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64 story_separator_special_tag million in gain ( loss ) on extinguishment of debt and a decrease of $ 28.5 million in salaries and employee benefits . our results of operations were significantly impacted by the actions we took to generate liquidity and pay down mark-to-market debt in direct response to the unfavorable market conditions that occurred near the onset of the covid-19 pandemic . the actions taken by management had multiple impacts on distributable earnings for the year ended december 31 , 2020. management believes the actions taken were prompted by the unusual market conditions and therefore outside of ladder 's main operations . management believes adjusting its performance measures for certain transactional charges and gains that were recognized during the three months ended june 30 , 2020 and that related to the impact of covid-19 provides a more useful guide to assess the ongoing main operations of the company . 66 the impact from covid-19 included adjustments related to the unusual market conditions and actions taken by management including : ( a ) $ 6.7 million of losses from sales of performing first mortgage loans included in sale of loans , net , ( b ) $ 15.4 million of losses from sales of cmbs , ( c ) $ 3.7 million of loss from conduit loan sales , ( d ) $ 6.5 million of prepayment penalties related to pay downs of mark-to-market debt included in interest expense , ( e ) $ 2.1 million of professional fee expenses included in operating expenses and ( f ) $ 0.2 million of severance costs included in salaries and employee benefits . the $ 34.5 million total of the preceding amounts was partially offset by ( g ) $ 19.0 million of gains from the repurchase of and extinguishment of unsecured corporate bond debt at a discount from par , net of ( h ) $ 1.5 million of accelerated premium amortization included in interest expense . see “ —reconciliation of non-gaap financial measures ” for our definition of distributable earnings and a reconciliation to income ( loss ) before taxes . net interest income the $ 90.4 million decrease in interest income was primarily attributable to a decrease in our security and loan portfolio due to paydowns and sales with lower prevailing libor rates during 2020. for the year ended december 31 , 2020 , securities investments averaged $ 1.6 billion and loan investments averaged $ 3.0 billion . for the year ended december 31 , 2019 , securities investments averaged $ 1.8 billion and loan investments averaged $ 3.4 billion . there was a $ 390.2 million decrease in average loan investments , and a $ 200.9 million decrease in average securities investments . the $ 23.1 million increase in interest expense was primarily attributable to an increase in interest expense on corporate bonds issued in 2020 , prepayment penalties on repayment of mark-to-market borrowings and hyper amortization of deferred issuance costs as a result of the retirement of corporate bonds in the year ended december 31 , 2020. the increase was also driven by interest expense on the fully drawn revolver and the addition of the clo and secured financing facility , partially offset by a decrease in interest expense on fhlb debt . the $ 129.2 million decrease in net interest income after provision for loan losses was primarily attributable to the decrease in net interest income and the increase in interest expense discussed above . as of december 31 , 2020 , the weighted average yield on our mortgage loan receivables was 6.6 % , compared to 6.8 % as of december 31 , 2019 as the weighted average yield on new loans originated was lower than the weighted average yield on loans that were securitized or paid off . as of december 31 , 2020 , the weighted average interest rate on borrowings against our mortgage loan receivables was 5.4 % , compared to 3.1 % as of december 31 , 2019. the increase in the rate on borrowings against our mortgage loan receivables from december 31 , 2019 to december 31 , 2020 was primarily due to higher borrowing rates on new sources of financing obtained during the year ended december 31 , 2020. as of december 31 , 2020 , we had outstanding borrowings secured by our mortgage loan receivables equal to 33.4 % of the carrying value of our mortgage loan receivables , compared to 38.3 % as of december 31 , 2019. as of december 31 , 2020 , the weighted average yield on our real estate securities was 1.7 % , compared to 3.1 % as of december 31 , 2019 , primarily due to lower prevailing market rates as of december 31 , 2020 compared to december 31 , 2019. as of december 31 , 2020 , the weighted average interest rate on borrowings against our real estate securities was 1.1 % , compared to 2.7 % as of december 31 , 2019. the decrease in the rate on borrowings against our real estate securities from december 31 , 2019 to december 31 , 2020 was primarily due to lower prevailing market borrowing rates as of december 31 , 2020 compared to december 31 , 2019. as of december 31 , 2020 , we had outstanding borrowings secured by our real estate securities equal to 75.1 % of the carrying value of our real estate securities , compared to 93.1 % as of december 31 , 2019. our real estate is comprised of non-interest bearing assets ; however , interest incurred on mortgage financing collateralized by such real estate is included in interest expense . as of december 31 , 2020 , the weighted average interest rate on mortgage borrowings against our real estate was 5.0 % , compared to 4.9 % as of december 31 , 2019. as of december 31 , 2020 , we had outstanding borrowings secured by our real estate equal to 77.8 % of the carrying value of our real estate , compared to 77.6 % as of december 31 , 2019 . story_separator_special_tag 67 provision for loan losses on january 1 , 2020 , the company recorded a cecl reserve of $ 11.6 million , which equated to 0.36 % of $ 3.2 billion carrying value of its held for investment loan portfolio . this reserve excluded three loans that previously had an aggregate of $ 14.7 million of asset-specific reserves and a carrying value of $ 39.8 million as of january 1 , 2020. upon adoption , the aggregated cecl reserve reduced total shareholder 's equity by $ 5.8 million . the total change in reserve for provision for the year ended december 31 , 2020 was $ 18.3 million which includes $ 9.1 million in the general reserve on both the loans held for investment and the related unfunded commitments and $ 9.2 million in asset-specific provision related to three loans . the increases/decreases during the year are primarily due to the update of the macro economic assumptions used instead of the more stable “ baseline ” scenario from the federal reserve that was utilized in the january 1 , 2020 cecl reserve analysis . for additional information , refer to “ allowance for credit losses and non-accrual status ” in note 3 , mortgage loan receivables to the consolidated financial statements . we determined that a provision for loan losses of $ 2.6 million was required for the year ended december 31 , 2019. the provision consisted of a portfolio-based , general reserve of $ 0.6 million for the expected losses over the remaining portfolio of mortgage loan receivables held for investment , and two asset-specific reserves . operating lease income the decrease of $ 6.1 million in operating lease income was primarily attributable to sales of real estate in 2019 and 2020 , partially offset by income on properties acquired in 2020 and a full period of operations on properties acquired in 2019. tenant recoveries are included in operating lease income . sale of loans , net income ( loss ) from sale of loans , net , includes all loan sales , whether by securitization , whole loan sales or other means . income ( loss ) from sale of loans , net also includes realized losses on loans related to lower of cost or market adjustments . during the year ended december 31 , 2020 , we sold/transferred 30 loans with an aggregate outstanding principal balance of $ 313.7 million . during the year ended december 31 , 2020 , we recorded no realized losses on loans related to lower of cost or market adjustments . we also sold eight mortgage loan receivables held for investment , net , at amortized cost , with an aggregate outstanding principal balance of $ 280.1 million during the year ended december 31 , 2020. during the year ended december 31 , 2019 , we sold/transferred 80 loans with an aggregate outstanding principal balance of $ 1.0 billion . during the year ended december 31 , 2019 , we recorded no realized losses on loans related to lower of cost or market adjustments . income from sales of loans , net is subject to market conditions impacting timing , size and pricing and as such may vary significantly quarter to quarter . the $ 56.3 million decrease was predominantly a result of our financing and liquidity measures implemented to date in direct response to the covid-19 pandemic . realized gain ( loss ) on securities for the year ended december 31 , 2020 , we sold $ 931.9 million of securities , comprised of $ 913.3 million of cmbs , $ 4.0 million of corporate bonds and $ 14.6 million of equity securities . for the year ended december 31 , 2019 , we sold $ 855.9 million of securities , comprised of $ 785.2 million of cmbs , $ 65.3 million of corporate bonds and $ 5.3 million of equity securities . the change in unrealized gain ( loss ) for the year ended december 31 , 2019 compared to december 31 , 2020 resulted in a decrease of $ 27.3 million . this decrease is a result of our financing and liquidity measures implemented to date in direct response to the covid-19 pandemic . other than temporary impairments on securities of $ ( 0.5 ) million are included in realized gain ( loss ) on securities for the year ended december 31 , 2020 , compared to $ ( 0.1 ) million for the year ended december 31 , 2019 , an increase of $ ( 0.4 ) million . unrealized gain ( loss ) on equity securities unrealized gain ( loss ) on equity securities represented $ ( 0.1 ) million for the year ended december 31 , 2020 , compared to $ 1.7 million for the year ended december 31 , 2019. the company has elected the fair market value option for accounting for these equity securities and changes in fair value are recorded in current period earnings . 68 unrealized gain ( loss ) on agency interest-only securities the positive change of $ 0.2 million in unrealized gain ( loss ) on agency interest-only securities was due to the mark-to-market adjustments on our securities portfolio . realized gain ( loss ) on sale of real estate , net the increase of $ 30.7 million in realized gain ( loss ) on sale of real estate , net was a result of the commercial real estate and residential condominium sales discussed below . during the year ended december 31 , 2020 , we sold one single-tenant net leased property , resulting in a net gain ( loss ) on sale of $ 4.4 million . during the year ended december 31 , 2019 , we sold no single-tenant net leased properties . during the year ended december 31 , 2020 , we sold 11 diversified commercial real estate properties , resulting in a net gain ( loss ) on sale of $ 27.7 million .
| 65 activity for the year ended december 31 , 2019 included originating and funding $ 2.4 billion in principal value of commercial mortgage loans , which was offset by $ 1.0 billion of sales and $ 1.5 billion of principal repayments in the year ended december 31 , 2019. we acquired $ 1.6 billion of new securities , which was partially offset by $ 855.9 million of sales and $ 491.9 million of amortization in the portfolio , which partially contributed to a net increase in our securities portfolio of $ 311.2 million during the year ended december 31 , 2019. we also invested $ 104.6 million in real estate , which included $ 84.2 million of real estate acquired via foreclosure , and received proceeds from the sale of real estate of $ 24.2 million . operating overview net income ( loss ) totaled $ ( 9.5 ) million for the year ended december 31 , 2020 , compared to $ 137.0 million for the year ended december 31 , 2019. net income ( loss ) for the year ended december 31 , 2020 were significantly impacted by management 's actions to generate liquidity and pay down mark-to-market financing in direct response to the covid-19 pandemic . the most significant drivers of the $ 146.5 million decrease are as follows : a decrease in net interest income after provision for loan losses of $ 129.2 million , primarily as a result of the $ 90.4 million decrease in interest income and a $ 23.1 million increase in interest expense . also contributing was a $ 15.7 million increase in provision for loan loss reserves related to the adoption of cecl ; a decrease in total other income ( loss ) of $ 34.7 million , primarily as a result of a decrease of $ 56.3 million in sales of loans , a decrease of $ 27.3 million in realized gains ( losses ) on securities , a decrease of $ 6.1 million on operating lease income and a decrease of $ 11.7 million on fee and other income , partially offset by a $ 14.7 million increase in net results from derivative transactions and $ 30.7 million increase in profits on sales of real estate ; a decrease in total costs and expenses of $ 5.0 million compared to the prior
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the 2019 senior credit facility also provides for incremental term a loans up to an aggregate principal amount of the greater of $ 60.0 million and trailing twelve month ebitda , as defined in the agreement . on january 15 , 2019 , proceeds from the initial term a facility of $ 180.0 million were used to repay in full the outstanding principal balance of the term a-1 facility and term a-2 facility under the company 's 2017 senior credit facility of $ 112.5 million and $ 59.3 million , respectively , plus accrued and unpaid interest , pay fees and expenses associated with the agreement and for general corporate purposes . the 2017 senior credit facility was terminated on january 15 , 2019. this refinancing transaction resulted in the extension of scheduled principal payments , a reduction in interest rates and resetting and widening key covenant thresholds . business plan core principles our results of operations , financial position and sources and uses of cash in the current and future periods reflect our focus on being the most successful broadband solutions company in alaska by delivering the best customer experience in the markets we choose to serve . to do this we will continue to : ● create a workplace that d evelops our people and celebrates success . we believe an engaged workforce is critical to our success . we are deeply committed to the development of our people and creating opportunities for them . ● create a consistent customer experience every time . we strive to deliver service as promised to our customers , and make it right if our customers are not satisfied with what we delivered . we track virtually every customer interaction and we utilize the net promoter score framework for assessing the satisfaction of our customers . ● develop our network focusing on efficient delivery and management . we are moving toward higher efficiencies and improved customer experience through automation , new technology and expanded geographic service areas . our network architecture is a simpler mix of our fiber backbone , supported with fixed wireless ( “ fiwi ” ) , wifi and satellite . ● relentlessly simplify and transform how we do business . we believe we must reduce waste , which is defined as any activity that does not add value to its intended customer . doing so improves the experience we deliver to our customers . we make investments in technology and process improvement , utilize the lean framework , and expect these efforts to meaningfully impact our financial performance in the long-term . ● offer broadband and managed it solutions that create market differentiation . we are building on strength in designing and providing new products and solutions to our customers . 32 we believe we can create value for our shareholders by : ● driving revenue growth through increasing business broadband and managed it service revenues , ● generating adjusted ebitda and adjusted free cash flow growth through margin management , and ● careful allocation of capital , including selectively investing success based capital into opportunities that generate appropriate returns on investments . 2019 operating initiatives ● continue our focus on robust broadband growth as the foundation of our other initiatives . ● ignite success in the consumer customer market , including the mass market group , through the expansion and enhancement of our products , services and the supporting infrastructure . ● continue to strengthen our enterprise and carrier customer group , which is the primary driver of our business and wholesale group , through increased focus on specific products and services . ● improve market penetration of our mit products and services . ● build on our work in 2018 in the areas of network modernization through sd-wan , fixed wireless access , fiber fed multi-dwelling units , optical transport network modernization , and adding product capabilities that leverage our network . ● effectively manage operating expenses and capital spending to improve our margin profile over the long term . ● continue to meet our caf ii deployment obligations . ● successful implementation of an it project targeted at replacing several of our legacy it systems . ● continued emphasis on employee engagement and effective communication . ● evaluate strategic opportunities in and out of alaska that address scale and geographic diversification and reduce the risk of investments made in our company . revenue sources by customer group we operate our business under a single reportable segment . we manage our revenues based on the sale of services and products to the three customer categories listed below . revenue in the following management 's discussion and analysis is presented by customer and product category , combining revenue accounted for under revenue from contracts with customers ( “ asc 606 ” ) and other guidance . ● business and wholesale ( broadband , voice and managed it services ) ● consumer ( broadband and voice services ) ● regulatory ( access services , high cost support and carrier termination ) business and wholesale providing services to business and wholesale customers provides the majority of our revenues and is expected to continue being the primary driver of our growth over the next few years . our business customers include large enterprises in the oil and gas , healthcare , education , alaska native corporations , financial industries , federal , state and local governments , and small and medium business . we were the first alaska-based carrier to be carrier ethernet 2.0 certified and are currently the only alaska-based carrier certified for multipoint-to-multipoint services . this certification means that we meet international standards for the quality of our broadband services . we also offer ip based voice including the largest sip implementations in the state of alaska , and are the first microsoft express route provider in the state . we believe our network differentiates us in the markets we serve , because we prefer not to compete on price ; but on the quality , reliability , customer service and the overall value of our solutions . story_separator_special_tag accordingly , we have significant capacity to “ sell into ” the network we operate and do so at what we believe are attractive incremental gross margins . business services have experienced significant growth and we believe the incremental economics of business services are attractive . given the demand from our customers for more bandwidth and services , we expect revenue growth from these customers to continue for the foreseeable future . we provide services such as voice and broadband , managed it services including remote network monitoring and support , managed it security and it professional services , and long distance services primarily over our own terrestrial network . we are continuing our efforts to position the company as the premier cloud enabler for business in the state of alaska . 33 our wholesale customers are primarily in-state , national and international telecommunications carriers who rely on us to provide connectivity for broadband and other needs to access their customers over our alaskan network . the wholesale market is characterized by larger transactions that can create variability in our operating performance . we have a dedicated sales team that sells into this customer segment , and we expect wholesale revenue to grow for the foreseeable future . consumer we also provide broadband , voice and it services to residential customers , including residential homes and multi-dwelling units . given that our primary competitor has extensive quad play capabilities ( video , voice , wireless and broadband ) we target how and where we offer products and services to this customer group in order to maintain our returns . our focus is to leverage the capabilities of our existing network and sell customers our highest available bandwidth . our primary competitive advantage is that we offer reliable internet service without data caps , while our competitor , with certain exceptions , charges customers or throttles customers ' speeds for exceeding given levels of data usage . we experienced consistent growth in consumer broadband revenues in 2018. more recently , we expanded product and service offerings to this customer group and have implemented fiber fed wifi and certain fixed wireless technology solutions for providing broadband , all of which have provided a basis for continued growth in this market in 2019 . 34 regulatory regulatory revenue is generated from three primary sources : ( i ) access charges , which include interstate and intrastate switched access and special access charges , and cellular access ; ( ii ) surcharges billed to the end user ( pass-through and non-pass-through ) ; and ( iii ) federal and state support . we provide voice and broadband origination and termination services to interstate and intrastate carriers . while we are compensated for these services , these revenue streams have been in decline and we expect them to continue to decline , although at a relatively predictable rate . in addition , as regulators have reformed traditional access charges , they have simultaneously implemented new end user surcharges that contribute to our revenue . the following table summarizes our primary sources of regulatory revenue and their contribution to total revenue in 2018 ( dollars in thousands ) . source description 2018 revenue as a % of regulatory revenue as a % of total revenue access charges interstate and intrastate switched access are services based primarily on originating and terminating access minutes from other carriers . special access is primarily access to dedicated circuits sold to wholesale customers , substantially all of which is generated from interstate services . cellular access is the transport of local network services between switches for cellular companies based on individually negotiated contracts . access revenue has declined at an average of approximately 9 % annually over the past three years . $ 4,548 9.0 % 2.0 % total access charges $ 4,548 9.0 % 2.0 % surcharges pass-through we assess our customers for surcharges , typically on a monthly basis , as required by various state and federal regulatory agencies , and remit these surcharges to these agencies . these pass-through surcharges include federal universal access and state universal access . these surcharges vary from year to year , and are primarily recognized as revenue , and the subsequent remittance to the state or federal agency as a cost of sale and service . the rates imposed by the regulators continue to increase . however , because the charges are only assessed on a portion of our services , and that portion continues to decline , we expect these revenue streams to decline over time as the revenue base declines . $ 7,874 15.6 % 3.4 % other other non-pass-through surcharges are collected from our customers as authorized by the regulatory body . the amount charged is based on the type of line : single line business , multi-line business , consumer or lifeline . the rates are established based on federal or state orders . these charges are recorded as revenue and do not have a direct associated cost . rather , they represent a revenue recovery mechanism established by the fcc or the regulatory commission of alaska . $ 11,560 22.8 % 5.0 % total surcharges $ 19,434 38.4 % 8.4 % federal and state support caf ii in 2016 , the fcc released the caf phase ii order specific to alaska communications which transitioned from caf phase i frozen support to caf phase ii . funding under the new program generally requires the company to provide broadband service to unserved locations throughout the designated coverage area by the end of a specified build-out period , and meet interim milestone build-out obligations . caf ii revenues are expected to be relatively stable through 2026 . $ 19,694 39.0 % 8.5 % colr and ccl the company is designated by the state of alaska as a colr in five of the six study areas . in addition to colr , the company receives ccl support . we do not receive colr or ccl funding for the acs of anchorage study area .
