to build healthier communities , urgently and responsibly , which we believe generates value for our many stakeholders , including our shareholders . our pipeline strategy is to build a robust pipeline with early-to late-stage clinical programs . we are pursuing the strategy by acquiring and developing medicines that address unmet needs , with a focus on rare diseases and our therapeutic areas of ophthalmology , rheumatology , nephrology and endocrinology . at the beginning of 2021 , we had 14 pipeline programs , with six trials expected to begin later in the year . with respect to our on-market rare disease medicines , including our growth driver medicines tepezza and krystexxa , our commercialization strategy includes efforts to increase awareness of the rare conditions that each medicine is designed to treat , enhancing efforts to identify target patients and to maximize the value of the medicines through clinical trials . on january 31 , 2021 , we entered into an agreement to acquire viela , and the acquisition is expected to close in the first quarter of 2021. viela has a deep mid-stage biologics pipeline for autoimmune and severe inflammatory diseases , with four candidates currently in nine development programs . each molecule targets central pathways that are implicated in a wide range of autoimmune diseases . 110 results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 consolidated results replace_table_token_6_th net sales . net sales increased $ 900.4 million , or 69 % , to $ 2,200.4 million during the year ended december 31 , 2020 , from $ 1,300.0 million during the year ended december 31 , 2019. the increase in net sales during the year ended december 31 , 2020 was primarily due to an increase in net sales in our orphan segment of $ 936.7 million , primarily due to post-launch sales of tepezza of $ 820.0 million , partially offset by a decrease in net sales in our inflammation segment of $ 36.3 million . the following table presents a summary of total net sales attributed to geographic sources for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) : replace_table_token_7_th 111 the following table reflects the components of net sales for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) : replace_table_token_8_th orphan segment tepezza . on january 21 , 2020 , the fda approved tepezza for the treatment of ted . net sales generated for tepezza during the year ended december 31 , 2020 were $ 820.0 million . as a result of the covid-19 pandemic and despite its strong launch year performance , tepezza net sales were negatively impacted during the year ended december 31 , 2020 , due to reduced willingness of patients to visit physician offices and infusion centers . krystexxa . net sales increased $ 63.4 million , or 19 % , to $ 405.8 million during the year ended december 31 , 2020 , from $ 342.4 million during the year ended december 31 , 2019. net sales increased by approximately $ 32.5 million due to volume growth and $ 30.9 million due to higher net pricing . as a result of the covid-19 pandemic , krystexxa net sales were negatively impacted during the year ended december 31 , 2020 , due to reduced willingness of patients to visit physician offices and infusion centers . ravicti . net sales increased $ 32.9 million , or 14 % , to $ 261.6 million during the year ended december 31 , 2020 , from $ 228.7 million during the year ended december 31 , 2019. net sales increased by approximately $ 20.6 million due to higher net pricing and $ 12.3 million due to volume growth . procysbi . net sales increased $ 8.2 million , or 5 % , to $ 170.1 million during the year ended december 31 , 2020 , from $ 161.9 million during the year ended december 31 , 2019. net sales increased by approximately $ 7.8 million due to higher net pricing and $ 0.4 million due to volume growth . actimmune . net sales increased $ 11.5 million , or 11 % , to $ 118.8 million during the year ended december 31 , 2020 , from $ 107.3 million during the year ended december 31 , 2019. net sales increased by approximately $ 12.4 million due to higher net pricing , partially offset by a decrease of approximately $ 0.9 million resulting from lower sales volume . 112 inflammation segment as a result of the covid-19 pandemic , sales volumes for our inflammation medicines have been negatively impacted due to reduced demand given the absence of in-person engagement by our sales representatives with health care providers and reduced levels of non-essential patient visits to physicians . pennsaid 2 % . net sales decreased $ 22.8 million , or 11 % , to $ 178.0 million during the year ended december 31 , 2020 , from $ 200.8 million during the year ended december 31 , 2019. net sales decreased by approximately $ 62.0 million resulting from lower sales volume , partially offset by an increase of $ 39.2 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs . duexis . net sales increased $ 9.5 million , or 8 % , to $ 125.3 million during the year ended december 31 , 2020 , from $ 115.8 million during the year ended december 31 , 2019. net sales increased by approximately $ 37.9 million due to higher net pricing primarily due to lower utilization of our patient assistance programs , partially offset by a decrease of approximately $ 28.4 million resulting from lower sales volume . rayos . story_separator_special_tag net sales decreased $ 6.7 million , or 9 % , to $ 71.8 million during the year ended december 31 , 2020 , from $ 78.5 million during the year ended december 31 , 2019. net sales decreased by approximately $ 23.5 million due to lower sales volume , partially offset by an increase of $ 16.8 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs . vimovo . net sales decreased $ 14.5 million , or 28 % , to $ 37.6 million during the year ended december 31 , 2020 , from $ 52.1 million during the year ended december 31 , 2019. net sales decreased by approximately $ 37.6 million due to lower sales volume , partially offset by an increase of $ 23.1 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs . the table below reconciles our gross to net sales for the years ended december 31 , 2020 and 2019 ( in millions , except percentages ) : replace_table_token_9_th during the year ended december 31 , 2020 , co-pay and other patient assistance costs , as a percentage of gross sales , decreased to 21.7 % from 38.8 % during the year ended december 31 , 2019 , primarily due to lower utilization of our patient assistance programs and the reduction of vimovo sales as a result of generic competition . during the year ended december 31 , 2020 , commercial rebates and wholesaler fees , as a percentage of gross sales , decreased to 7.5 % from 12.3 % during the year ended december 31 , 2019 , primarily as a result of an increased proportion of orphan segment medicines sold and the reduction of vimovo sales as a result of generic competition . on a quarter-to-quarter basis , our net sales have traditionally been lower in first half of the year , particularly in the first quarter , with the second half of the year representing a greater share of overall net sales each year . this is due to annual managed care plan changes and the re-setting of patients ' medical insurance deductibles at the beginning of each year , resulting in higher co-pay and other patient assistance costs as patients meet their annual medical insurance deductibles during the first and second quarters , and higher net sales in the second half of the year after patients meet their deductibles and healthcare plans reimburse a greater portion of the total cost of our medicines . 