| while connections and arpu serve as data points to support the analysis of period-over-period changes in revenue , they are not critical indicators utilized by the company to manage the business and wholesale customer group . consumer consumer revenue of $ 37.3 million increased $ 0.2 million , or 0.5 % , in 2018. broadband revenue increased $ 0.7 million due to an increase in arpu to $ 65.41 from $ 61.24 , offset by a decrease in connections . voice and other revenue decreased $ 0.5 million due to 3,478 fewer connections , partially offset by an increase in arpu to $ 32.76 from $ 29.88 in 2017. regulatory regulatory revenue of $ 50.6 million in 2018 was essentially unchanged from $ 50.7 million in 2017 . 39 operating expenses cost of services and sales ( excluding depreciation and amortization ) cost of services and sales ( excluding depreciation and amortization ) of $ 107.5 million increased $ 2.9 million , or 2.8 % , in 2018 from $ 104.6 million in 2017. a $ 5.5 million increase in network support costs associated with new customer contracts and a $ 1.4 million increase in access charges were partially offset by a $ 3.7 million decrease in labor costs . selling , general and administrative selling , general and administrative expenses were $ 66.6 million in 2018 and 2017. results in 2018 and 2017 included charges of $ 0.8 million and $ 2.7 million , respectively , to the allowance for doubtful accounts associated with rural health care customers . this $ 1.9 million decrease was offset by marginal year over year increases in outside services and labor costs . depreciation and amortization depreciation and amortization expense of $ 33.9 million decreased $ 2.4 million , or 6.6 % , in 2018 from $ 36.3 million in 2017. this decrease was due primarily to certain assets reaching the end of their depreciable life . other income and expense interest expense of $ 13.4 million in 2018 declined from $ 14.9 million in 2017 due primarily to lower
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in january 2014 , we received fda approval to expand the partner ii trial to include a 1,000 patient single-arm , non-randomized cohort to study the edwards sapien 3 transcatheter valve system in the treatment of intermediate-risk patients with severe symptomatic aortic stenosis . enrollment was completed in september 2014. at the end of 2014 , we submitted our pre-market approval application for sapien 3 in the united states . in january 2014 , we received ce mark for the edwards sapien 3 transcatheter valve system in europe . in june 2014 , we received fda approval for the edwards sapien xt transcatheter heart valve in the united states for the treatment of high-risk and inoperable patients with severe symptomatic aortic stenosis . surgical heart valve therapy the $ 24.9 million increase in net sales of surgical heart valve therapy products in 2014 was due primarily to : surgical heart valve products , which increased net sales by $ 36.4 million , driven by sales in the united states and europe of pericardial aortic tissue valves and edwards intuity elite valves ; partially offset by : foreign currency exchange rate fluctuations , which decreased net sales by $ 10.5 million , due to the weakening of various currencies against the united states dollar , mainly the japanese yen , partially offset by the strengthening of the euro against the united states dollar . the $ 13.7 million increase in net sales of surgical heart valve therapy products in 2013 was due primarily to : surgical heart valve products , which increased net sales by $ 30.1 million , driven by sales of pericardial aortic and mitral tissue valves , and edwards intuity elite valves ; 28 partially offset by : foreign currency exchange rate fluctuations , which decreased net sales by $ 20.2 million , due primarily to the weakening of the japanese yen against the united states dollar . in april 2014 , we received ce mark for our advanced edwards intuity elite valve system . this next-generation , rapid deployment system facilitates smaller incisions in surgical aortic valve replacement procedures . in the united states , we completed enrollment of patients in our transform trial for edwards intuity elite , and we continued enrolling patients in our commence clinical trial , which is studying our next-generation glx advanced tissue platform applied to the magna ease aortic surgical valve and the magna mitral ease valve . critical care the $ 16.6 million increase in net sales of critical care products in 2014 was due primarily to enhanced surgical recovery products , and core hemodynamic products outside the united states , partially offset by foreign currency exchange rate fluctuations , which decreased net sales by $ 12.0 million , due primarily to the weakening of the japanese yen against the united states dollar . the $ 23.4 million decrease in net sales of critical care products in 2013 was due primarily to foreign currency exchange rate fluctuations , which decreased net sales by $ 28.9 million , due primarily to the weakening of the japanese yen against the united states dollar . in june 2014 , we received fda clearance for the clearsight system , a noninvasive monitor that provides clinicians access to blood volume and blood flow information for patients at moderate or high risk of post-surgical complications , in whom invasive monitoring would not be used . the clearsight system is part of our enhanced surgical recovery product portfolio . in september 2014 , due to a strategic shift of our investment initiatives , we decided to discontinue our automated glucose monitoring program . gross profit replace_table_token_8_th the 1.6 percentage point decrease in gross profit as a percentage of net sales in 2014 was driven by : a 0.7 percentage point decrease due to the impact of foreign currency exchange rate fluctuations , including the settlement of foreign currency hedging contracts ; a 0.7 percentage point decrease due to higher performance-based incentive compensation ; and higher manufacturing costs , primarily for our operations in utah ; partially offset by : a 0.8 percentage point increase due to an improved product mix in the united states , driven by transcatheter heart valve therapy products . the 0.5 percentage point increase in gross profit as a percentage of net sales in 2013 was driven by : a 1.0 percentage point increase due to an improved product mix in the united states , driven by transcatheter heart valve therapy products ; and a 0.5 percentage point increase in international markets due to a more profitable product mix , primarily higher sales of transcatheter heart valve therapy products ; 29 partially offset by : a 1.3 percentage point decrease due primarily to higher manufacturing costs due to capacity expansion in preparation for multiple transcatheter heart valve therapy product introductions . selling , general , and administrative ( `` sg & a '' ) expenses ( dollars in millions ) replace_table_token_9_th the $ 124.6 million increase in sg & a expenses in 2014 was due primarily to ( 1 ) higher sales and marketing expenses in the united states , europe , and japan , mainly to support the transcatheter heart valve therapy program , and ( 2 ) higher performance-based incentive compensation . the $ 36.0 million increase in sg & a expenses in 2013 was due primarily to ( 1 ) higher sales and marketing expenses in the united states and japan , mainly to support the transcatheter heart valve therapy program and ( 2 ) the 2.3 % united states medical device excise tax , or $ 15.8 million , which became effective in 2013. these increases were partially offset by the impact of foreign currency , which reduced expenses by $ 12.4 million due primarily to the weakening of the japanese yen against the united states dollar . the decrease in sg & a expenses as a percentage of net sales in 2013 was due primarily to decreased sg & a expenses in europe as a percentage of net sales . story_separator_special_tag research and development expenses ( dollars in millions ) replace_table_token_10_th the increase in research and development expenses in 2014 was due primarily to new aortic and mitral transcatheter heart valve therapy product development efforts , additional investments in clinical studies in the surgical heart valve therapy program , and higher performance-based incentive compensation . the decrease in research and development expenses as a percentage of net sales was due primarily to higher net sales . the increase in research and development expenses in 2013 was due primarily to additional investments in clinical studies and new product development efforts in the transcatheter heart valve therapy program . intellectual property litigation ( income ) expense , net in may 2014 , we entered into an agreement with medtronic to settle all outstanding patent litigation between the companies , including all cases related to transcatheter heart valves . pursuant to the agreement , we received an upfront payment from medtronic in the amount of $ 750.0 million . for further information , see note 4 to the `` consolidated financial statements . '' in february 2013 , we received $ 83.6 million from medtronic in satisfaction of the initial april 2010 jury award of damages for infringement of the united states andersen transcatheter heart valve patent , including accrued interest . 30 we incurred external legal costs related to intellectual property litigation of $ 9.6 million , $ 22.1 million , and $ 14.4 million during 2014 , 2013 , and 2012 , respectively . special charges special charges were $ 70.7 million , $ 16.3 million , and $ 16.0 million for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . for additional details , see note 5 to the `` consolidated financial statements . '' interest expense interest expense was $ 17.2 million , $ 9.8 million , and $ 4.4 million in 2014 , 2013 , and 2012 , respectively . the increase in interest expense for 2014 and 2013 resulted primarily from higher average interest rates and a higher average debt balance as compared to the prior year due to the issuance in october 2013 of $ 600.0 million of 2.875 % fixed-rate unsecured senior notes . interest income interest income was $ 6.4 million , $ 4.6 million , and $ 4.8 million in 2014 , 2013 , and 2012 , respectively . the increase in interest income for 2014 resulted primarily from higher average investment balances . the decrease in interest income for 2013 resulted primarily from lower average interest rates , partially offset by higher average investment balances . other expense , net ( in millions ) replace_table_token_11_th in december 2014 , we recorded a $ 4.0 million impairment charge related to our promissory note receivable because it was likely that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the promissory note agreement . the loss on investments primarily represents our net share of gains and losses in investments accounted for under the equity method , and realized gains and losses on our available-for-sale and cost method investments . during 2014 , we recorded an other-than-temporary impairment charge of $ 3.5 million related to one of our cost method investments . in march 2014 , we recorded a $ 3.7 million insurance settlement gain related to inventory that was damaged in the fourth quarter of 2013. the foreign exchange losses relate to the foreign currency fluctuations in our 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 . 31 in september 2014 , we committed to purchase our draper , utah facility for $ 17.0 million under a purchase option provided in the lease agreement . under the terms of the lease agreement , we paid $ 1.0 million in december 2014 for certain lease contract termination costs . provision for income taxes our effective income tax rates for 2014 , 2013 , and 2012 were impacted as follows ( in millions ) : replace_table_token_12_th reserve for uncertain tax positions as of december 31 , 2014 and 2013 , the liability for income taxes associated with uncertain tax positions was $ 192.3 million and $ 127.7 million , respectively . we estimate that these liabilities would be reduced by $ 34.3 million and $ 30.9 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 $ 158.0 million and $ 96.8 million , respectively , if not required , would favorably affect our effective tax rate . 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 we recognize interest and penalties , if any , related to uncertain tax positions in the provision for income taxes . as of december 31 , 2014 , we had accrued $ 6.8 million ( net of $ 5.0 million tax benefit ) of interest related to uncertain tax positions , and as of december 31 , 2013 , we had accrued $ 4.5 million ( net of $ 3.3 million tax benefit ) of interest related to uncertain tax positions . during 2014 , 2013 , and 2012 , we recognized interest expense , net of tax benefit , of $ 2.3 million , $ 1.4 million , and $ 1.0 million , respectively , in `` provision for income taxes `` on the consolidated statements of operations . we strive to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time .