113 on december 17 , 2020 , we announced that we expected a short-term disruption in tepezza supply as a result of recent u.s. government-mandated covid-19 vaccine production orders pursuant to the defense production act of 1950 , that dramatically restricted capacity available for the production of tepezza at our drug product contract manufacturer , catalent . this short-term supply disruption has negatively impacted our net sales of tepezza . refer to the impact of covid-19 section in item 1 of part i , business , of this annual report on form 10-k for further information . cost of goods sold . cost of goods sold increased $ 170.5 million to $ 532.7 million during the year ended december 31 , 2020 , from $ 362.2 million during the year ended december 31 , 2019. the increase in cost of goods sold during the year ended december 31 , 2020 , compared to during the year ended december 31 , 2019 , was primarily due to a $ 93.1 million increase in royalty expense and a $ 24.7 million increase in amortization expense . these increases are mainly related to royalties payable on net sales of tepezza , which was launched in the first quarter of 2020 , and the amortization of the tepezza developed technology intangible asset , which commenced in the first quarter of 2020. as a percentage of net sales , cost of goods sold was 24 % during the year ended december 31 , 2020 , compared to 28 % during the year ended december 31 , 2019. the decrease in cost of goods sold as a percentage of net sales was primarily due to a change in the mix of medicines sold . we expect our cost of goods sold to significantly increase in 2021 as a result of increased amortization expense and inventory step-up expense as a result of the completion of the pending viela acquisition . refer to note 21 of the notes to consolidated financial statements , included in item 15 of this annual report on form 10-k , for further details of this pending acquisition . research and development expenses . research and development expenses increased $ 106.2 million to $ 209.4 million during the year ended december 31 , 2020 , from $ 103.2 million during the year ended december 31 , 2019. the increase was primarily attributable to the $ 45.0 million acquisition of curzion during the year ended december 31 , 2020. pursuant to asc 805 ( as amended by asu no . 2017-01 ) , we accounted for the curzion acquisition as the purchase of an in-process research and development asset and , pursuant to asc 730 , recorded the purchase price as a research and development expense during the year ended december 31 , 2020. additionally , during the year ended december 31 , 2020 , we entered into an agreement with halozyme therapeutics inc , or halozyme , which gives us exclusive access to halozyme 's enhanze drug delivery technology for subcutaneous , or sc , formulation of medicines targeting igf-1r , and we paid halozyme an upfront cash payment of $ 30.0 million which we recorded as a research and development expense in the consolidated statement of comprehensive income ( loss ) during the year ended december 31 , 2020. additionally , clinical trial and manufacturing development costs increased $ 28.7 million during the year ended december 31 , 2020 compared to the year ended december 31 , 2019 reflecting increased activity in our research and development pipeline .
| net sales increased $ 7.0 million , or 5 % , to $ 161.9 million during the year ended december 31 , 2019 , from $ 154.9 million during the year ended december 31 , 2018. the increase in net sales was composed of an increase of approximately $ 9.0 million due to volume growth , partially offset by a decrease of $ 2.0 million resulting from lower net pricing . actimmune . net sales increased $ 1.7 million , or 2 % , to $ 107.3 million during the year ended december 31 , 2019 , from $ 105.6 million during the year ended december 31 , 2018. net sales increased by approximately $ 4.2 million due to higher net pricing , partially offset by a decrease of approximately $ 2.5 million resulting from lower sales volume . buphenyl . net sales decreased $ 12.0 million , or 55 % , to $ 9.8 million during the year ended december 31 , 2019 , from $ 21.8 million during the year ended december 31 , 2018. net sales decreased primarily as a result of the immedica transaction in december 2018 . 118 inflammation segment pennsaid 2 % . net sales increased $ 10.6 million , or 6 % , to $ 200.8 million during the year ended december 31 , 2019 , from $ 190.2 million during the year ended december 31 , 2018. net sales increased by approximately $ 47.2 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs , partially offset by a decrease of approximately $ 36.6 million resulting from lower sales volume . duexis . net sales increased $ 1.1 million , or 1 % , to $ 115.8 million during the year ended december 31 , 2019 , from $ 114.7 million during the year ended december 31 , 2018. net sales increased by approximately $ 18.1 million resulting from higher net pricing primarily due to lower utilization of our patient assistance programs , partially offset by a decrease of approximately $ 17.0 million resulting from lower sales volume . rayos . net
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our portfolio we develop and operate 12 data centers located in eight states , containing an aggregate of approximately 4.7 million gross square feet of space ( approximately 94 % of which is wholly owned by us ) , including approximately 2.1 million “ basis-of-design ” raised floor square feet , which represents the total data center raised floor potential of our existing data center facilities . this represents the maximum amount of space in our existing buildings that could be leased following full build-out , depending on the configuration that we deploy . as of december 31 , 2014 , this space included approximately 927,000 raised floor operating net rentable square feet , or nrsf , plus approximately 1.1 million square feet of additional raised floor in our development pipeline , of which approximately 97,000 nrsf is expected to become operational by december 31 , 2015. our facilities collectively have access to over 500 megawatts ( “ mw ” ) of gross utility power with 419 mw of available utility power . we believe such access to power gives us a competitive advantage in redeveloping data center space , since access to power is usually the most limiting and expensive component in data center redevelopment . during 2014 we acquired two additional data center properties . on june 30 , 2014 we completed the acquisition of our princeton facility from mcgraw hill financial , inc. , which is located on approximately 194 acres and consists of approximately 560,000 gross square feet , including approximately 58,000 square feet of raised floor , and 12 mw of gross power . additionally , on july 8 , 2014 , we completed the acquisition of the former sun times press facility in downtown chicago , illinois , which consists of approximately 317,000 gross square feet with capacity for approximately 133,000 square feet of raised floor and 24 mw of power . we intend to redevelop the facility which will increase its size to approximately 400,000 gross square feet with raised floor capacity of approximately 215,000 square feet and 37 mw of power . 68 key operating metrics the following sets forth definitions for our key operating metrics . these metrics may differ from similar definitions used by other companies . monthly recurring revenue ( “ mrr ” ) . we calculate mrr as monthly contractual revenue under signed leases as of a particular date , which includes revenue from our c1 , c2 and c3 rental and cloud and managed services activities , but excludes customer recoveries , deferred set-up fees , variable related revenues , non-cash revenues and other one-time revenues . mrr does not include the impact from booked-not-billed leases as of a particular date , unless otherwise specifically noted . annualized rent . we define annualized rent as mrr multiplied by 12. rental churn . we define rental churn as the mrr impact from a customer completely departing our platform in a given period compared to the total mrr at the beginning of the period . leasable raised floor . we define leasable raised floor as the amount of raised floor square footage that we have leased plus the available capacity of raised floor square footage that is in a leasable format as of a particular date and according to a particular product configuration . the amount of our leasable raised floor may change even without completion of new redevelopment projects due to changes in our configuration of c1 , c2 and c3 product space . percentage ( % ) occupied and billing raised floor . we define percentage occupied and billing raised floor as the square footage that is subject to a signed lease for which billing has commenced as of a particular date compared to leasable raised floor as of that date , expressed as a percentage . booked-not-billed . we define booked-not-billed as our customer leases that have been signed , but for which lease payments have not yet commenced . factors that may influence future results of operations and cash flows revenue . our revenue growth will depend on our ability to maintain the historical occupancy rates of leasable raised floor , lease currently available space , lease new capacity that becomes available as a result of our development and redevelopment activities , attract new customers and continue to meet the ongoing technological requirements of our customers . as of december 31 , 2014 , we had in place customer leases generating revenue for approximately 85 % of our leasable raised floor . our ability to grow revenue also will be affected by our ability to maintain or increase rental , cloud and managed services rates at our properties . future economic downturns , regional downturns or downturns in the technology industry could impair our ability to attract new customers or renew existing customers ' leases on favorable terms , or at all , and could adversely affect our customers ' ability to meet their obligations to us . negative trends in one or more of these factors could adversely affect our revenue in future periods , which would impact our results of operations and cash flows . we also at times may elect to reclaim space from customers in a negotiated transaction where we believe that we can redevelop and or re-lease that space at higher rates , which may cause a decrease in revenue until the space is re-leased . leasing arrangements . as of december 31 , 2014 , 25 % of our mrr came from customers which individually occupied greater than or equal to 6,600 square feet of space ( or approximately 1 mw of power ) and which had metered power . as of december 31 , 2014 , approximately 43 % of our mrr came from c1 customers that are subject to the metered power model . story_separator_special_tag under the metered power model , the customer pays us a fixed monthly rent amount , plus reimbursement of certain other operating costs , including actual costs of sub-metered electricity used to power its data center equipment and an estimate of costs for electricity used to power supporting infrastructure for the data center , expressed as a factor of the customer 's actual electricity usage . fluctuations in our customers ' utilization of power and the supplier pricing of power do not significantly impact our results of operations or cash flows under the metered power model . these leases generally have a minimum term of five years . as of december 31 , 2014 , 75 % of our mrr was leased to customers which individually occupied less than 6,600 square feet of space , many of whom are billed on a gross lease basis . our c2/c3 customers are billed under a gross lease model and as of december 31 , 2014 , represented 57 % of our mrr . under a gross lease , the customer pays us a fixed rent on a monthly basis , and does not separately reimburse us for operating costs , including utilities , maintenance , repair , property taxes and insurance , as reimbursement for these costs is factored into mrr . however , if customers access more utility costs than their leases permit , we are able to charge these customers for overages . for leases under the gross lease model , fluctuations in our customers ' utilization of power and the prices our utility providers charge us will impact our results of operations and cash flows . our leases on a gross lease basis generally have a term of three years or less . 69 scheduled lease expirations . our ability to minimize rental churn and customer downgrades at renewal and renew , lease and re-lease expiring space will impact our results of operations and cash flows . leases which have commenced billing representing approximately 11 % and 12 % of our total leased raised floor are scheduled to expire during the years ending december 31 , 2015 ( including all month-to-month leases ) and 2016 , respectively . these leases also represented approximately 26 % and 21 % , respectively , of our annualized rent as of december 31 , 2014. at expiration , as a general matter , based on current market conditions , we expect that expiring rents will be at or below the then-current market rents . acquisitions , redevelopment and financing . our revenue growth also will depend on our ability to acquire and redevelop and subsequently lease data center space at favorable rates . we generally fund the cost of data center acquisition and redevelopment from our net cash provided by operations , credit facilities , other unsecured and secured borrowings or the issuance of additional equity . we believe that we have sufficient access to capital from our current cash and cash equivalents , and borrowings under our credit facilities to fund our redevelopment projects . operating expenses . our operating expenses generally consist of direct personnel costs , utilities , property and ad valorem taxes , insurance and site maintenance costs and rental expenses on our ground and building leases . in particular , our buildings require significant power to support the data center operations conducted in them . although substantially all of our long-term leases—leases with a term greater than three years—contain reimbursements for certain operating expenses , we will not in all instances be reimbursed for all of the property operating expenses we incur . we also incur general and administrative expenses , including expenses relating to senior management , our in-house sales and marketing organization , cloud and managed services support personnel and legal , human resources , accounting and other expenses related to professional services . we also will incur additional expenses arising from being a publicly traded company , including employee equity-based compensation . increases or decreases in our operating expenses will impact our results of operations and cash flows . we expect to incur additional operating expenses as we continue to expand . general leasing activity during the twelve months ended december 31 , 2014 , we entered into customer leases representing approximately $ 4.8 million of incremental mrr , net of downgrades ( and representing approximately $ 58.0 million of annualized rent ) at $ 356 per square foot . in addition , we incurred $ 13.5 million of leasing commissions related to the new leasing activity for the twelve months ended december 31 , 2014. during the twelve months ended december 31 , 2014 , we renewed leases with a total annualized rent of $ 23.7 million at an average rent per square foot of $ 768 , which was 2.3 % higher than the annualized rent prior to renewal . we define renewals as leases where the customer retains the same amount of space before and after renewal , which facilitates rate comparability . customers that renew with adjustments to square feet are reflected in the net leasing activity discussed above . the rental churn rate for the twelve months ended december 31 , 2014 was 6.2 % . during the twelve months ended december 31 , 2014 , we commenced customer leases representing approximately $ 5.7 million of incremental mrr ( and representing approximately $ 69.0 million of annualized rent ) at $ 497 per square foot . as of december 31 , 2014 , our booked-not-billed mrr balance ( which represents customer leases that have been executed , but for which lease payments have not commenced as of december 31 , 2014 ) was approximately $ 4.8 million , or $ 57.8 million of annualized rent . the booked-not-billed balance is expected to contribute an incremental $ 12.4 million to revenue in 2015 ( representing $ 21.7 million in annualized revenues ) , an incremental $ 15.3 million in 2016 ( representing $ 21.1 million in annualized revenues ) , and an incremental $ 14.9 million in annualized revenues thereafter .