| the $ 169.7 million increase in international net sales in 2014 was due primarily to : transcatheter heart valve therapy , which increased net sales by $ 152.4 million , driven primarily by the launch of the edwards sapien 3 transcatheter heart valve in europe and the ongoing launch of the edwards sapien xt transcatheter heart valve in japan , partially offset by lower sales of the edwards sapien xt transcatheter heart valve in europe as customers converted to edwards sapien 3 ; surgical heart valve therapy , which increased net sales by $ 25.9 million , driven primarily by sales of pericardial aortic tissue valves and edwards intuity elite valves ; and critical care , which increased net sales by $ 16.1 million , driven primarily by core hemodynamic products and enhanced surgical recovery products ; 26 partially offset by : foreign currency exchange rate fluctuations , which decreased net sales by $ 23.0 million , due to the weakening of various currencies against the united states dollar , mainly the japanese yen , partially offset by the strengthening of the euro against the united states dollar . the $ 127.5 million increase in net sales in the united states in 2013 was due primarily to : transcatheter heart valve therapy , which increased net sales by $ 106.1 million , driven primarily by sales of the edwards sapien transcatheter heart valve . procedure volume increased following the fda action in october 2012 to expand the indicated patient population and access routes compared to the original 2011 approval . the $ 18.4 million increase in international net sales in 2013 was due primarily to : transcatheter heart valve therapy , which increased net sales by $ 52.4 million , driven primarily by sales of the edwards sapien xt transcatheter heart valve ; and surgical heart valve products , which increased net sales by $ 15.4 million , driven primarily by sales of pericardial mitral tissue valves and edwards intuity elite valves ; partially offset by : foreign currency exchange rate fluctuations , which decreased net sales by $ 43.9 million , due primarily to the weakening of the japanese yen against the united states dollar , partially offset by the strengthening of the euro against the united states dollar . 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 our
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redemptions of the 7 % senior notes due 2015 , certain cbt notes and a portion of the 8 3 / 8 % senior notes due 2020 in the fourth quarter of 2012 resulted in a loss on extinguishment of debt totaling $ 13.6 million . loss from cyrusone equity method investment totaled $ 10.7 million in 2013 and represents the company 's share of cyrusone 's net loss which , effective with the ipo date of january 24 , 2013 , is now recorded using the equity method . other income of $ 1.3 million in 2013 primarily related to tax refund claims received on assets that had previously been disposed or abandoned . other expense of $ 1.7 million recorded in 2012 , primarily related to a loss recorded on the termination of a lease financing arrangement . an income tax benefit of $ 2.5 million in 2013 was the result of pre-tax losses . the company has certain non-deductible expenses , including interest on securities originally issued to acquire its broadband business ( the `` broadband securities '' ) or securities that the company has subsequently issued to refinance the broadband securities . in 2013 , income tax expense includes a valuation allowance provision of $ 10.7 million for texas margin credits which , effective with cyrusone 's ipo on january 24 , 2013 , are uncertain of being realized before their expiration date . in periods without tax law changes , the company expects its effective tax rate to exceed statutory rates primarily due to the non-deductible expenses associated with the broadband securities . the company used federal and state net operating losses to defray payment of federal and state tax liabilities . as a result , the company had cash income tax payments , net of refunds , of $ 2.8 million in 2013 . 2012 compared to 2011 service revenue was $ 1,272.8 million in 2012 , an increase of $ 22.0 million compared to 2011 . data center revenues increased by $ 32.3 million primarily due to the expansion of data center facilities . it services and hardware revenue increased by $ 16.1 million compared to 2011 due to the growth in managed and professional services . wireline service revenue was up $ 1.5 million over the prior year as a result of accelerated growth in voip and audio conferencing services . growth in fioptics and other business fiber-based products was more than offset by declines in legacy local voice , long distance and dsl revenue . wireless service revenues were down $ 27.9 million as a result of fewer postpaid subscribers . 32 form 10-k part ii cincinnati bell inc. product revenue was $ 201.1 million in 2012 , down $ 10.5 million compared to 2011 . the decrease was largely due to lower sales of wireless handsets which drove a $ 7.9 million decrease in sales compared to 2011. it services and hardware sales of telecommunications and it hardware decreased $ 3.4 million compared to the prior year , a reflection of the cyclical nature of capital spending of enterprise customers . these declines were partially offset by a $ 0.8 million increase in wireline product revenue . cost of services was $ 489.9 million in 2012 , up $ 25.6 million , or 6 % , compared to 2011 , primarily due to $ 14.6 million and $ 13.3 million increases in the it services and hardware and data center colocation segments , respectively , to support the growth in these operations . wireline costs were up $ 9.4 million due primarily to increased programming costs associated with the growth of fioptics and increased operating taxes resulting from higher regulatory rates and higher franchise taxes . wireless costs were down $ 11.7 million primarily due to lower network costs as a result of a declining subscriber base . cost of products sold was $ 204.7 million in 2012 , a decrease of $ 8.3 million from the prior year , primarily due to a $ 9.3 million decrease in wireless costs of products sold as a result of lower handset sales . it services and hardware cost of products sold was down $ 0.1 million from the prior year as opposed to wireline costs , which were up $ 1.1 million . sg & a expenses were $ 269.5 million in 2012 compared to $ 263.1 million in the prior year , an increase of $ 6.4 million . corporate costs were up $ 5.7 million compared to the prior year primarily due to a $ 7.3 million increase in stock compensation mark-to-market expense resulting from the 81 % increase in stock price . these increases were offset by decreased payroll related expense due to cost-out initiatives . data center colocation and it services and hardware costs were up $ 7.2 million and $ 5.7 million , respectively , due to increased payroll costs . in addition to increased payroll costs , data center colocation marketing and legal costs were up $ 1.5 million and $ 1.4 million , respectively . these increases were partially offset by an $ 11.5 million decrease in wireless sg & a due to cost containment initiatives combined with a $ 2.8 million reduction in bad debt expense . wireline sg & a was down $ 0.7 million from the prior year . depreciation and amortization was $ 217.4 million in 2012 , up $ 17.9 million compared to 2011 . data center colocation depreciation and amortization was $ 15.8 million higher due to new assets placed in service for data center facilities . wireline expenses were up $ 3.6 million as a result of expanding our fiber network . wireless depreciation and amortization was down $ 1.6 million due to fewer new assets being placed in service as a result of a declining subscriber base . it services and hardware and corporate expenses were relatively unchanged . in 2012 , restructuring costs were incurred for employee separations totaling $ 2.5 million primarily related to wireline and wireless . story_separator_special_tag lease abandonment charges were $ 0.9 million in 2012. in 2011 , the wireline segment recognized $ 7.7 million of restructuring charges . wireline employee separation charges totaled $ 3.5 million , lease abandonments totaled $ 2.5 million and contract terminations were $ 1.7 million . in addition the it services and hardware and corporate recognized employee separation charges of $ 1.9 million and $ 2.6 million , respectively , in 2011. in 2011 , the company ratified a new labor agreement which curtails future pension service credits for certain employees . as a result of this event , the bargained employees ' pension plan was remeasured and a curtailment loss of $ 4.2 million was recognized in the wireline segment . in 2012 , no events occurred to trigger a remeasurement of our pension plans or curtailment loss . gain on sale or disposal of assets was $ 1.6 million in 2012 , down from $ 8.4 million in 2011. in 2012 , a gain of $ 1.8 million was realized primarily from the sale of copper cables no longer utilized in our wireline network . the data center colocation segment recognized a $ 0.2 million gain on sale of generators following an equipment upgrade at a texas data center . in 2011 , a gain of $ 8.4 million was recognized as a result of selling substantially all of the assets associated with our home security monitoring business . asset impairment losses amounted to $ 14.2 million in 2012 compared to $ 52.4 million in 2011. in 2012 , impairment losses were largely driven by $ 13.3 million of impairment losses in the data center colocation segment on a customer relationship intangible asset and property and equipment that was primarily associated with our 2007 acquisition of gramtel . wireline and wireless asset impairments totaled $ 0.5 million and $ 0.4 million , respectively , in 2012. during 2011 , the company recognized goodwill impairment losses totaling $ 50.3 million that were related to the wireless segment . impairment of assets , excluding goodwill , totaling $ 1.1 million in 2011 related to the write-off of canceled or abandoned wireless capital projects . the wireline segment recorded impairment of assets excluding goodwill in 2011 of $ 1.0 million related to abandoned leasehold improvements on vacated office space and the write-down to fair value of certain assets that were held for sale . 33 form 10-k part ii cincinnati bell inc. transaction costs of $ 6.3 million were incurred in 2012 , up from $ 2.6 million incurred in 2011. in 2012 , these costs represented legal and consulting costs incurred to restructure our legal entities in preparation for the proposed ipo of the common stock of cyrusone and to prepare cyrusone to be a real estate investment trust . in 2011 , transaction costs represented legal and consulting costs to investigate acquisition opportunities . transaction costs are reported as corporate expenses . interest expense was $ 218.9 million in 2012 compared to $ 215.0 million in 2011 , an increase of $ 3.9 million . the increase was largely due to the issuance by cyrusone of $ 525 million of 6 3 / 8 % senior notes due 2022 in the fourth quarter of 2012 which increased interest expense by $ 3.8 million , higher interest costs of $ 2.4 million from lease obligations , as well as $ 0.8 million of lower capitalized interest . the impact of these increases was partially offset by lower interest expense from the redemptions of the 7 % senior notes due 2015 , certain cbt notes and a portion of the 8 3 / 8 % senior notes due 2020. loss on extinguishment of debt of $ 13.6 million was a result of the debt repayment and partial redemptions made during the fourth quarter of 2012 as discussed in the preceding paragraph . no debt extinguishment occurred in 2011. other expense of $ 1.7 million in 2012 , increased by $ 0.8 million compared to 2011 , primarily due to a loss recorded on the termination of a lease financing arrangement . income tax expense was $ 24.7 million in 2012 , substantially the same as the prior year . pre-tax income was lower in 2012 but was largely offset by a higher effective tax rate . the company has certain non-deductible expenses , including interest on securities originally issued to acquire its broadband business ( the `` broadband securities '' ) or securities that the company has subsequently issued to refinance the broadband securities . in periods without tax law changes , the company expects its effective tax rate to exceed statutory rates primarily due to the non-deductible expenses associated with the broadband securities . the company used federal and state net operating losses to defray payment of federal and state tax liabilities . as a result , the company had cash income tax payments , net of refunds , of $ 0.1 million in 2012 . discussion of operating segment results the company manages its business based upon products and service offerings . at december 31 , 2012 , we operated four business segments : wireline , wireless , it services and hardware , and data center colocation . effective january 24 , 2013 , the date of the cyrusone ipo , we no longer include cyrusone , our former data center colocation segment , in our consolidated financial statements and now account for our ownership in cyrusone as an equity method investment . therefore , at december 31 , 2013 , we operated three business segments : wireline , wireless and it services and hardware . certain corporate administrative expenses have been allocated to our business segments based upon the nature of the expense and the relative size of the segment . intercompany transactions between segments have been eliminated .
| cost of products sold was $ 215.9 million in 2013 compared to $ 204.7 million in the prior year , an increase of $ 11.2 million due to a $ 16.9 million increase as a result of higher telecommunications and it hardware sales . wireline and wireless cost of products sold were down $ 2.6 million and $ 3.1 million , respectively , compared to the prior year . selling , general and administrative ( `` sg & a '' ) expenses were $ 220.8 million in 2013 , a decrease of $ 48.7 million , or 18 % , compared to 2012 . the decrease is partially the result of no longer consolidating cyrusone , which accounted for $ 28.5 million of the decrease . corporate costs were down $ 20.7 million from the prior year , primarily as a result of recognizing a $ 5.6 million stock compensation mark-to-market gain in 2013 compared to a $ 7.9 million stock compensation mark-to-market expense in 2012. the remaining decrease is due to a $ 4.7 million decrease in bonus expense and a $ 2.5 million decrease in payroll and other headcount related costs as a result of cost-out initiatives . wireline and it services and hardware sg & a expenses were up $ 1.1 and $ 2.4 million , respectively , primarily to support the growth of our strategic products . wireless sg & a expenses were down $ 3.0 million as a result of cost-out initiatives as we focus on operating the segment for cash flow and profitability . depreciation and amortization was $ 169.6 million in 2013 , a decrease of $ 47.8 million compared to the prior year , primarily due to the deconsolidation of cyrusone . in 2012 , cyrusone 's depreciation and amortization expense totaled $ 70.6 million compared to $ 5.2 million in 2013. wireline depreciation and amortization increased by $ 6.2 million due to the expansion of fioptics and our fiber-based network . it services and hardware was $ 1.9 million higher than the prior year as a result of new assets placed in service to support growth in managed and professional service revenue .