| as of december 31 , 2013 , our data centers were 92 % leased based on leasable raised floor of approximately 486,000 square feet , with an average annualized rent of $ 381 per leased raised floor square foot including cloud and managed services revenue , or $ 342 per leased raised floor square foot excluding cloud and managed services revenue . the increase in leasable raised floor between 2013 and 2014 is primarily related to the addition of raised floor square footage from our redevelopment activities primarily in the atlanta-metro , dallas-fort worth and atlanta-suwanee facilities , as well as the acquisition of the princeton facility . the reduction in average annualized rent per leased raised floor square foot from $ 381 to $ 346 is due to an increase in mix of c1 customers which are in our portfolio . as of december 31 , 2014 , we had a larger portion of our customers which were c1 customers ( 43 % of mrr ) than we did as of december 31 , 2013 ( 40 % of mrr ) . due to the fact that c1 customers reimburse us for utilities and various other operating expenses and that reimbursement is excluded from the calculation of annualized rent per square foot , this increase in the portion of customer rent which is related to c1 customers has contributed to the weighted average per square foot reduction . higher recoveries from customers for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 were primarily due to reimbursements associated with the acquisition of the princeton facility which contributed $ 3.1 million to the increase as well as increased utility costs generally related to an increase in utility rates in our atlanta market and an increase in usage from customers operating under our metered power model at our richmond data center , which contributed $ 2.1 million and $ 0.8 million to the increase , respectively . the remaining increase of $ 0.1 million in recoveries revenue was attributable to various other locations . the $ 0.8 million increase in other revenue for the year ended december 31 , 2014 compared to
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in november 2018 , united , as lender , entered into a term loan agreement ( the `` brw term loan agreement '' ) with , among others , brw aviation holding llc and brw aviation llc ( `` brw '' ) , as guarantor and borrower , respectively . brw aviation holding llc and brw are affiliates of synergy aerospace corporation , and brw is the majority shareholder of avh . pursuant to the brw term loan agreement , united provided to brw a $ 456 million term loan ( the `` brw term loan '' ) , secured by a pledge of brw 's equity , as well as brw 's 516 million common shares of avh ( which are eligible to be converted into the same number of preferred shares , which may be deposited with the depositary for avh 's american depositary receipts ( `` adrs '' ) , the class of avh securities that trades on the new york stock exchange ( the `` nyse '' ) , in exchange for 64.5 million adrs ) ( such equity and shares , collectively , the `` brw loan collateral '' ) . brw is currently in default under the brw term loan agreement . the brw term loan was made in conjunction with a revenue-sharing joint business agreement among united , aerovías del continente americano s.a ( `` avianca '' ) , a subsidiary of avh , and copa as described in part 1 , item 1 of this report . for additional information regarding the brw term loan agreement and related agreements , see notes 8 , 9 and 13 to the financial statements included in part ii , item 8 of this report . in april 2018 , through a wholly-owned subsidiary , the company invested $ 138 million in azul linhas aéreas brasileiras s.a. ( `` azul '' ) thus increasing its preferred equity stake in azul to approximately 8 % ( representing approximately 2 % of the total capital stock of azul ) . 31 financing activities . significant financing events in 2019 were as follows : share repurchases . the company used $ 1.6 billion of cash to purchase approximately 19.2 million shares of its common stock during 2019 . in december 2017 , ual 's board of directors authorized a $ 3.0 billion share repurchase program to acquire ual 's common stock . in july 2019 , ual 's board of directors authorized a new $ 3.0 billion share repurchase program to acquire ual 's common stock . as of december 31 , 2019 , the company had approximately $ 3.1 billion remaining to purchase shares under its share repurchase programs . debt issuances . during 2019 , united received and recorded $ 1.8 billion of proceeds as debt related to enhanced equipment trust certificate ( `` eetc '' ) offerings created in 2019 to finance the purchase of aircraft . also , united received and recorded $ 350 million of proceeds from the 4.875 % senior notes due january 15 , 2025 and borrowed approximately $ 105 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2019 . as of december 31 , 2019 , united had recorded approximately $ 39 million of debt to finance the construction of an aircraft maintenance and ground service equipment complex at los angeles international airport . debt and finance lease principal payments . during the year ended december 31 , 2019 , the company made debt and finance lease principal payments of $ 1.4 billion . significant financing events in 2018 were as follows : share repurchases . the company used $ 1.2 billion of cash to purchase approximately 17.5 million shares of its common stock during 2018. debt issuances . during 2018 , united received and recorded $ 1.2 billion of proceeds as debt related to eetc offerings created in 2018 to finance the purchase of aircraft . also , united borrowed approximately $ 424 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2018. debt and finance lease principal payments . during the year ended december 31 , 2018 , the company made debt and finance lease principal payments of $ 1.8 billion . for additional information regarding these liquidity and capital resource matters , see notes 2 , 10 , 11 and 13 to the financial statements included in part ii , item 8 of this report . for information regarding non-cash investing and financing activities , see the company 's statements of consolidated cash flows . credit ratings . as of the filing date of this report , ual and united had the following corporate credit ratings : s & p moody 's fitch ual bb ba2 bb united bb * bb * the credit agency does not issue corporate credit ratings for subsidiary entities . these credit ratings are below investment grade levels ; however , the company has been able to secure financing with investment grade credit ratings for certain eetcs and term loans . downgrades from these rating levels , among other things , could restrict the availability , or increase the cost , of future financing for the company . other liquidity matters below is a summary of additional liquidity matters . see the indicated notes to our consolidated financial statements included in part ii , item 8 of this report for additional details related to these and other matters affecting our liquidity and commitments . pension and other postretirement plans note 7 long-term debt and debt covenants note 10 leases and capacity purchase agreements note 11 commitments and contingencies note 13 contractual obligations . the company 's business is capital intensive , requiring significant amounts of capital to fund the acquisition of assets , particularly aircraft . in the past , the company has funded the acquisition of aircraft with cash , by using eetc financing , by entering into finance or operating leases , or through other financings . story_separator_special_tag the company also often enters into long-term lease commitments with airports to ensure access to terminal , cargo , maintenance and other required facilities . the table below provides a summary of the company 's material contractual obligations as of december 31 , 2019 ( in billions ) : 32 replace_table_token_15_th ( a ) long-term debt presented in the company 's financial statements is net of $ 181 million of debt discount , premiums and debt issuance costs which are being amortized over the debt terms . contractual payments do not include the debt discount , premiums and debt issuance costs . ( b ) includes interest portion of finance lease obligations of $ 14 million in 2020 , $ 11 million in 2021 , $ 8 million in 2022 , $ 6 million in 2023 , $ 4 million in 2024 and $ 5 million thereafter . interest payments on variable interest rate debt were calculated using london interbank offered rates ( `` libor '' ) applicable at december 31 , 2019 . ( c ) represents our estimates of future minimum noncancelable commitments under our cpas and does not include the portion of the underlying obligations for aircraft and facility rent that is disclosed as part of operating lease obligations . amounts also exclude a portion of united 's finance