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our company articulates its mission as a commitment to our customers ' profitability by providing our customers with hotel franchises that strive to generate the highest return on investment of any hotel franchise . we have developed an operating system dedicated to our franchisees ' success that focuses on delivering guests to our franchised hotels and reducing costs for our hotel owners . we believe that executing our strategic priorities creates value for our shareholders . our company focuses on two key value drivers : profitable growth . our success is dependent on improving the performance of our hotels , increasing our system size by selling additional hotel franchises and effective royalty rate improvement . we attempt to improve our franchisees ' revenues and overall profitability by providing a variety of products and services designed to increase business delivery to and or reduce operating and development costs for our franchisees . these products and services include national marketing campaigns , a central reservation system , property and yield management systems , quality assurance standards and qualified vendor relationships . we believe that healthy brands , which deliver a compelling return on investment for franchisees , will enable us to sell additional hotel franchises and raise royalty rates . we have established multiple brands that meet the needs of many types of guests , and can be developed at various price points and applied to both new and existing hotels . this ensures that we have brands suitable for creating growth in a variety of market conditions . improving the performance of the hotels under franchise , growing the system through additional franchise sales and improving franchise agreement pricing while maintaining a disciplined cost structure are the keys to profitable growth . maximizing financial returns and creating value for shareholders . our capital allocation decisions , including capital structure and uses of capital , are intended to maximize our return on invested capital and create value for our shareholders . we believe our strong and predictable cash flows create a strong financial position that provides us a competitive advantage . currently , our business does not require significant capital to operate and grow . therefore , we can maintain a capital structure that generates high financial returns and use our excess cash flow to increase returns to our shareholders . historically , we have returned value to our shareholders in two primary ways : share repurchases and dividends . in 1998 , we instituted a share repurchase program which has generated substantial value for our shareholders . during the year ended december 31 , 2010 , the company purchased 0.3 million shares under the share repurchase program for a total cost of $ 8.7 million . through december 31 , 2010 , we have repurchased 43.2 million shares ( including 33.0 million prior to the two-for-one stock split affected in october 2005 ) of common stock at a total cost of $ 1.0 billion since the program 's inception . considering the effect of the two-for-one stock split , the company has repurchased 76.2 million shares at an average price of $ 13.35 per share . we currently believe that our cash flows from operations will support our ability to complete the repurchase of approximately 3.6 million shares remaining as of december 31 , 2010 under the current stock repurchase authorization of the board of directors . upon completion of the current authorization , our board of directors will evaluate the advisability of additional share repurchases . in 2010 , we paid cash dividends totaling approximately $ 43.8 million and we presently expect to continue to pay dividends in the future , subject to business performance , economic conditions , changes in income tax 40 regulations and other factors . based on our present dividend rate and outstanding share count , aggregate annual dividends for 2011 would be approximately $ 43.8 million . our board of directors previously authorized us to enter into programs which permit us to offer investment , financing and guaranty support to qualified franchisees as well as acquire and resell real estate to incent franchise development for certain brands in top markets . recent market conditions have resulted in an increase in opportunities to incentivize development under these programs . as a result , during the year ended december 31 , 2010 , the company invested approximately $ 21.7 million pursuant to these programs , of which $ 5 million has subsequently been repaid . over the next several years , we expect to continue to deploy capital opportunistically pursuant to these programs to promote growth of our emerging brands . the amount and timing of the investment in these programs will be dependent on market and other conditions . our current expectation is that our annual investment in these programs will range from $ 20 million to $ 40 million . notwithstanding these programs , the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends , subject to business performance , economic conditions , changes in income tax regulations and other factors . we believe these value drivers , when properly implemented , will enhance our profitability , maximize our financial returns and continue to generate value for our shareholders . the ultimate measure of our success will be reflected in the items below . results of operation : royalty fees , operating income , net income and diluted earnings per share ( eps ) represent key measurements of these value drivers . in 2010 , royalty fees revenue totaled approximately $ 230.1 million , a 6 % increase from 2009. operating income totaled $ 160.8 million for the year ended december 31 , 2010 , a 9 % increase from 2009. net income for the year ended december 31 , 2010 increased $ 9.2 million to $ 107.4 million and diluted eps were $ 1.80 , compared to $ 1.63 for the year ended december 31 , 2009. these measurements will continue to be a key management focus in 2011 and beyond . story_separator_special_tag refer to md & a heading operations review for additional analysis of our results . liquidity and capital resources : historically , the company has generated significant cash flows from operations . in 2010 and 2009 , net cash provided by operating activities was $ 144.9 million and $ 112.2 million , respectively . since our business does not currently require significant reinvestment of capital , we typically utilize cash in ways that management believes provide the greatest returns to our shareholders which include share repurchases and dividends . however , we may determine to utilize more cash for acquisitions and other investments in the future . we believe the company 's cash flow from operations and available financing capacity is sufficient to meet the expected future operating , investing and financing needs of the business . refer to md & a heading liquidity and capital resources for additional analysis . inflation : inflation has been moderate in recent years and has not had a significant impact on our business . 41 story_separator_special_tag domestic rooms on-line increased to 393,535 as of december 31 , 2010 from 388,594 as of december 31 , 2009 , an increase of 1.3 % . the total number of domestic hotels on-line grew 1.8 % to 4,993 as of december 31 , 2010 from 4,906 as of december 31 , 2009. a summary of the domestic hotels and available rooms at december 31 , 2010 and 2009 by brand is as follows : replace_table_token_19_th 45 international available rooms increased 2.8 % to 101,610 as of december 31 , 2010 from 98,816 as of december 31 , 2009. the total number of international hotels on-line increased 3.0 % from 1,115 as of december 31 , 2009 to 1,149 as of december 31 , 2010. as of december 31 , 2010 , the company had 516 franchised hotels with 41,682 rooms under construction , awaiting conversion or approved for development in its domestic system as compared to 727 hotels and 57,140 rooms at december 31 , 2009. the number of new construction franchised hotels in the company 's domestic pipeline declined 29 % to 380 at december 31 , 2010 from 533 at december 31 , 2009. the number of conversion franchised hotels in the company 's domestic pipeline declined by 58 or 30 % from december 31 , 2009 to 136 hotels at december 31 , 2010. the domestic system hotels under construction , awaiting conversion or approved for development declined 29 % from the prior year primarily due to the opening of 327 franchised units during the year ended december 31 , 2010 coupled with a 3 % decline in the execution of new franchise agreements due to the difficult credit environment . the company had an additional 105 franchised hotels with 9,105 rooms under construction , awaiting conversion or approved for development in its international system as of december 31 , 2010 compared to 116 hotels and 9,445 rooms at december 31 , 2009. while the company 's hotel pipeline provides a strong platform for growth , a hotel in the pipeline does not always result in an open and operating hotel due to various factors . a summary of the domestic franchised hotels under construction , awaiting conversion or approved for development at december 31 , 2010 and 2009 by brand is as follows : replace_table_token_20_th there were 87 net domestic franchise additions during the year ended december 31 , 2010 compared to 190 net domestic franchise additions during the year ended december 31 , 2009. gross domestic franchise additions decreased from 442 for the year ended december 31 , 2009 to 327 for the same period in 2010. new construction hotels represented 78 of the gross domestic additions during year ended december 31 , 2010 compared to 144 hotels in the same period of the prior year . gross domestic additions for conversion hotels during the year ended december 31 , 2010 declined by 49 from 298 hotels during the year ended december 31 , 2009 to 249 hotels . the 46 decline in hotel openings is primarily due to a 47 % decline in new executed franchise agreements in 2009 followed by a 3 % decline in the current year as the lack of new hotel construction financing , a decline in the real estate market for hotel transactions and retention efforts implemented by other hotel brand companies have negatively impacted the company 's pipeline of new franchises . the company expects the number of new franchise additions that will open during 2011 to decline from 327 in 2010 to approximately 285 hotels . this decline is expected to be driven by new construction units which are projected to decline from 78 hotels in 2010 to 28 hotels in 2011 due to the impact the tight credit markets have had on new construction franchise agreements executed in 2009 and 2010. net domestic franchise terminations declined by 12 units to 240 for the year ended december 31 , 2010 from 252 for the same period of the prior year . the company has continued to execute its strategy to replace franchised hotels that do not meet our brand standards or are underperforming in their market . as the competition gets stronger and more focused on limited service franchising , the company will continue to focus on improving its system of hotels and utilizing the domestic hotels under construction , awaiting conversion or approved for development as a strong platform for continued system growth . international royalties increased $ 2.8 million or 13 % from $ 21.0 million in the year ended december 31 , 2009 to $ 23.8 million for the same period in 2010 primarily due to foreign currency fluctuations , 3 % increase in rooms open and operating , improved international revpar performance and the acquisition of chn .
| marketing and reservation activities are excluded from revenues since the company is contractually 42 required by its franchise agreements to use these fees collected for marketing and reservation activities ; as such , no income or loss to the company is generated . cumulative marketing and reservation system fees not expended are recorded as a payable on the company 's financial statements and are carried over to the next fiscal year and expended in accordance with the franchise agreements . cumulative marketing and reservation expenditures in excess of fees collected for marketing and reservation activities are recorded as a receivable on the company 's financial statements . hotel operations are excluded since they do not reflect the most accurate measure of the company 's core franchising business . this non-gaap measure is a commonly used measure of performance in our industry and facilitates comparisons between the company and its competitors . calculation of franchising revenues replace_table_token_14_th adjusted net income , adjusted diluted eps , adjusted sg & a and adjusted operating income : we also use adjusted net income , adjusted diluted eps , adjusted sg & a and adjusted operating income which exclude employee termination benefits for 2010 and 2009 as well as a curtailment loss related to freezing the benefits under the company 's supplemental executive retirement plan ( serp ) and a loss related to a sublease of office space and the impairment charges incurred related to the space 's leasehold improvements for 2009. the company utilizes these non-gaap measures to enable investors to perform meaningful comparisons of past , present and future operating results and as a means to emphasize the results of on-going operations . calculation of adjusted operating income replace_table_token_15_th calculation of adjusted sg & a replace_table_token_16_th 43 calculation of adjusted net income and adjusted diluted eps replace_table_token_17_th the company recorded adjusted net income of $ 108.5 million for the year ended december 31 , 2010 , a $ 5.7 million or 5.5 % increase from $ 102.8 million for the year ended december 31 , 2009. the increase in adjusted net income for the
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we refer to such acquisition herein as the qelp acquisition. the total purchase price of $ 15.8 million was funded by $ 9.8 million in cash on hand and contingent consideration with a fair value of $ 6.0 million as of july 2 , 2015. the results of operations of qelp have been reflected in the accompanying consolidated statements of operations since july 2 , 2015. results of operations the following table sets forth , for the years indicated , the amounts reflected in the accompanying consolidated statements of operations as well as the changes between the respective years : replace_table_token_8_th 25 the following table sets forth , for the years indicated , the amounts presented in the accompanying consolidated statements of operations as a percentage of revenues : replace_table_token_9_th 2016 compared to 2015 revenues replace_table_token_10_th consolidated revenues increased $ 173.7 million , or 13.5 % , in 2016 from 2015. the increase in americas ' revenues was primarily due to clearlink acquisition revenues of $ 123.3 million , higher volumes from existing clients of $ 92.9 million and new client sales of $ 8.5 million , partially offset by end-of-life client programs of $ 36.6 million and the negative foreign currency impact of $ 12.7 million . revenues from our offshore operations represented 41.2 % of americas ' revenues , compared to 44.5 % in 2015. the decrease in emea 's revenues was primarily due to end-of-life client programs of $ 8.2 million and the negative foreign currency impact of $ 8.1 million , partially offset by higher volumes from existing clients of $ 11.0 million and new client sales of $ 3.6 million . on a consolidated basis , we had 47,700 brick-and-mortar seats as of december 31 , 2016 , an increase of 6,600 seats from 2015. included in this seat count are 1,300 seats associated with clearlink . this increase in seats , net of clearlink additions , was primarily due to seat additions to support higher projected demand . the capacity utilization rate on a combined basis was 75 % in 2016 , compared to 79 % in 2015. this decrease was due to a significant increase in the seat count related to projected client demand . on a geographic segment basis , 41,200 seats were located in the americas , an increase of 6,100 seats from 2015 , and 6,500 seats were located in emea , an increase of 500 seats from 2015. the capacity utilization rate for the americas in 2016 was 74 % , compared to 79 % in 2015 , down primarily due to seat additions for higher projected demand . the capacity utilization rate for emea in 2016 was 80 % , compared to 85 % in 2015 , down primarily due to lower demand in certain existing clients , certain end-of-life client programs and the rationalization of seats in a highly utilized center due to a planned program expiration . we strive to attain a capacity utilization of 85 % at each of our locations . 26 excluding clearlink , we added 7,000 seats on a gross basis in 2016 , with total seat count on a net basis for the full year increasing by 5,300 in 2016 versus 2015. direct salaries and related costs replace_table_token_11_th the increase of $ 111.2 million in direct salaries and related costs included a positive foreign currency impact of $ 13.2 million in the americas and a positive foreign currency impact of $ 5.2 million in emea . the increase in americas ' direct salaries and related costs , as a percentage of revenues , was primarily attributable to higher customer-acquisition advertising costs of 2.3 % in connection with clearlink 's operations and higher recruiting costs of 0.2 % , partially offset by lower compensation costs of 1.3 % driven by clearlink 's operations which has lower direct labor costs relative to our mix of business in the prior period , lower communication costs of 0.4 % , lower auto tow claim costs of 0.3 % and lower other costs of 0.3 % . the decrease in emea 's direct salaries and related costs , as a percentage of revenues , was primarily attributable to lower fulfillment materials costs of 2.2 % driven by lower demand in an existing client program and lower postage costs of 0.6 % , partially offset by higher compensation costs of 2.0 % driven by a decrease in agent productivity principally within the technology vertical in the current period and higher other costs of 0.1 % . general and administrative replace_table_token_12_th the increase of $ 54.2 million in general and administrative expenses included a positive foreign currency impact of $ 3.7 million in the americas and a positive foreign currency impact of $ 2.0 million in emea . the increase in americas ' general and administrative expenses , as a percentage of revenues , was primarily attributable to higher compensation costs of 0.9 % and higher other costs of 0.5 % , partially offset by a reduction in technology costs of 0.2 % allocated from corporate . the decrease in emea 's general and administrative expenses , as a percentage of revenues , was primarily attributable to a gain on settlement of qelp 's contingent consideration of 1.1 % , lower facility-related costs of 0.6 % and lower other costs of 0.2 % , partially offset by higher compensation costs of 0.6 % , higher consulting costs of 0.2 % and higher recruiting costs of 0.2 % . the increase of $ 9.0 million in other general and administrative expenses , which includes corporate and other costs , was primarily attributable to higher merger and integration costs of $ 4.0 million , higher compensation costs of $ 2.6 million , a reduction in technology costs of $ 1.9 million allocated to the americas , higher software maintenance costs of $ 0.5 million and higher consulting costs of $ 0.3 million , partially offset by lower other costs of $ 0.3 million . story_separator_special_tag 27 depreciation , amortization and net ( gain ) loss on disposal of property and equipment replace_table_token_13_th the increase in depreciation was primarily due to new depreciable fixed assets placed into service supporting site expansions as well as the addition of depreciable fixed assets acquired in conjunction with the april 2016 clearlink acquisition , partially offset by certain fully depreciated fixed assets . the increase in amortization was primarily due to the addition of intangible assets acquired in conjunction with the april 2016 clearlink acquisition and the july 2015 qelp acquisition , partially offset by certain fully amortized intangible assets . other income ( expense ) replace_table_token_14_th interest income remained consistent with the prior year . the increase in interest ( expense ) was primarily due to $ 216.0 million in borrowings used to acquire clearlink in april 2016. the ( loss ) on liquidation of foreign subsidiaries in 2015 was due to the substantial liquidation of operations in a foreign entity . the increase in other miscellaneous income ( expense ) was primarily due to the net investment income ( losses ) related to the investments held in rabbi trust . see note 11 , investments held in rabbi trust , of notes to consolidated financial statements for further information . 28 income taxes replace_table_token_15_th the increase in the effective tax rate in 2016 compared to 2015 is primarily due to the recognition in the prior period of a $ 2.2 million previously unrecognized tax benefit , inclusive of penalties and interest , arising from statute of limitations expirations and a $ 1.3 million reversal of a valuation allowance on deferred tax assets where it is more likely than not the assets will be realized due to the current financial position and results of operations for the current and preceding years . the increase in the effective tax rate was also affected by several additional factors , including increases in state taxation along with shifts in earnings among the various jurisdictions in which we operate , none of which are individually material . 2015 compared to 2014 revenues replace_table_token_16_th consolidated revenues decreased $ 41.2 million , or 3.1 % , in 2015 from 2014. the decrease in americas ' revenues was primarily due to end-of-life client programs of $ 82.1 million and the negative foreign currency impact of $ 23.6 million , partially offset by higher volumes from existing clients of $ 67.3 million and new client sales of $ 13.0 million . revenues from our offshore operations represented 44.5 % of americas ' revenues , compared to 38.9 % in 2014. the decrease in emea 's revenues was primarily due to the negative foreign currency impact of $ 43.4 million and end-of-life client programs of $ 4.5 million , partially offset by higher volumes from existing clients of $ 26.6 million and new client sales of $ 5.4 million . on a consolidated basis , we had 41,100 brick-and-mortar seats as of december 31 , 2015 , an increase of 100 seats from 2014. the capacity utilization rate on a combined basis remained unchanged at 79 % in 2015 and 2014. on a geographic segment basis , 35,100 seats were located in the americas , an increase of 600 seats from 2014 , and 6,000 seats were located in emea , a decrease of 500 seats from 2014. the capacity utilization rate for the americas as of december 31 , 2015 was 79 % , compared to 77 % as of december 31 , 2014 , up primarily due to growth within new and existing clients . the capacity utilization rate for emea as of december 31 , 2015 was 85 % , compared to 90 % as of december 31 , 2014 , down primarily due to lower demand in certain existing clients and the rationalization of seats in a highly utilized center due to a planned program expiration . we strive to attain a capacity utilization of 85 % at each of our locations . 29 direct salaries and related costs replace_table_token_17_th the decrease of $ 55.6 million in direct salaries and related costs included a positive foreign currency impact of $ 25.8 million in the americas and a positive foreign currency impact of $ 31.0 million in emea . the decrease in americas ' direct salaries and related costs , as a percentage of revenues , was primarily attributable to lower compensation costs of 2.2 % driven by increased agent productivity within the communications , financial services and technology verticals in the current period , and lower communication costs of 0.2 % . the decrease in emea 's direct salaries and related costs , as a percentage of revenues , was primarily attributable to lower compensation costs of 1.7 % driven by increased agent productivity in the current period combined with the ramp up in the prior period for new and existing client programs principally in the communications vertical , lower billable supply costs of 0.4 % , lower postage costs of 0.3 % and lower other costs of 0.2 % , partially offset by higher fulfillment materials costs of 1.8 % driven by higher demand in a new client program . general and administrative replace_table_token_18_th the decrease of $ 0.9 million in general and administrative expenses included a positive foreign currency impact of $ 6.0 million in the americas and a positive foreign currency impact of $ 8.7 million in emea . the increase in americas ' general and administrative expenses , as a percentage of revenues , was primarily attributable to higher compensation costs of 0.2 % and higher other costs of 0.3 % , partially offset by lower legal and professional fees of 0.3 % and lower communication costs of 0.1 % . the increase in emea 's general and administrative expenses , as a percentage of revenues , was primarily attributable to higher facility-related costs of 0.2 % , higher severance costs of 0.2 % and higher consulting costs of 0.2 % .