lease obligation recorded for certain of its cpas . see note 11 to the financial statements included in part ii , item 8 of this report for the significant assumptions used to estimate the payments . ( d ) amounts represent postretirement benefit payments through 2029. benefit payments approximate plan contributions as plans are substantially unfunded . ( e ) represents an estimate of the minimum funding requirements as determined by government regulations for united 's u.s. pension plans . amounts are subject to change based on numerous assumptions , including the performance of assets in the plans and bond rates . ( f ) represents contractual commitments for firm order aircraft , spare engines and other capital purchase commitments . see note 13 to the financial statements included in part ii , item 8 of this report for a discussion of our purchase commitments . off-balance sheet arrangements . an off-balance sheet arrangement is any transaction , agreement or other contractual arrangement involving an unconsolidated entity under which a company has ( 1 ) made guarantees , ( 2 ) a retained or a contingent interest in transferred assets , ( 3 ) an obligation under derivative instruments classified as equity , or ( 4 ) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing , liquidity , market risk or credit risk support , or that engages in leasing , hedging or research and development arrangements . the company 's primary off-balance sheet arrangements include guarantees that are discussed below and variable-rate operating leases . see note 11 to the financial statements included in part ii , item 8 of this report for more information related to variable-rate operating leases . letters of credit and surety bonds . as of december 31 , 2019 , united had cash collateralized $ 73 million of letters of credit , which generally have evergreen clauses and are expected to be renewed on an annual basis . as of december 31 , 2019 , united also had $ 414 million of surety bonds securing various obligations with expiration dates through 2023. guarantee of brw commitment . in connection with funding the brw term loan agreement , the company entered into an agreement with kingsland , pursuant to which , in return for kingsland 's pledge of its 144.8 million common shares of avh ( which are eligible to be converted into the same number of preferred shares , which may be deposited with the depositary for avh 's adrs , the class of avh securities that trades on the nyse , in exchange for 18.1 million adrs ) and its consent to brw 's pledge of its avh common shares to united under the brw term loan agreement and related agreements , united ( 1 ) granted to kingsland the right to put its avh common shares to united at market price on the fifth anniversary of the brw term loan agreement or upon certain sales of avh common shares owned by brw , including upon a foreclosure , and ( 2 ) guaranteed brw 's obligation to pay kingsland the difference ( which amount , if paid by united , will increase the brw term loan by such amount ) if the market price of avh common shares on the fifth anniversary , or upon any such sale , as applicable , is less than $ 12 per adr , for an aggregate maximum possible combined put payment and guarantee amount on the fifth anniversary , or upon such sale , as applicable , of $ 217 million . in 2018 , the company recorded a liability of $ 31 million for the fair value of its guarantee to loan additional funds to brw if required . any such additional loans to brw would be collateralized by brw 's avh shares and other collateral . guarantee of debt of others . as of december 31 , 2019 , united is the guarantor of $ 132 million of aircraft mortgage debt issued by one of united 's regional carriers . the aircraft mortgage debt is subject to increased cost provisions and the company would potentially be responsible for those costs under the guarantees . the increased cost provisions in the $ 132 million of aircraft mortgage debt are similar to those in certain of the company 's debt agreements . see discussion under increased cost provisions , below , for additional information on increased cost provisions related to the company 's debt . 33 eetcs . as of december 31 , 2019 , united had $ 9.6 billion principal amount of equipment notes outstanding issued under eetc financings .
| the table below illustrates the year-over-year percentage change in the company 's operating revenues for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_9_th 28 the table below presents selected passenger revenue and operating data of the company , broken out by geographic region , expressed as year-over-year changes : replace_table_token_10_th passenger revenue increased $ 1.9 billion , or 5.1 % , in 2019 as compared to 2018 , primarily due to a 4.0 % increase in traffic , continuing strong domestic demand , improvements in average fares in the latin and domestic markets , and increases in ancillary fees driven by improved product offerings . cargo revenue decreased $ 58 million , or 4.7 % , in 2019 as compared to 2018 , primarily due to an approximately 3 % decrease in cargo ton miles and a 2 % decline in cargo ton mile yield . in december 2019 , a novel strain of coronavirus ( `` covid-19 '' ) was reported in wuhan , china . the world health organization has declared covid-19 to constitute a `` public health emergency of international concern . '' on january 30 , 2020 , the u.s. department of state issued a level 4 `` do not travel '' advisory for china . the u.s. government has also implemented enhanced screenings , quarantine requirements and travel restrictions in connection with the covid-19 outbreak . the company has suspended its flights between the united states and each of beijing , chengdu , shanghai and hong kong through april 24 , 2020. these routes represented approximately 5 % of the company 's 2020 planned capacity and the company 's other trans-pacific routes represented an additional 10 % of the company 's 2020 planned capacity . as of the date of this report , the company is experiencing an approximately 100 % decline in near-term demand to china and an approximately 75 % decline in near-term demand on the rest of the company 's trans-pacific routes . the extent of the impact of the covid-19 on the company 's operational and financial performance will depend on future developments , including the duration and spread of the outbreak and related travel
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additionally , on october 31 , 2016 , nrg business services llc , a subsidiary of nrg , and necp , a wholly owned subsidiary of the company , entered into an epc agreement for the construction of a 73 mwt district energy system for necp to provide 150 kpph of steam , 6,750 tons of chilled water and 7.5 mw of emergency backup power service to upmc mercy . the initial term of the energy services agreement with upmc mercy will be for a period of twenty years from the service commencement date . pursuant to the terms of the epc agreement , necp agreed to pay nrg business services llc $ 79 million , subject to adjustment based upon certain conditions in the epc agreement , upon substantial completion of the project . the project is expected to reach cod in the first quarter of 2018. on january 5 , 2017 , the parties amended the epc agreement , based on a customer change order , to increase the capacity of the district energy system from 73 mwt to 80 mwt , which also increased the payment from $ 79 million to $ 87 million . on september 1 , 2016 , as discussed in item 15 — note 3 , business acquisitions , to the consolidated financial statements , the company acquired the remaining 51.05 % interest of cvsr holdco llc from nrg for total cash consideration of $ 78.5 million . the acquisition was funded with cash on hand . the company also assumed additional debt of $ 496 million , which represents 51.05 % of the cvsr project level debt and 51.05 % of the notes issued under the cvsr holdco financing agreement . in connection with the retrospective adjustment of prior periods , the company now consolidates cvsr and 100 % of its debt , consisting of $ 771 million , of project level debt and $ 200 million of notes issued under the cvsr holdco financing agreement as of september 1 , 2016. on august 18 , 2016 , nrg yield operating llc issued $ 350 million of senior unsecured notes , or the 2026 senior notes . the 2026 senior notes bear interest at 5.00 % and mature on september 15 , 2026. a portion of the proceeds of the 2026 senior notes were used to repay the company 's revolving credit facility . for further discussion , refer to item 15 — note 10 , long-term debt , to the consolidated financial statements . on august 9 , 2016 , yield , inc. established a $ 150,000,000 at-the-market equity offering program , or atm program , as described in sources of liquidity