| ( 6 ) the quarter ended december 31 , 2015 includes a $ ( 0.6 ) million loss on liquidation of a foreign subsidiary . see note 26 , other income ( expense ) , for further information . ( 7 ) net income per basic and diluted common share is computed independently for each of the quarters presented and , therefore , may not sum to the total for the year . 33 business outlook for the three months ended march 31 , 2017 , we anticipate the following financial results : revenues in the range of $ 380.0 million to $ 385.0 million ; effective tax rate of approximately 31 % ; fully diluted share count of approximately 42.0 million ; diluted earnings per share in the range of $ 0.28 to $ 0.32 ; and capital expenditures in the range of $ 13.0 million to $ 18.0 million for the twelve months ended december 31 , 2017 , we anticipate the following financial results : revenues in the range of $ 1,580.0 million to $ 1,600.0 million ; effective tax rate of approximately 30 % ; fully diluted share count of approximately 42.3 million ; diluted earnings per share in the range of $ 1.59 to $ 1.71 ; and capital expenditures in the range of $ 55.0 million to $ 65.0 million in 2017 , we expect a continuation of the favorable underlying demand trends experienced in 2016. this underlying demand is being driven by growth with both existing and new clients across the americas and emea . specifically , the main drivers of growth remain the financial services , communications and technology verticals . revenues in 2017 reflect an unfavorable impact of approximately $ 25 million from foreign exchange rates relative to 2016. given the broader macro-economic environment and the sustained demand growth , we have seen some imbalances in labor and wage dynamics , which we should be able to either mitigate or completely offset through a combination of actions , including some wage increases offset by lower attrition , wage pass-throughs , shifts in delivery strategies and productivity . as a result , our implicit operating margin and explicit diluted earnings per share assumptions reflect manageable
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these changes , if any , may require material adjustments to the related deferred tax assets or accrued income tax liabilities and an accompanying reduction or increase in income tax expense which may result in a corresponding increase or decrease in net income in the period when such determinations are made . 19 story_separator_special_tag style= '' line-height:120 % ; text-align : center ; font-size:10pt ; '' > replace_table_token_4_th * results for 2017 are presented in accordance with asc 605 , which was in effect during that fiscal year . revenue from end customers in the periods covered by this report , no end customer accounted for more than 10 % of total revenue , and we expect to continue to sell our products to a broad base of end customers . 21 revenue from distributors distributors have historically accounted for a significant portion of our total revenue . revenue attributable to our primary distributors is presented in the following table : replace_table_token_5_th * results for 2017 are presented in accordance with asc 605 , which was in effect during that fiscal year . * * during the first quarter of 2018 , we updated our channel categories to group all forms of distribution into a single channel . prior periods have been reclassified to match current period presentation . gross margin the composition of our gross margin , including as a percentage of revenue , is presented in the following table : replace_table_token_6_th * results for 2017 are presented in accordance with asc 605 , which was in effect during that fiscal year . gross margin , as a percentage of revenue , increased 400 basis points from fiscal 2018 to fiscal 2019 due to product cost reductions , benefits from pricing optimization , as well as overall mix . the increase in gross margin was also attributable to the non-recurrence in 2019 of the $ 8.0 million in specific inventory charges taken in the second quarter of fiscal 2018 as a result of the discontinuation of our millimeter wave business . additionally , gross margin was favorably impacted by the relative mix between product revenue and licensing and services revenue . licensing and services accounted for 5.3 % of total revenue in fiscal 2019 compared to 4.6 % of total revenue in fiscal 2018. because of its higher margin , the licensing and services portion of our overall revenue can have a disproportionate impact on gross margin . operating expenses research and development expense the composition of our research and development expense , including as a percentage of revenue , is presented in the following table : replace_table_token_7_th research and development expense includes costs for compensation and benefits , stock compensation , engineering wafers , depreciation , licenses , and outside engineering services . these expenditures are for the design of new products , ip cores , processes , packaging , and software solutions . the decrease in research and development expense for fiscal 2019 compared to fiscal 2018 was due mainly to the cost reductions realized from the discontinuation of our millimeter wave business and other restructuring actions including the consolidation of leased facilities . these savings were predominantly from headcount related expenses and from reductions in both depreciation and rent expense , partially offset by increased stock compensation expense . 22 we believe that a continued commitment to research and development is essential to maintaining product leadership and providing innovative new product offerings and , therefore , we expect to continue to make significant future investments in research and development , particularly with expanded investment in software and solutions . selling , general , and administrative expense the composition of our selling , general , and administrative expense , including as a percentage of revenue , is presented in the following table : replace_table_token_8_th selling , general , and administrative expense includes costs for compensation and benefits related to selling , general , and administrative employees , commissions , depreciation , professional and outside services , trade show , and travel expenses . the decrease in selling , general , and administrative expense for fiscal 2019 compared to fiscal 2018 was due mainly to the cost reductions realized from restructuring actions including the consolidation of leased facilities . these savings were predominantly from headcount related expenses and from reductions in both depreciation and rent expense , partially offset by increased stock compensation expense . additional savings in the current year period resulted from the non-recurrence of certain one-time costs related to our ceo transition in the prior year , including accelerated stock compensation , severance expense , and ceo search fees amortization of acquired intangible assets the composition of our amortization of acquired intangible assets , including as a percentage of revenue , is presented in the following table : replace_table_token_9_th the decrease in amortization of acquired intangible assets for fiscal 2019 compared to fiscal 2018 was due to the end of the amortization period for certain intangibles and to the reduction of certain intangibles as a result of impairment charges in previous periods . the amortization period for most of our acquired intangible assets will end in the first quarter of fiscal 2020. restructuring charges the composition of our restructuring charges , including as a percentage of revenue , is presented in the following table : replace_table_token_10_th restructuring charges are comprised of expenses resulting from reductions in our worldwide workforce , consolidation of our facilities , removal of fixed assets from service , and cancellation of software contracts and engineering tools . details of our restructuring plans and expenses incurred under them are more fully discussed in `` note 7 - restructuring `` to our consolidated financial statements in part ii , item 8 of this report . the $ 12.7 million decrease in restructuring charges in fiscal 2019 compared to fiscal 2018 was driven primarily by the higher headcount-related restructuring charges in the prior year periods , as compared to lower charges in the current period from ceasing use of certain leased facilities and from termination fees on the cancellation of certain contracts . story_separator_special_tag impairment of acquired intangible assets the composition of our impairment of acquired intangible assets , including as a percentage of revenue , is presented in the following table : replace_table_token_11_th 23 during the third quarter of fiscal 2018 , we concluded that a certain product line had limited future revenue potential due to a decline in customer demand for that product . we determined that this conclusion constituted an impairment indicator to the related specific developed technology intangible asset acquired in our acquisition of silicon image . our assessment of the fair value of this intangible asset concluded that it had been fully impaired as of september 29 , 2018 , and we recorded an impairment charge of $ 0.6 million in the consolidated statements of operations . in the second quarter of 2018 , we made the strategic decision to discontinue our millimeter wave business , which included certain wireless technology intangible assets . we determined that this action constituted an impairment indicator related to certain of the developed technology intangible assets acquired in our acquisition of silicon image . our assessment of the fair value of these intangible assets concluded that they had been fully impaired as of june 30 , 2018 , and we recorded an impairment charge of $ 11.9 million in the consolidated statements of operations . acquisition related charges the composition of our acquisition related charges , including as a percentage of revenue , is presented in the following table : replace_table_token_12_th acquisition related charges include legal and professional fees directly related to acquisitions . we incurred no acquisition related charges in fiscal 2019. for fiscal years 2018 , and 2017 , acquisition related charges were entirely attributable to legal fees and outside services in connection with our proposed acquisition by canyon bridge acquisition company , inc. although the acquisition was terminated , we continued to incur certain residual legal fees directly related to this transaction . interest expense the composition of our interest expense , including as a percentage of revenue , is presented in the following table : replace_table_token_13_th interest expense is primarily related to our long-term debt , which is further discussed under the credit arrangements heading in the liquidity and capital resources section , below . this interest expense is comprised of contractual interest and amortization of original issue discount and debt issuance costs based on the effective interest method . the decrease in interest expense for fiscal 2019 compared to fiscal 2018 was largely driven by the significant reduction in the effective interest rate on our long-term debt under the terms of the new credit agreement , coupled with the reduction in the principal balance of our long-term debt as a result of the additional principal payments made in the current and previous periods . other expense , net the composition of our other expense , net , including as a percentage of revenue , is presented in the following table : replace_table_token_14_th for fiscal 2019 compared to fiscal 2018 , other expense , net increased primarily due to the $ 2.2 million loss on re-financing charge taken in the second quarter of fiscal 2019 to write off the remaining unamortized balance of debt costs and original issue discount related to our refinanced long-term debt , partially offset by reduced miscellaneous expenses during the period . 24 income taxes the composition of our income tax expense is presented in the following table : replace_table_token_15_th our income tax expense is composed primarily of foreign income and withholding taxes , partially offset by benefits resulting from the release of uncertain tax positions due to statute of limitation expirations that occurred in the respective periods . the decrease in expense in fiscal 2019 as compared to fiscal 2018 primarily results from the release of uncertain tax positions due to statute of limitations expiration . we are not currently paying u.s. federal income taxes and do not expect to pay such taxes until we fully utilize our tax net operating loss and credit carryforwards . we expect to pay a nominal amount of state income tax . we are paying foreign income taxes , which are primarily related to withholding taxes on income from foreign royalties , foreign sales , and the cost of operating offshore research and development , marketing , and sales subsidiaries . it is reasonably possible that during the next twelve months , we will establish a sustained level of profitability in the u.s. as a result , we may reverse a significant portion of the valuation allowance recorded against our u.s. deferred tax assets . the reversal would result in an income tax benefit for the quarterly and annual fiscal period in which we release the valuation allowance . we accrue interest and penalties related to uncertain tax positions in income tax expense on our consolidated statements of operations . the inherent uncertainties related to the geographical distribution and relative level of profitability among various high and low tax jurisdictions make it difficult to estimate the impact of the global tax structure on our future effective tax rate . liquidity and capital resources the following sections discuss material changes in our financial condition from the end of fiscal 2018 , including the effects of changes in our consolidated balance sheets , and the effects of our credit arrangements and contractual obligations on our liquidity and capital resources . we have historically financed our operating and capital resource requirements through cash flows from operations , and from the issuance of long-term debt to fund acquisitions . cash provided by or used in operating activities will fluctuate from period to period due to fluctuations in operating results , the timing and collection of accounts receivable , and required inventory levels , among other things . we believe that our financial resources will be sufficient to meet our working capital needs through at least the next 12 months . as of december 28 , 2019 , we did not have significant long-term commitments for capital expenditures .
| with a diverse base of customers who may manufacture end products spanning multiple end markets , the assignment of revenue to a specific end market requires the use of judgment . we also recognize certain revenue for which end customers and end markets are not yet known . we assign this revenue first to a specific end market using historical and anticipated usage of the specific products , if possible , and allocate to the end markets by product family based upon historical usage for each family if we can not identify a specific end market . 20 the following are examples of end market applications for the fiscal years presented : communications and computing industrial and automotive consumer licensing and services wireless security and surveillance cameras ip royalties wireline machine vision displays adopter fees data backhaul industrial automation wearables ip licenses server computing robotics televisions patent sales client computing automotive home theater data storage drones the composition of our revenue by end market is presented in the following table : replace_table_token_3_th * results for 2017 are presented in accordance with asc 605 , which was in effect during that fiscal year . our revenue in the communications and computing end market increased 26 % in fiscal 2019 compared to fiscal 2018 primarily due to demand increases for server and client computing products , as well as for products used in 5g wireless infrastructure . for fiscal 2019 compared to fiscal 2018 , industrial and automotive end market revenue decreased 4 % primarily due to broad market weakness , primarily in asia and europe . consumer end market revenue decreased 24 % in fiscal 2019 compared to fiscal 2018 primarily due to a greater focus on the industrial and automotive and the communications and computing end markets , and due to asia market softness and broad market weakness . revenue from the licensing and services end market is subject to variability between periods . revenue from the licensing and services end market increased by 18 % in fiscal 2019 compared to fiscal 2018 predominantly due to increases in hdmi royalty
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the depth and duration of the current energy cycle has been deeper and longer than many industry analysts originally expected . this sustained downturn in crude oil and natural gas prices has had a substantial negative effect on a large number of energy-related companies , including a number of the company 's customers . at december 31 , 2015 , the company 's loans to energy-related customers totaled approximately $ 1.6 billion , or 10 % of its total loan portfolio . total criticized loans in the energy portfolio increased approximately $ 375 million in 2015 to $ 451 million , or approximately 29 % of the total energy portfolio . criticized loans are defined as those having potential weaknesses that deserve management 's close attention ( risk rated special mention , substandard and doubtful ) , including both accruing and nonaccrual loans . nonaccruing energy loans totaled approximately $ 70 million at december 31 , 2015 compared to none at december 31 , 2014. the continued decline in oil and gas prices from international economic and geopolitical events with no indication of a quick recovery , coupled with declining collateral values related to specific credits within the energy portfolio , led management to increase the allowance for the energy portfolio during 2015 by $ 66.2 million to $ 78.2 million , or almost 5 % of energy loans at december 31 , 2015. at december 31 , 2015 , the total allowance for loan losses was $ 181.2 million compared to $ 128.8 million at december 31 , 2014. the primary year-over-year increase in the allowance for loan losses was related to the energy portfolio . management is working to reduce the company 's concentration in energy-related credits by reducing the balance of energy credits while implementing a number of initiatives to increase its nonenergy-related portfolio . in 2015 , the company increased its total loan portfolio by $ 1.8 billion , or 13 % , while reducing its energy-related portfolio by approximately $ 144 million . we are expecting the continued decrease in the energy-related portfolio in 2016 as anticipated paydowns should more than offset any additional loans or advances . the company 's energy-related loan portfolio is diversified across a number of industries . it is comprised of loans to customers involved in both exploration and production and support services . approximately $ 1.0 billion , or 64 % , of the energy portfolio is with customers who provide transportation and other onshore and offshore services and products to support exploration and production activities . the remaining $ 600 million , or 36 % , is to customers engaged in oil and gas exploration and production , 90 % of which is supported by proved developed producing reserves . these customers are diversified across 12 primary basins in the u.s. and the gulf of mexico and by product line with approximately 60 % in oil and 40 % in gas . borrowing base redeterminations for the reserve-based loans are completed twice a year and all borrowing bases were reviewed and appropriately adjusted in the second and fourth quarters of 2015 . 38 management continues to closely monitor the impact that the decrease in oil prices will have on the ability of the company 's energy-related customers to service their debt . part of the ongoing monitoring includes a review of customers ' balance sheets , leverage ratios , collateral values and other critical lending metrics . as new information becomes available , the company could have additional risk rating downgrades . management believes that if further risk rating downgrades occur , they could lead to additional loan loss provisions , a higher allowance for loan losses , and additional charge-offs . while management expects additional charge-offs in the portfolio , we continue to believe the impact of the energy cycle on the company will be manageable and capital will remain solid . based upon information available today , management estimates that net charge-offs from the energy-related credits will approximate $ 50 to $ 75 million over the duration of the cycle . during 2015 , the company recorded net charge-offs of $ 3.8 million on energy-related credits . additionally , management is closely monitoring the impact that the depressed oil and gas prices are having on the local economies in the company 's energy-dependent markets , particularly as it relates to our consumer and commercial real estate portfolios . although the company has not experienced any significant issues in these portfolios to date , we expect to experience some credit degradation in 2016 , particularly in the consumer portfolio , which may require an increase in our allowance for loan losses . current economic environment the federal reserve publishes its summary of commentary on current economic conditions ( the beige book ) eight times a year , most recently on january 13 , 2016. the beige book includes summaries from all 12 banks in the federal reserve system . reports from the atlanta bank and the dallas bank indicate continued improvement of economic activity throughout most of the company 's market area . however , activity at energy-related businesses , which are concentrated mainly in the company 's south louisiana and houston , texas market areas , reported a decline in activity . this decline is expected to continue until oil prices recover . tourism and convention activity , which is important to several of the company 's market areas , showed record levels of activity in both leisure and business travel , and is expected to continue to grow in 2016 based on advanced booking reports . however , there was some concern about the strength of the dollar decreasing demand from international customers . retail sales for the 2015 holiday season were positive , and motor vehicle sales continued to grow . manufacturing activity has declined , with a decrease in orders of production ; however , employment levels increased slightly . story_separator_special_tag most manufacturers within the company 's footprint expect growth in production , except for the ones in the houston market , which has had a significant decline in demand for products manufactured for the energy sector . the real estate market for residential properties was flat to slightly up compared to the prior beige book , released november 30 , 2015 , with the exception of the houston market , which reported sluggish levels of activity . home sales are expected to remain flat or increase slightly over the next few months . however , the houston market is expected to further weaken . new home construction activity has remained flat . most builders had a positive outlook , expecting new home sales to be flat or show a slight increase . commercial construction activity has improved modestly , with demand for apartment construction continuing to show robust growth . employment levels were mixed . some areas reported stable or increasing employment , while others reported some scattered layoffs . the energy sector has experienced layoffs and the slowdown is causing layoffs in other supporting industries , including transportation , retail , and financial services . pricing levels remained stable in most industries . however , some areas reported difficulties hiring and retaining employees for both high-skilled and low-skilled entry level positions . the beige book also noted that some companies had to increase pay in order to retain their employees . loan demand across most of the markets that the company serves grew at a slightly lower pace since the last beige book report , and competition for quality borrowers remains strong . both consumer auto lending and business loans to auto dealers increased . commercial real estate continued to grow as a result of increased demand for multifamily housing . the outlook for increased growth was pessimistic , with markets citing increases 39 in delinquencies in loans to oil and gas companies , with lower oil prices expected to continue for the foreseeable future . the overall u.s. economy continued to expand , with almost all regions showing modest to moderate growth rates . confidence in the prospect of a higher rate of sustained growth decreased slightly in regions with more significant energy presence due to anticipated low oil prices for the foreseeable future . broader uncertainty surrounding regulation and the health of the international economy have also tapered economic outlooks for 2016. highlights of 2015 financial results loans increased $ 1.8 billion , or 13 % deposits increased $ 1.8 billion , or 11 % total revenue , excluding purchase accounting adjustments , increased $ 33.4 million , or 4 % allowance for energy loans at december 31 , 2015 was $ 78.2 million , or approximately 5 % of energy loans net income for the year ended december 31 , 2015 was $ 131.5 million , compared to $ 175.7 million in 2014. this decrease was mainly due to a $ 39 million increase in the provision for loan losses and a $ 51 million reduction in purchase accounting adjustments . diluted earnings per share for 2015 were $ 1.64 , a $ 0.46 decrease from 2014. operating income , which excludes tax-effected nonoperating expenses and securities gains and losses , totaled $ 141.8 million , a $ 52 million , or 27 % , decrease from 2014 due to the additional provision for loan and lease losses and reduction in purchase accounting adjustments . diluted earnings per share on operating income were $ 1.77 for 2015 , a $ 0.55 reduction from 2014. the company 's return on average assets ( roa ) for 2015 was 0.62 % compared to 0.90 % for 2014 , while the operating roa was 0.67 % in 2015 , compared to 1.00 % in 2014. reported net interest income ( te ) in 2015 totaled $ 639 million , a $ 27 million , or 4 % , decrease from 2014 , which is mainly the result of a $ 57 million decrease in net purchase accounting accretion partially offset by the impact from a $ 1.5 billion increase in average loans . the reported net interest margin decreased 54 basis points ( bps ) to 3.33 % in 2015. the core net interest margin , which is calculated excluding total net purchase accounting adjustments , decreased 19 bps to 3.14 % in 2015. the decrease in the core net interest margin resulted from a combination of a 10 basis point ( bp ) decrease in the core loan yield , excluding purchase accounting adjustments , and a 6 bp increase in the company 's cost of funds . the decline in loan yield resulted from management 's strategy to increase net interest income and reduce loan concentrations in specific industries by making high quality loans to financially sound customers at competitive interest rates . the increase in the cost of funds was mainly attributable to management 's strategy of funding its loan growth primarily with core deposits which resulted in paying slightly higher rates on its interestbearing deposits . the provision for loan losses was $ 73.0 million in 2015 compared to $ 33.8 million in 2014 , with the increase mostly attributable to the increase in the allowance for loan losses on energy credits . net charge-offs from the non-fdic acquired portfolio during 2015 were $ 16.2 million , or 0.11 % of average total loans . this compares to the net non-fdic acquired charge-offs of $ 17.1 million , or 0.13 % of average total loans , in 2014. at december 31 , 2015 , the allowance for loan losses was $ 181.2 million , or 1.15 % of period-end loans , up $ 52 million from the previous year-end . the increase is primarily related to the energy portfolio . at december 31 , 2015 , loans in the company 's energy segment totaled approximately $ 1.6 billion , or 10 % of total loans . the energy segment is comprised of credits to both the e & p industry and support industries .
| ddas comprised 40 % of total period-end deposits at december 31 , 2015. interest-bearing transaction and savings deposits totaled $ 6.8 billion at year-end 2015 , down $ 593 million , or 8 % , compared to september 30 , 2015. the decline reflects , in part , the change in products noted above . time deposits of $ 2.1 billion decreased $ 184 million , or 8 % , while interest-bearing public fund deposits increased $ 486 million , or 28 % , to $ 2.3 billion at december 31 , 2015. during the fourth quarter of 2015 , the company discontinued its eurodollar deposit product , resulting in a transfer of funds from the time deposit category to interest-bearing transaction accounts . hancock recorded a total provision for loan losses for the fourth quarter of 2015 of $ 50.2 million , up $ 40.1 million from the third quarter of 2015. the increase from prior quarter reflects increases in the allowance for the energy portfolio as discussed more fully in item 7. management 's discussion and analysis of financial condition and results of operations balance sheet analysis allowance for loan and lease losses. net charge-offs from the non-fdic acquired loan portfolio were $ 7.9 million , or 0.21 % of average total loans on an annualized basis in the fourth quarter of 2015 , compared to $ 3.5 million , or 0.09 % of average total loans , for the third quarter of 2015. included in the fourth quarter total are $ 3.0 million in charge-offs related to energy credits . net interest income ( te ) for the fourth quarter of 2015 was $ 163 million , up $ 2.5 million from the third quarter of 2015. average earning assets were $ 20.1 billion in the fourth quarter of 2015 , up $ 707 million , or 4 % , from the third quarter of 2015. the net interest margin ( te ) was 3.21 % for the fourth quarter of 2015 , down 7 bps from 3.28 % in the third quarter of 2015. the core margin of 3.10 % decreased 5 bps during the fourth quarter of
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46 our communication systems , ground networking equipment and products include : fixed satellite networks , including next-generation satellite network infrastructure and ground terminals to access ka-band broadband services on high-capacity satellites . mobile broadband satellite communication systems , designed for use in aircraft , high-speed trains and seagoing vessels . antenna systems specializing in earth imaging , remote sensing , mobile satellite communication , ka-band earth stations and other multi-band antennas . satellite networking development programs , including specialized design and technology services covering all aspects of satellite communication system architecture and technology . government systems our government systems segment develops and produces network-centric ip-based fixed and mobile secure government communications systems , products , services and solutions , which are designed to enable the collection and dissemination of secure real-time digital information between command centers , communications nodes and air defense systems . customers of our government systems segment include the dod , allied foreign governments , domestic and allied armed forces , public safety first-responders and remote government employees . the primary products and services of our government systems segment include : government mobile broadband products and services , which provide military and government users with high-speed , real-time , broadband and multimedia connectivity in key regions of the world . government satellite communication systems , which comprise an array of portable , mobile and fixed broadband modems , terminals , network access control systems and antenna systems using a range of satellite frequency bands for line-of-sight and beyond-line-of-sight isr and c2 missions , satellite networking services , network management systems for wi-fi and other internet access networks and global mobile broadband capability , and include products designed for manpacks , aircraft , uavs , seagoing vessels , ground-mobile vehicles and fixed applications . cybersecurity and information assurance products , which provide advanced , high-speed ip-based type 1 and haipe-compliant encryption solutions that enable military and government users to communicate information securely over networks , and that secure data stored on computers and storage devices . tactical data links , including our bats-d handheld link radios , mids terminals for military fighter jets and their successor , mids-jtrs terminals , disposable weapon data links and other portable small tactical terminals . sources of revenues our satellite services segment revenues are primarily derived from our domestic broadband services business and from our worldwide managed network services . our products in our commercial networks and government systems segments are provided primarily through three types of contracts : fixed-price , time-and-materials and cost-reimbursement contracts . fixed-price contracts ( which require us to provide products and services under a contract at a specified price ) comprised approximately 90 % , 90 % and 92 % of our total revenues for these segments for fiscal years 2016 , 2015 and 2014 , respectively . the remainder of our revenue in these segments for such periods was derived from cost-reimbursement contracts ( under which we are reimbursed for all actual costs incurred in performing the contract to the extent such costs are within the contract ceiling and allowable under the terms of the contract , plus a fee or profit ) and from time- 47 and-materials contracts ( which reimburse us for the number of labor hours expended at an established hourly rate negotiated in the contract , plus the cost of materials utilized in providing such products or services ) . our ability to grow and maintain our revenues in our commercial networks and government systems segments has to date depended on our ability to identify and target markets where the customer places a high priority on the technology solution , and our ability to obtain additional sizable contract awards . due to the nature of this process , it is difficult to predict the probability and timing of obtaining awards in these markets . historically , a significant portion of our revenues in our commercial networks and government systems segments has been derived from customer contracts that include the research and development of products . the research and development efforts are conducted in direct response to the customer 's specific requirements and , accordingly , expenditures related to such efforts are included in cost of sales when incurred and the related funding ( which includes a profit component ) is included in revenues . revenues for our funded research and development from our customer contracts were approximately 20 % , 23 % and 31 % of our total revenues during fiscal years 2016 , 2015 and 2014 , respectively . we also incur ir & d expenses , which are not directly funded by a third party . ir & d expenses consist primarily of salaries and other personnel-related expenses , supplies , prototype materials , testing and certification related to research and development projects . ir & d expenses were approximately 5 % , 3 % and 5 % of total revenues in fiscal years 2016 , 2015 and 2014 , respectively . as a government contractor , we are able to recover a portion of our ir & d expenses pursuant to our government contracts . approximately 15 % , 17 % and 23 % of our total revenues in fiscal years 2016 , 2015 and 2014 , respectively , were derived from international sales . doing business internationally creates additional risks related to global political and economic conditions and other factors identified under the heading risk factors in item 1a and elsewhere in this report . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these financial statements 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period . story_separator_special_tag we consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management 's judgment , with financial reporting results relying on estimation about the effect of matters that are inherently uncertain . we describe the specific risks for these critical accounting policies in the following paragraphs . for all of these policies , we caution that future events rarely develop exactly as forecast , and even the best estimates routinely require adjustment . revenue recognition a substantial portion of our revenues is derived from long-term contracts requiring development and delivery of complex equipment built to customer specifications . sales related to these contracts are accounted for under the authoritative guidance for the percentage-of-completion method of accounting ( accounting standards codification ( asc ) 605-35 ) . sales and earnings under these contracts are recorded either based on the ratio of actual costs incurred to date to total estimated costs expected to be incurred related to the contract , or as products are shipped under the units-of-delivery method . the percentage-of-completion method of accounting requires management to estimate the profit margin for each individual contract and to apply that profit margin on a uniform basis as sales are recorded under the contract . the estimation of profit margins requires management to make projections of the total sales to be generated and the total costs that will be incurred under a contract . these projections require management to 48 make numerous assumptions and estimates relating to items such as the complexity of design and related development costs , performance of subcontractors , availability and cost of materials , labor productivity and cost , overhead and capital costs and manufacturing efficiency . these contracts often include purchase options for additional quantities and customer change orders for additional or revised product functionality . purchase options and change orders are accounted for either as an integral part of the original contract or separately depending upon the nature and value of the item . for contract claims or similar items , we apply judgment in estimating the amounts and assessing the potential for realization . these amounts are only included in contract value when they can be reliably estimated and realization is considered probable . anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable . during fiscal years 2016 , 2015 and 2014 , we recorded losses of approximately $ 5.1 million , $ 0.6 million and $ 3.3 million , respectively , related to loss contracts . assuming the initial estimates of sales and costs under a contract are accurate , the percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract . changes in these underlying estimates due to revisions in sales and future cost estimates or the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for on a cumulative basis in the period estimates are revised . we believe we have established appropriate systems and processes to enable us to reasonably estimate future costs on our programs through regular evaluations of contract costs , scheduling and technical matters by business unit personnel and management . historically , in the aggregate , we have not experienced significant deviations in actual costs from estimated program costs , and when deviations that result in significant adjustments arise , we disclose the related impact in management 's discussion and analysis of financial condition and results of operations . however , these estimates require significant management judgment and a significant change in future cost estimates on one or more programs could have a material effect on our results of operations . a one percent variance in our future cost estimates on open fixed-price contracts as of march 31 , 2016 would change our income before income taxes by approximately $ 0.4 million . we also derive a substantial portion of our revenues from contracts and purchase orders where revenue is recorded on delivery of products or performance of services in accordance with the authoritative guidance for revenue recognition ( asc 605 ) . under this standard , we recognize revenue when an arrangement exists , prices are determinable , collectability is reasonably assured and the goods or services have been delivered . we also enter into certain leasing arrangements with customers and evaluate the contracts in accordance with the authoritative guidance for leases ( asc 840 ) . our accounting for equipment leases involves specific determinations under the authoritative guidance for leases , which often involve complex provisions and significant judgments . in accordance with the authoritative guidance for leases , we classify the transactions as sales type or operating leases based on : ( 1 ) review for transfers of ownership of the equipment to the lessee by the end of the lease term , ( 2 ) review of the lease terms to determine if it contains an option to purchase the leased equipment for a price which is sufficiently lower than the expected fair value of the equipment at the date of the option , ( 3 ) review of the lease term to determine if it is equal to or greater than 75 % of the economic life of the equipment , and ( 4 ) review of the present value of the minimum lease payments to determine if they are equal to or greater than 90 % of the fair market value of the equipment at the inception of the lease . additionally , we consider the cancelability of the contract and any related uncertainty of collections or risk in recoverability of the lease investment at lease inception . revenue from sales type leases is recognized at the inception of the lease or when the equipment has been delivered and installed at the customer site , if installation is required .