in this item 7 below . as of december 31 , 2016 , no shares were issued under the atm program . on july 15 , 2016 , cvsr holdco , issued $ 200 million of senior secured notes that bear interest at 4.68 % and mature on march 31 , 2037. the proceeds were utilized , along with $ 28 million of cash on hand , to reduce borrowings under the 35 company 's revolving credit facility . for further discussion , refer to item 15 — note 10 , long-term debt , to the consolidated financial statements . environmental matters and regulatory matters details of environmental matters and regulatory matters are presented in item 1 — business , regulatory matters and item 1a— risk factors . details of some of this information relate to costs that may impact the company 's financial results . trends affecting results of operations and future business performance wind and solar resource availability the availability of the wind and solar resources affects the financial performance of the wind and solar facilities , which may impact the company 's overall financial performance . due to the variable nature of the wind and solar resources , the company can not predict the availability of the wind and solar resources and the potential variances from expected performance levels from quarter to quarter . to the extent the wind and solar resources are not available at expected levels , it could have a negative impact on the company 's financial performance for such periods . capital market conditions the capital markets in general are often subject to volatility that is unrelated to the operating performance of particular companies . the company 's growth strategy depends on its ability to identify and acquire additional conventional and renewable facilities from nrg and unaffiliated third parties , which will require access to debt and equity financing to complete such acquisitions or replenish capital for future acquisitions . any broad market fluctuations may affect the company 's ability to access such capital through debt or equity financings . the company believes that improved capital market conditions may allow it to access capital in 2017. operational matters walnut creek forced outage in july and august 2016 , walnut creek experienced two unrelated outages causing damage to a circuit breaker and a compressor resulting in forced outages on units 2 and 4 , respectively . the company has undertaken a root cause analysis and is reviewing what is covered by insurance . unit 2 returned to service on august 10 , 2016 and unit 4 returned to service on september 15 , 2016 . el segundo forced outage in january 2017 , the el segundo energy center began a forced outage on units 5 and 6 due to increasing vibrations on successive operations at unit 5. in consultation with the company 's operations and maintenance service provider , a subsidiary of nrg energy inc. , the company elected to replace the rotor on unit 5. both unit 5 and 6 returned to service on february 24 , 2017. the company is reviewing the warranty coverage with the original equipment manufacturer as well as available insurance coverage . story_separator_special_tag 36 consolidated results of operations 2016 compared to 2015 the following table provides selected financial information : replace_table_token_9_th replace_table_token_10_th ( a ) volumes do not include the mwh generated/sold by the company 's equity method investments . ( b ) volumes generated are not sold as the conventional facilities sell capacity rather than energy . ( c ) mwh sold do not include 204 mwh generated by nrg dover , a subsidiary of the company , under the ppa with nrg power marketing during the year ended december 31 , 2016 , as further described in item 15 — note 13 , related party transactions , to the consolidated financial statements . 37 management 's discussion of the results of operations for the years ended december 31 , 2016 and 2015 gross margin the company calculates gross margin in order to evaluate operating performance as operating revenues less cost of sales , which includes cost of fuel , contract and emission credit amortization and mark-to-market for economic hedging activities . economic gross margin in addition to gross margin , the company evaluates its operating performance using the measure of economic gross margin , which is not a gaap measure and may not be comparable to other companies ' presentations or deemed more useful than the gaap information provided elsewhere in this report . economic gross margin should be viewed as a supplement to and not a substitute for the company ' presentation of gross margin , which is the most directly comparable gaap measure . economic gross margin is not intended to represent gross margin . the company believes that economic gross margin is useful to investors as it is a key operational measure reviewed by the company 's chief operating decision maker . economic gross margin is defined as energy and capacity revenue less cost of fuels . economic gross margin excludes the following components from gaap gross margin : contract amortization , mark-to-market results , emissions credit amortization and ( losses ) gains on economic hedging activities . mark-to-market results consist of unrealized gains and losses on contracts that are not yet settled . the below tables present the composition of gross margin , as well as the reconciliation to economic gross margin for the years ended december 31 , 2016 and 2015 : replace_table_token_11_th 38 gross margin increased by $ 72 million and economic gross margin increased by $ 90 million during the year ended december 31 , 2016 , compared to the same period in 2015 , primarily due to : ( in millions ) renewables : 26 % increase in volume generated at the alta wind projects , as well as a 7 % increase in generation at other wind projects . additionally , there was an increase of $ 4 million in economic gross margin due to the acquisition of spring canyon in may 2015 $ 61 increase in average price per mwh due to higher pricing in the alta x and xi ppas which were effective in january 2016 , compared with merchant prices in 2015 27 thermal : higher sales volume in 2016 as a result of milder weather in 2015 , as well as the completion of a project for a new customer in the second half of the year 5 conventional : lower revenues at walnut creek as a result of forced outages in 2016 , partially offset by higher revenues at el segundo in 2016 as a result of forced outages in 2015 ( 3 ) increase in economic gross margin $ 90 higher contract amortization primarily for the alta x and xi ppas , which began in january 2016 ( 14 ) emissions credit amortization of nox allowances at walnut creek and el segundo in compliance with amendments to the regional clean air incentives market program ( 6 ) unrealized losses on forward contracts prior to the start of the ppa for elbow creek which began october 2015 2 increase in gross margin $ 72 operations and maintenance expense replace_table_token_12_th operations and maintenance expense decreased by $ 4 million during the year ended december 31 , 2016 , compared to the same period in 2015 , due to : ( in millions ) increase in conventional segment primarily due to walnut creek forced outages in 2016 , compared to the forced outages at el segundo in 2015 $ 2 decrease in renewables segment primarily due to insurance proceeds received at wildorado in 2016 in connection with a 2014 wind outage claim ( 3 ) decrease in thermal segment primarily due to acceleration of maintenance work on thermal facilities into 2015 ( 3 ) $ ( 4 ) other costs of operations other costs of operations decreased by $ 7 million during the year ended december 31 , 2016 , compared to the same period in 2015 , primarily due to lower assessments for property taxes at alta x and xi and nrg wind te holdco . general and administrative expenses general and administrative expenses increased by $ 4 million for the year ended december 31 , 2016 compared to the same period in 2015 , primarily due to new executive compensation in 2016 , and an increase in base management fee for the management services agreement with nrg in connection with the acquisition of the drop down assets . 39 impairment losses for the year ended december 31 , 2016 , the company recorded impairment losses of $ 183 million , due to the impairments of property , plant and equipment for elbow creek , goat wind , and forward , as further described in item 15 — note 9 , asset impairments , to the consolidated financial statements , as well as in critical accounting policies and estimates in this item 7 below . because the projects were acquired from nrg and related to interests under common control by nrg , the property , plant and equipment for these assets was recorded at historical cost of $ 298 million rather than estimated fair value of $ 132 million at the acquisition date .