| this increase was partially offset by improved margins from our exede broadband services resulting from the higher number of exede subscribers compared to the prior year period and resultant scale in revenues , as well as higher value service plan offerings . the cost of product revenues decrease was primarily due to decreased revenues , causing a $ 41.5 million decrease in cost of product revenues on a constant margin basis , prior to the effects of product revenues related to the implied license under the settlement agreement . this cost of product revenues decrease mainly related to our fixed satellite networks ( driven by consumer broadband products ) and our antenna systems products in our commercial networks segment , partially offset by lower margins in consumer broadband products in our commercial networks segment . selling , general and administrative expenses fiscal years ended dollar increase ( decrease ) percentage increase ( decrease ) ( in millions , except percentages ) march 31 , 2016 april 3 , 2015 selling , general and administrative $ 298.3 $ 270.8 $ 27.5 10.2 % the $ 27.5 million increase in selling , general and administrative ( sg & a ) expenses was primarily attributable to higher support costs of $ 34.3 million mainly related to the recognition of $ 18.7 million of 53 payments made under the settlement agreement as a reduction to sg & a expenses in our satellite services segment during the second quarter of fiscal year 2015 and to an increase in support costs of $ 11.8 million in our commercial networks segment . this increase was partially offset by lower new business proposal costs of $ 4.0 million mainly in our government systems segment and lower selling costs primarily in our satellite services segment . sg & a expenses consisted primarily of personnel costs and expenses for business development , marketing and sales , bid and proposal , facilities , finance , contract administration and general management . independent research and development fiscal years ended dollar increase ( decrease ) percentage increase ( decrease ) ( in millions , except percentages ) march 31 , 2016 april 3 , 2015 independent research and development $ 77.2 $
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wendy 's operating results are impacted by a number of external factors , including commodity costs , labor costs , intense price competition , unemployment and decreased consumer spending levels , general economic and market trends and weather . wendy 's long-term growth opportunities include accelerating u.s. same-restaurant sales through ( 1 ) its “ one more visit , one more dollar ” strategy , which includes continuing core menu improvement , product innovation and strategic price increases on our menu items , ( 2 ) focused execution of operational excellence , ( 3 ) continued implementation of consumer-facing digital platforms and technologies and ( 4 ) increased restaurant utilization in various dayparts , including the company 's plans to launch breakfast across the u.s. system on march 2 , 2020 ( see “ breakfast launch ” below ) . wendy 's also expects growth in the number of new restaurants through targeted u.s. expansion and accelerated international expansion through same-restaurant sales growth and new restaurant development . key business measures we track our results of operations and manage our business using the following key business measures , which include non-gaap financial measures : same-restaurant sales - we report same-restaurant sales commencing after new restaurants have been open for 15 continuous months and as soon as reimaged restaurants reopen . this methodology is consistent with the metric used by our management for internal reporting and analysis . the table summarizing same-restaurant sales below in “ results of operations ” provides the same-restaurant sales percent changes . restaurant margin - we define restaurant margin as sales from company-operated restaurants less cost of sales divided by sales from company-operated restaurants . cost of sales includes food and paper , restaurant labor and occupancy , advertising and other operating costs . restaurant margin is influenced by factors such as price increases , the effectiveness of our advertising and marketing initiatives , featured products , product mix , fluctuations in food and labor costs , restaurant openings , remodels and closures and the level of our fixed and semi-variable costs . systemwide sales - systemwide sales is a non-gaap financial measure , which includes sales by both company-operated restaurants and franchised restaurants . franchised restaurants ' sales are reported by our franchisees and represent their revenues from sales at franchised wendy 's restaurants . the company 's consolidated financial statements do not include sales by franchised restaurants to their customers . the company believes systemwide sales data is useful in assessing consumer demand for the company 's products , the overall success of the wendy 's brand and , ultimately , the performance of the company . the company 's royalty revenues are computed as percentages of sales made by wendy 's franchisees . as a result , sales by wendy 's franchisees have a direct effect on the company 's royalty revenues and profitability . average unit volumes - we calculate company-operated restaurant average unit volumes by summing the average weekly sales of all company-operated restaurants which reported sales during the week . franchised restaurant average unit volumes is a non-gaap financial measure , which includes sales by franchised restaurants , which are reported by our franchisees and represent their revenues from sales at franchised wendy 's restaurants . the company 's consolidated financial statements do not include sales by franchised restaurants to their customers . the company believes franchised restaurant average unit volumes is useful information for the same reasons 34 described above for “ systemwide sales. ” we calculate franchised restaurant average unit volumes by summing the average weekly sales of all franchised restaurants which reported sales during the week . the company calculates same-restaurant sales and systemwide sales growth on a constant currency basis . constant currency results exclude the impact of foreign currency translation and are derived by translating current year results at prior year average exchange rates . the company believes excluding the impact of foreign currency translation provides better year over year comparability . same-restaurant sales and systemwide sales exclude sales from venezuela and , beginning in the third quarter of 2018 , exclude sales from argentina due to the highly inflationary economies of those countries . the company considers economies that have had cumulative inflation in excess of 100 % over a three-year period as highly inflationary . the non-gaap financial measures discussed above do not replace the presentation of the company 's financial results in accordance with gaap . because all companies do not calculate non-gaap financial measures in the same way , these measures as used by other companies may not be consistent with the way the company calculates such measures . breakfast launch in september 2019 , the company announced that it planned to launch breakfast across the u.s. system in the first quarter of 2020. in february 2020 , the company announced that the expected launch date was march 2 , 2020. the company made investments during 2019 of $ 16.8 million to support the u.s. system in preparation of the national launch , which was primarily recorded to “ franchise support and other costs . ” the 2019 investments were primarily comprised of ( 1 ) the purchase of smallwares and menuboards for franchisees and ( 2 ) a national recruiting advertising campaign and other talent acquisition costs . information technology ( “ it ” ) realignment in december 2019 , our board of directors approved a plan to realign and reinvest resources in the company 's it organization to strengthen its ability to accelerate growth . the company is partnering with a third-party global it consultant on this new structure to leverage their global capabilities , which the company believes will enable a more seamless integration between its digital and corporate it assets . the company expects that the realignment plan will reduce certain employee compensation and other related costs that the company intends to reinvest back into it to drive additional capabilities and capacity across all of its technology platforms . the company expects the majority of the impact of the realignment plan to occur at its restaurant support center in dublin , ohio . story_separator_special_tag the company expects to incur total costs aggregating approximately $ 13.0 million to $ 15.0 million related to the plan . during 2019 , the company recognized costs totaling $ 9.1 million , which primarily included severance and related employee costs of $ 7.5 million and third-party and other costs of $ 1.4 million . the company expects to incur additional costs aggregating approximately $ 5.5 million , comprised of ( 1 ) severance and related employee costs of approximately $ 1.0 million and ( 2 ) third-party and other costs of approximately $ 4.5 million . the company expects to recognize the majority of the remaining costs associated with the plan during the first half of 2020. general and administrative ( “ g & a ” ) realignment in may 2017 , the company initiated a plan to further reduce its g & a expenses . additionally , the company announced in may 2019 changes to its management and operating structure that included the creation of two new positions , a president , u.s. and chief commercial officer and a president , international and chief development officer , and the elimination of the chief operations officer position . during 2019 , 2018 and 2017 , the company recognized costs totaling $ 7.7 million , $ 8.8 million and $ 21.7 million , respectively , which primarily included severance and related employee costs and share-based compensation . the company does not expect to incur any additional material costs under the plan . other investments in equity securities in october 2019 , the company received a $ 25.0 million cash settlement related to a previously held investment . as a result , the company recorded $ 24.4 million to “ investment income , net ” and $ 0.6 million to “ general and administrative ” for the reimbursement of related costs during the fourth quarter of 2019 . 35 indirect investment in inspire brands in connection with the sale of arby 's restaurant group , inc. ( “ arby 's ” ) during 2011 , wendy 's restaurants obtained an 18.5 % equity interest in arg holding corporation ( “ arg parent ” ) ( through which wendy 's restaurants indirectly retained an 18.5 % interest in arby 's ) . the carrying value of our investment was reduced to zero during 2013 in connection with the receipt of a dividend . our 18.5 % equity interest was diluted to 12.3 % in february 2018 , when a subsidiary of arg parent acquired buffalo wild wings , inc. as a result of the acquisition , our diluted ownership interest included both the arby 's and buffalo wild wings brands under the newly formed combined company , inspire brands , inc. ( “ inspire brands ” ) . in august 2018 , the company sold its remaining 12.3 % ownership interest to inspire brands for $ 450.0 million and incurred transaction costs of $ 0.1 million , which were recorded to “ investment income , net. ” the company recorded income tax expense of $ 97.5 million on the transaction , of which $ 95.0 million was paid during the fourth quarter of 2018. system optimization initiative the company 's system optimization initiative includes a shift from company-operated restaurants to franchised restaurants over time , through acquisitions and dispositions , as well as facilitating franchise flips . as of january 1 , 2017 , the company completed its plan to reduce its ongoing company-operated restaurant ownership to approximately 5 % of the total system . while the company has no plans to reduce its ownership below the approximately 5 % level , the company expects to continue to optimize the wendy 's system through franchise flips , as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of company-operated restaurants to existing and new franchisees , to further strengthen the franchisee base and drive new restaurant development and accelerate reimages . during 2019 , 2018 and 2017 , the company facilitated 37 , 96 and 400 franchise flips , respectively ( excluding the davco and npc transactions discussed below ) . additionally , during 2018 , the company completed the sale of three company-operated restaurants to franchisees . no company-operated restaurants were sold to franchisees during 2019 or 2017. during 2020 , the company expects to sell 43 company-operated restaurants in new york to franchisees . the company expects to retain its company-operated restaurants in manhattan . gains and losses recognized on dispositions are recorded to “ system optimization ( gains ) losses , net ” in our consolidated statements of operations . costs related to acquisitions and dispositions under our system optimization initiative are recorded to “ reorganization and realignment costs . ” all other costs incurred related to facilitating franchise flips are recorded to “ franchise support and other costs. ” cybersecurity incident in february 2016 , the company reported unusual payment card activity affecting some franchise owned restaurants and that malware had been discovered on certain systems . in june 2016 , the company reported that an additional malware variant had been identified and disabled . in july 2016 , the company , on behalf of affected franchise locations , provided information about specific restaurant locations that may have been impacted by these attacks , all of which were located in the united states , along with support for customers who may have been affected by the malware . during 2019 , the company entered into settlement agreements to resolve a consumer class action and a financial institutions class action related to the cybersecurity incidents . the consumer class action settlement was approved by the court in february 2019 and the financial institutions class action settlement was approved by the court in november 2019. both matters are now considered fully paid and closed .