| accordingly , the results presented herein reflect the company 's ownership of the eme assets for the full year ended december 31 , 2015 , compared to the nine months from april 1 , 2014 , through december 31 , 2014. gross margin the company calculates gross margin in order to evaluate operating performance as operating revenues less cost of sales , which includes cost of fuel , contract and emission credit amortization and mark-to-market for economic hedging activities . economic gross margin in addition to gross margin , the company evaluates its operating performance using the measure of economic gross margin , which is not a gaap measure and may not be comparable to other companies ' presentations or deemed more useful than the gaap information provided elsewhere in this report . economic gross margin should be viewed as a supplement to and not a substitute for the company ' presentation of gross margin , which is the most directly comparable gaap measure . economic gross margin is not intended to represent gross margin . the company believes that economic gross margin is useful to investors as it is a key operational measure reviewed by the company 's chief operating decision maker . economic gross margin is defined as energy and capacity revenue less cost of fuels . economic gross margin excludes the following components from gaap gross margin : contract amortization , mark-to-market results , emissions credit amortization and ( losses ) gains on economic hedging activities . mark-to-market results consist of unrealized gains and losses on contracts that are not yet settled . 42 the following tables present the composition of gross margin , as well as the reconciliation to economic gross margin for the years ended december 31 , 2015 and 2014 : replace_table_token_16_th gross margin increased by $ 143 million and economic gross margin increased by $ 172 million during the year ended december 31 , 2015 , compared to the same period in 2014 , driven by : replace_table_token_17_th operations and maintenance expense replace_table_token_18_th 43
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for the year ending december 31 , 2012 , we expect to continue to invest amounts in excess of our targeted operating margin levels back into the business . we finished the year with total headcount of approximately 137,700 , which is an increase of approximately 33,700 over the prior year . the increase in the number of our technical personnel and the related infrastructure costs , to meet the demand for our services , is the primary driver of the increase in our operating expenses in 2011. annual turnover , including both voluntary and involuntary , was approximately 13.2 % for 2011. the majority of our turnover occurs in india . as a result , annualized attrition rates on-site at clients are below our global attrition rate . in addition , attrition is weighted towards the more junior members of our staff . we have experienced increases in compensation and benefit costs , including incentive-based compensation costs , in india which may continue in the future ; however , historically , this has not had a material impact on our results of operations as we have been able to absorb such cost increases through price increases or cost management strategies such as managing discretionary costs , mix of professional staff and utilization levels , and achieving other operating efficiencies . our current india real estate development program includes planned construction of an additional 10.5 million square feet of new space between 2011 and the end of 2015. the expanded program includes the expenditure of over $ 700.0 million during this period on land acquisition , facilities construction and furnishings to build new company-owned state-of-the-art it development and delivery centers in regions primarily designated as special economic zones , or sezs , located in india . during 2012 , including the indian real estate development program , we expect to spend approximately $ 370 million globally for capital expenditures . at december 31 , 2011 , we had cash and cash equivalents and short-term investments of $ 2,432.3 million and working capital of $ 2,875.8 million . accordingly , we do not anticipate any near-term liquidity issues . during 2011 and 2010 , we repurchased approximately $ 338.8 million and $ 41.9 million , respectively , of our class a common stock under our existing stock repurchase program . stock repurchases under this program were funded from working capital . while several measures have indicated that the economy is stabilizing , we believe the global economic environment remains fragile . during 2012 , barring any unforeseen events , we expect the following factors to affect our business and our operating results : continued focus by customers on directing it spending towards cost containment projects , such as application maintenance , infrastructure management and bpo ; demand from our customers to help them achieve their dual mandate of simultaneously achieving cost savings while investing in innovation ; secular changes driven by evolving technologies and regulatory changes ; 47 volatility in foreign currency rates ; and continued uncertainty in the world economy , particularly in europe . in response to this fragile macroeconomic environment , we plan to : continue to invest in our talent base and new service offerings ; partner with our existing customers to provide innovative solutions resulting in our garnering an increased portion of our customers ' overall it spend ; continue our focus on growing our business in europe , the middle east and the asia pacific region , where we believe there are opportunities to gain market share ; continue to increase our strategic customer base across all of our business segments ; opportunistically look for acquisitions that may improve our overall service delivery capabilities , expand our geographic presence and or enable us to enter new areas of technology ; continue operating focus and discipline to appropriately manage our cost structure ; and continue to locate most of our new development center facilities in tax incentivized areas . critical accounting estimates and risks management 's discussion and analysis of our financial condition and results of operations is based on our accompanying consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities , including the recoverability of tangible and intangible assets , disclosure of contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenues and expenses during the reported period . on an on-going basis , we evaluate our estimates . the most significant estimates relate to the recognition of revenue and profits based on the percentage of completion method of accounting for certain fixed-bid contracts , the allowance for doubtful accounts , income taxes , valuation of investments , goodwill and other long-lived assets , assumptions used in valuing stock-based compensation awards and derivative financial investments , contingencies and litigation . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . the actual amounts may differ from the estimates used in the preparation of the accompanying consolidated financial statements . our significant accounting policies are described in note 1 to the accompanying consolidated financial statements . we believe the following critical accounting policies require a higher level of management judgments and estimates than others in preparing the consolidated financial statements : revenue recognition . revenues related to our highly complex information technology application development contracts , which are predominantly fixed-price contracts , are recognized as the services are performed using the percentage of completion method of accounting . story_separator_special_tag under this method , total contract revenue during the term of an agreement is recognized on the basis of the percentage that each contract 's total labor cost to date bears to the total expected labor cost ( cost to cost method ) . this method is followed where reasonably dependable estimates of revenues and costs can be made . management reviews total expected labor costs on an ongoing basis . revisions to our estimates may result in increases or decreases to revenues and income and are reflected in the consolidated financial statements in the periods in which they are first identified . if our estimates indicate that a contract loss will be incurred , a loss provision is recorded in the period in which the loss first becomes probable and reasonably estimable . contract losses are determined to be the amount by which the estimated costs of the contract exceed the estimated total revenues that will be generated by the contract and are included in cost of revenues in our consolidated statement of operations . contract losses for the periods presented were immaterial . 48 stock-based compensation . utilizing the fair value recognition provisions prescribed by the authoritative guidance , stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period . determining the fair value of stock-based awards at the grant date requires judgment , including estimating the expected term over which the stock awards will be outstanding before they are exercised , the expected volatility of our stock and the number of stock-based awards that are expected to be forfeited . in addition , for performance stock units , we are required to estimate the most probable outcome of the performance conditions in order to determine the amount of stock compensation costs to be recorded over the vesting period . if actual results differ significantly from our estimates , stock-based compensation expense and our results of operations could be materially impacted . income taxes . determining the consolidated provision for income tax expense , deferred income tax assets ( and related valuation allowance , if any ) and liabilities requires significant judgment . we are required to calculate and provide for income taxes in each of the jurisdictions where we operate and changes in the geographic mix of income before taxes or estimated level of annual pre-tax income can affect the overall effective income tax rate . the consolidated provision for income taxes may also change period to period based on non-recurring events , such as the settlement of income tax audits and changes in tax laws , regulations , or accounting principles . our provision for income taxes also includes the impact of provisions established for uncertain income tax positions , as well as the related net interest , which can involve complex issues and may require an extended period to resolve . although we believe we have adequately reserved for our uncertain tax positions , no assurance can be given that the final tax outcome of these matters will not differ from our recorded amounts . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit or the refinement of an estimate . to the extent that the final tax outcome of these matters differs from the amounts recorded , such differences will impact the provision for income taxes in the period in which such determination is made . significant judgment is also required in determining any valuation allowance recorded against deferred income tax assets . in assessing the need for a valuation allowance , we consider all available evidence for each jurisdiction including past operating results , estimates of future taxable income and the feasibility of tax planning strategies . in the event we change our determination as to the amount of deferred income tax assets that can be realized , we will adjust the valuation allowance with a corresponding impact recorded to income tax expense in the period in which such determination was made . our indian subsidiaries , collectively referred to as cognizant india , are primarily export-oriented and are eligible for certain income tax holiday benefits granted by the indian government for export activities . these benefits for export activities conducted within stps expired on march 31 , 2011. the income of our stps is now subject to corporate income tax at the current rate of 32.4 % . the expiration of the income tax holiday for stps is the primary driver of the significant increase in our effective tax rate for 2011. we have constructed and expect to continue to locate most of our newer development facilities in sezs , which are entitled to certain income tax incentives for export activities for periods up to 15 years . effective april 1 , 2011 , all indian profits , including those generated within sezs , are subject to the mat , at the current rate of approximately 20.0 % . any mat paid is creditable against future corporate income taxes , subject to limitations . currently , we anticipate utilizing our existing mat balances against future corporate income tax . however , our ability to fully do so will depend on possible changes to the indian tax laws as well as the future financial results of cognizant india . derivative financial instruments . derivative financial instruments are accounted for in accordance with the authoritative guidance which requires that each derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value as of the reporting date . our derivative financial instruments consist of foreign exchange forward contracts . we estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model . this model utilizes various assumptions , including , but not limited to timing and amounts of cash flows , discount rates , and credit risk factors .
| accordingly , we believe that non-gaap income from operations , excluding stock-based compensation expense and applicable stock-based indian fringe benefit tax , which was repealed during the third quarter of 2009 , retroactive to april 1 , 51 2009 , is a meaningful measure for investors to evaluate our financial performance . for our internal management reporting and budgeting purposes , we use financial statements that do not include stock-based compensation expense and applicable stock-based indian fringe benefit tax expense for financial and operational decision making , to evaluate period-to-period comparisons and for making comparisons of our operating results to that of our competitors . moreover , because of varying available valuation methodologies and the variety of award types that companies can use to account for stock-based compensation expense , we believe that providing a non-gaap financial measure that excludes stock-based compensation expense and applicable stock-based indian fringe benefit tax expense allows investors to make additional comparisons between our operating results and those of other companies . accordingly , we believe that the presentation of non-gaap income from operations when read in conjunction with our reported gaap income from operations can provide useful supplemental information to our management and to investors regarding financial and business trends relating to our financial condition and results of operations . a limitation of using non-gaap income from operations versus income from operations reported in accordance with gaap is that non-gaap income from operations excludes stock-based compensation expense , which is recurring . stock-based compensation expense will continue to be for the foreseeable future a significant recurring expense in our business . in addition , other companies may calculate non-gaap financial measures differently than us , thereby limiting the usefulness of this non-gaap financial measure as a comparative tool . we compensate for these limitations by providing specific information regarding the gaap amounts excluded from non-gaap income from operations and evaluating such non-gaap financial measures with financial measures calculated in accordance with gaap . a reconciliation of income from operations as reported and non-gaap income from operations , excluding stock-based compensation expense and stock-based indian fringe benefit tax expense , is as follows for the years ended december
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