| ( b ) excludes venezuela , and excludes argentina beginning in the third quarter of 2018 , due to the impact of the highly inflationary economies of those countries . replace_table_token_8_th replace_table_token_9_th the increase in sales during 2019 was primarily due to a net increase in the number of company-operated restaurants in operation during 2019 compared to 2018 . in addition , sales during 2019 benefited from a 3.1 % increase in company-operated same-restaurant sales . company-operated same-restaurant sales improved due to an increase in our average per customer check amount , reflecting benefits from strategic price increases on our menu items and changes in product mix . these benefits were partially offset by a decrease in customer count . 40 replace_table_token_10_th the increase in franchise royalty revenue during 2019 was primarily due to a 2.9 % increase in franchise same-restaurant sales . royalty revenue was also positively impacted by a net increase in the number of franchise restaurants in operation during 2019 compared to 2018 . the decrease in franchise fees during 2019 was primarily due to lower other miscellaneous franchise fees and facilitating fewer franchise flips in 2019 compared to 2018 , partially offset by an increase in fees for providing information technology and other services to franchisees . replace_table_token_11_th the increase in franchise rental income during 2019 was primarily due to the adoption of new accounting guidance for leases . under the new guidance , lessees ' payments to the company for executory costs are recorded on a gross basis as revenue with a corresponding expense . see “ franchise rental expense ” below . this increase was partially offset by the impact of assigning certain leases to franchisees . advertising funds revenue 2019 2018 2017 amount change amount change amount advertising funds revenue $ 339.4 $ 13.4 $ 326.0 $ 326.0 $ — the company maintains two national advertising funds established to collect and administer funds contributed for use in advertising and promotional programs for company-operated and franchised restaurants in the u.s. and canada . franchisees make contributions to the national advertising funds based
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30 matters affecting comparability supply agreement we purchase beauty products for resale from an entity ( the “ supplier entity ” ) that was , during the periods presented , a wholly-owned subsidiary of steiner leisure . osw predecessor and the supplier entity entered into an agreement , effective as of january 1 , 2017 ( subsequently amended in 2018 ) , which established the prices at which beauty products will be purchased by us from the supplier entity for a term of 10 years ( the “ supply agreement ” ) . the supply agreement has had a positive impact on our business as it has reduced the cost of products for retail goods and has lowered the cost of products used in services . the supply agreement was effective as of january 1 , 2017 , however , existing inventories of products purchased prior to the effectiveness of the supply agreement were not fully depleted until the end of the third quarter of 2017. beginning october 1 , 2017 , the cost of products used in services and cost of products reflect the actual pricing under the supply agreement because , at that time , all inventory on hand was purchased under the terms of the supply agreement . on march 19 , 2019 , we consummated the previously announced business combination pursuant to the transaction agreement . “ osw predecessor ” is comprised of the net assets and operations of ( i ) the following wholly-owned subsidiaries of steiner leisure : onespaworld llc , steiner spa asia limited , steiner spa limited , and steiner marks limited , ( ii ) the following respective indirect subsidiaries of steiner leisure : mandara pslv , llc , mandara spa ( hawaii ) , llc , florida luxury spa group , llc , steiner transocean u.s. , inc. , steiner spa resorts ( nevada ) , inc. , steiner spa resorts ( connecticut ) , inc. , steiner resort spas ( california ) , inc. , onespaworld resort spas ( north carolina ) , inc. ( formerly known as steiner resort spas ( north carolina ) , inc. ) , osw soho llc , osw distribution llc , world of wellness training limited ( formerly known as steiner training limited ) , sto italy s.r.l. , one spa world llc , mandara spa services llc , onespaworld limited , onespaworld ( bahamas ) limited ( formerly known as steiner transocean limited ) , onespaworld medispa llc , onespaworld medispa limited , onespaworld medispa ( bahamas ) limited ( formerly known as sto medispa limited ) , mandara spa ( cruise i ) , llc , mandara spa ( cruise ii ) , llc , steiner transocean ( ii ) limited ( subsequently dissolved ) , the onboard spa by steiner ( shanghai ) co. , ltd. , mandara spa llc , mandara spa puerto rico , inc. , mandara spa ( guam ) , l.l.c. , mandara spa ( bahamas ) limited , mandara spa aruba n.v. , mandara spa polynesia sarl , mandara spa asia limited , pt mandara spa indonesia , spa services asia limited , mandara spa palau , mandara spa ( malaysia ) sdn . bhd. , mandara spa ventures international sdn . bhd. , spa partners ( south asia ) limited , mandara spa ( maldives ) pvt ltd , and mandara spa ( fiji ) limited , ( iii ) medispa limited , a majority-owned subsidiary of steiner leisure , and ( iv ) the timetospa.com website owned by elemis usa , inc. ( formerly known as steiner beauty products , inc. ) , subsequently transferred to onespaworld . at the closing of the business combination , onespaworld became the ultimate parent company of haymaker and osw predecessor . unless the context otherwise requires , “ we , ” “ us , ” “ our ” and the “ company ” refer to onespaworld holdings limited and its subsidiaries . timetospa.com business model as a result of our separation from steiner leisure , we ceased operating timetospa.com as a standalone e-commerce business with focused marketing efforts and paid search advertising effective as of december 31 , 2017. timetospa.com is now a post-cruise sales tool where guests may continue their wellness journey after disembarking . revenue and net income in the year ended december 31 , 2017 are not directly comparable to revenue and net income in the year ended december 31 , 2018 due to this change in the timetospa.com business model . 31 key performanc e indicators in assessing the performance of our business , we consider several key performance indicators used by management . these key indicators include : ship count . the number of ships , both on average during the period and at period end , on which we operate health and wellness centers . this is a key metric that impacts revenue and profitability . average weekly revenue per ship . a key indicator of productivity per ship . revenue per ship can be affected by the various sizes of health and wellness centers and categories of ships on which we serve . average revenue per shipboard staff per day . we utilize this performance metric to assist in determining the productivity of our onboard staff , which we believe is a critical element of our operations . destination resort count . the number of destination resorts , both on average during the period and at period end , on which we operate the health and wellness centers . this is a key metric that impacts revenue and profitability . average weekly revenue per destination resort health and wellness center . a key indicator of productivity per destination resort health and wellness center . revenue per destination resort health and wellness center in a period can be affected by the mix of north american and asian centers for such period because north american centers are typically larger and produce substantially more revenues per center than asian centers . additionally , average weekly revenue can also be negatively impacted by renovations of our destination resort health and wellness centers . story_separator_special_tag for the year ended december 31 , 2019 , we have combined the results of the successor entity , onespaworld holdings limited , for the period from march 20 , 2019 to december 31 , 2019 with the results of osw predecessor for the period from january 1 , 2019 to march 19 , 2019 ( the “ 2019 combined period ” ) in the following table which sets forth the above key performance indicators for the periods presented : replace_table_token_6_th key financial definitions revenues . revenues consist primarily of sales of services and sales of products to cruise ship passengers and destination resort guests . the following is a brief description of the components of our revenues : service revenues . service revenues consist primarily of sales of health and wellness services , including a full range of massage treatments , facial treatments , nutritional/weight management consultations , teeth whitening , mindfulness services and medi-spa services to cruise ship passengers and destination resort guests . we bill our services at rates which inherently include an immaterial charge for products used in the rendering of such services , if applicable . product revenues . product revenues consist primarily of sales of health and wellness products , such as facial skincare , body care , orthotics and detox supplements to cruise ship passengers , destination resort guests and timetospa.com customers . cost of services . cost of services consists primarily of an allocable portion of payments to cruise lines ( which are derived as a percentage of service revenues or a minimum annual rent or a combination of both ) , an allocable portion of wages paid to shipboard employees , an allocable portion of staff-related shipboard expenses , costs related to recruitment and training of shipboard employees , wages paid directly to destination resort employees , payments to destination resort venue owners , the allocable cost of products consumed in the rendering of a service and health and wellness center depreciation . cost of services has historically been highly variable ; increases and decreases in cost of services are primarily attributable to a corresponding increase or decrease in service revenues . cost of services has tended to remain consistent as a percentage of service revenues . cost of products . cost of products consists primarily of the cost of products sold through our various methods of distribution , an allocable portion of wages paid to shipboard employees and an allocable portion of payments to cruise lines and destination resort partners ( which are derived as a percentage of product revenues or a minimum annual rent or a combination of both ) . cost of products 32 has historically been highly variable , increases and decreases in cost of pr oducts are primarily attributable to a corresponding increase or decrease in product revenues . cost of products has tended to remain consistent as a percentage of product revenues . administrative . administrative expenses are comprised of expenses associated with corporate and administrative functions that support our business , including fees for professional services , insurance , headquarters rent and other general corporate expenses . we expect administrative expenses to increase due to additional legal , accounting , insurance and other expenses related to becoming a public company . salary and payroll taxes . salary and payroll taxes are comprised of employee expenses associated with corporate and administrative functions that support our business , including fees for employee salaries , bonuses , payroll taxes , pension/401 ( k ) and other employee costs . amortization of intangible assets . amortization of intangible assets are comprised of the amortization of intangible assets with definite useful lives ( e.g . retail concession agreements , destination resort agreements , licensing agreements ) and amortization expenses associated with the 2015 and 2019 transactions . other income ( expense ) , net . other income ( expense ) consists of royalty income , interest income , interest expense and minority interest expense . provision for income taxes . provision for income taxes includes current and deferred federal income tax expenses , as well as state and local income taxes . see “ —critical accounting policies—income taxes ” included elsewhere in this annual report on form 10-k. net income . net income consists of income from operations less other income ( expense ) and provision for income taxes . revenue drivers and business trends our revenues and financial performance are impacted by a multitude of factors , including , but not limited to : the number of ships and destination resorts in which we operate health and wellness centers . revenue is impacted by net new ship growth , ships out of service , unanticipated dry-docks , ships prevented from sailing due to outbreaks of illnesses , such as the recent coronavirus outbreak , and the number of destination resort health and wellness centers operating in each period . the size and offerings of new health and wellness centers . we have focused our attention on the innovation and provision of higher value added and price point services such as medi-spa and advanced facial techniques , which require treatment rooms equipped with specific equipment and staff trained to perform these services . as our cruise line partners continue to invest in new ships with enhanced health and wellness centers that allow for more advanced treatment rooms and larger staff sizes , we are able to increase the availability of these services , driving an overall shift towards a more attractive service mix . expansion of value-added services and products across modalities in existing health and wellness centers . we continue to expand our higher value added and price point offerings in existing health and wellness centers , including introducing premium medi-spa services , resulting in higher guest spending . the mix of ship count across contemporary , premium , luxury and budget categories . revenue generated per shipboard health and wellness center differs across contemporary , premium , luxury and budget ship categories due to the size of the health and wellness centers , services offered , guest demographics and guest spending patterns .
| average weekly revenues increased by 1.9 % to $ 61,561 in 2019 , from $ 60,421 in 2018 , and revenues per shipboard staff per day increased by 0.2 % over the same time period . we had an average of 2,964 shipboard staff members in service in 2019 compared to an average of 2,852 shipboard staff members in service in 2018. the productivity of destination resort health and wellness centers , measured by average weekly revenues , decreased 12.9 % to $ 12,128 in 2019 , from $ 13,927 in 2018. the decrease in productivity was driven by the closure of two large health and wellness centers in north america . cost of services . cost of services as a percentage of service revenue for the successor 2019 period , predecessor 2019 period , and for the year ended december 31 , 2018 were 86.2 % , 84.2 % and 85.8 % , respectively . 34 cost of products . cost of products as a percentage of product revenue for the successor 2019 period , predecessor 2019 period and for the year ended december 31 , 2018 were 86 . 9 % , 88.2 % and 85.3 % , respectively . successor 2019 period includes p urchase p rice adjustmen ts concerning the i nventory valuations resulting in higher costs , a portion of which are non-cash . administrative . administrative expenses for the successor 2019 period , predecessor 2019 period and for the year ended december 31 , 2018 were $ 14.0 million , $ 2.5 million and $ 9.9 million , respectively . the successor 2019 period had expenses incurred in connection with the business combination and costs associated with being a public company . salary and payroll taxes . salary and payroll taxes for the successor 2019 period , predecessor 2019 period and for the year ended december 31 , 2018 were $ 32.3 million , $ 29.3 million and $ 15.6 million , respectively . the successor 2019 period includes stock-based compensation of $ 20.4 million related to stock options that fully vested upon grant to certain directors and executives . the predecessor 2019 period had change in control payments of $
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this was subsequently expanded to include acreage in angelina county , due south of nacogdoches county . this investment holds potential for development in the haynesville/bossier shale formations . a total of 97 wells have been drilled with 94 wells placed on production as of december 31 , 2012. the company 's interest in this project varies with an average 2.7 percent ownership in the properties and wells . production is dry gas and due to low prices only those wells required to hold acreage by production will be drilled . the company 's interest covers 154,000 gross acres . approximately 64,000 is being held by production , another 65,000 acres is held by the production from non-owned shallow wells . the remaining acreage is either undeveloped or being held by contracts that delay termination of lease rights . west texas project in 2008 the company participated with an approximate 7.5 % working interest in the acquisition of 49,015 gross acres located in irion and crockett counties , texas for the purpose of developing the wolfcamp shale . in 2011 the company sold a portion of its interest in anticipation of an aggressive horizontal drilling program on the acreage . a total of 135 wells have been drilled through december 31 , 2012 with 102 wells on production and 33 wells being completed . drilling is expected to continue but at a reduced rate in 2013 with 37 wells scheduled for drilling . production from the wolfcamp in this area is oil-rich with large amounts of gas and natural gas liquids . 20 south texas project the goal of this investment is to extend the productive area of the eagle ford trend north in fayette and lavaca counties , texas . the first core well was productive with petrochemical data showing the project is on the gas-condensate window . plans call for up to four additional horizontal wells being initiated during 2013. the company holds a five percent working interest in this project which includes approximately 38,000 acres currently under lease . - oil and gas property sales in august 2012 , the company sold to a third party fifty percent of its interest in certain kansas oil and gas properties . the properties contained one producing well with insignificant production history . the sale was consummated to spur further development on the properties . total proceeds from the sale were $ 578,000 and the company recorded a $ 475,000 pre-tax gain on sale . the company will continue to participate in the development of these kansas properties . in october and december 2012 , the company sold , to third parties , its interest in two separate oil and gas producing properties . one of the properties was located on-shore texas with the second property located in federal waters offshore louisiana . proceeds from these two sales totaled $ 3,049,000 and the company recorded a $ 1,728,000 pre-tax gain . both properties had depleted substantially from their initial productive period , so the sales were consummated before the properties lost further value . in january 2011 , the company completed the sale of its interest in certain producing oil and gas properties located in the on-shore gulf coast region of texas . proceeds from the sale totaled $ 6.2 million and the pre-tax gain from this transaction totaled $ 2,708,000. sales negotiations were conducted by the third party operator of the properties and the transaction was completed with a separate third party investment entity . the company 's proportionate interest in the transaction was approximately five percent and the company elected to participate in the sale due to attractive pricing . also during the first quarter of 2011 , the company sold a portion of its interest in certain non-producing oil and gas properties located in west texas . total proceeds from the sale were $ 329,000 and the company recorded a $ 125,000 gain from this transaction . proceeds from the sales were used for general working capital purposes and the company is continuing with oil and gas exploration operations in the vicinity of the properties sold . in october 2011 , the company sold an interest in certain non-producing properties for $ 90,000 in proceeds and gain . - general and administrative , interest income and income tax general and administrative expenses were generally consistent during the periods presented with elevated costs in 2012 and 2011 due to employee bonuses , consistent with increased corporate earnings . interest income declined after 2008 as interest rates on overnight deposits dropped to near zero following the significant turmoil that occurred in the financial markets during that period . the provision for income taxes is based on federal and state tax rates and variations are consistent with taxable income in the respective accounting periods . - outlook the short-term outlook indicates continued volume growth and relative margin strength within the crude oil marketing operation . however , industry competitors and company suppliers are aware of the present market opportunity and seek to capture such advantage which would reduce unit margins . transportation operations continue to experience strong demand , in part due to low natural gas prices . the oil and gas segment should experience improved results for 2013 with stabilized prices and production from new well additions while depreciation , depletion and impairment charges reduce with less activity planned for 2013 . 21 the company has the following major objectives for 2013 : - maintain marketing operating earnings at the $ 35 million level exclusive of inventory valuation gains or losses . - maintain transportation operating earnings at the $ 7 million level . - restore oil and gas operating earnings to the $ 2 million level . liquidity and capital resources the company 's liquidity primarily derives from net cash provided from operating activities , which was $ 54,494,000 , $ 55,815,000 and $ 36,928,000 for each of 2012 , 2011 and 2010 , respectively . as of december 31 , 2012 and 2011 , the company had no bank debt or other forms of debenture obligations . story_separator_special_tag cash and cash equivalents totaled $ 47,239,000 as of december 31 , 2012 , and such balances are maintained in order to meet the timing of day-to-day cash needs . working capital , the excess of current assets over current liabilities , totaled $ 57,799,000 as of december 31 , 2012. the company heavily relies on its ability to obtain open-line trade credit from its suppliers especially with respect to its crude oil marketing operation . in this regard , the company generally maintains substantial cash balances and avoids debt obligations . capital expenditures during 2012 included $ 27,929,000 for marketing and transportation equipment additions , primarily consisting of truck-tractors , and $ 23,083,000 in property additions associated with oil and gas exploration and production activities . for 2013 , the company anticipates expending an additional approximately $ 12 million on oil and gas development and exploration projects . in addition , approximately $ 3 million will be expended during 2013 for the purchase of 35 trailers for the transportation segment and approximately $ 15 million will be expended by the crude oil marketing operation for the purchase of 46 truck-tractors , 60 trailers and the construction of a barge loading facility . these units will serve to replace older units and to increase the marketing fleet by 30 units . funding for these 2013 projects will be from operating cash flow and available working capital . within certain constraints , the proposed projects can be delayed or cancelled should funding become unavailable . at various times during each month , the company makes cash prepayments and or early payments in advance of the normal due date to certain suppliers of crude oil within the marketing operations . crude oil supply prepayments totaled $ 5,000,000 as of december 31 , 2012 and such amounts will be recouped and advanced from month to month as the suppliers deliver product to the company . the company also requires certain counterparties to post cash collateral with the company in order to support their purchase from the company . such cash collateral held by the company totaled $ 7,456,000 as of december 31 , 2012. the company also maintains a stand-by letter of credit facility with wells fargo bank to provide for the issuance of up to $ 60 million in stand-by letters of credit to suppliers of crude oil and natural gas ( see note ( 1 ) to consolidated financial statements ) . the issuance of stand-by letters of credit enables the company to avoid posting cash collateral when procuring crude oil and natural gas supply . as of december 31 , 2012 , letters of credit outstanding totaled $ 21.9 million . the issued stand-by letters of credit are cancelled as the underlying purchase obligations are satisfied by cash payment when due . management believes current cash balances , together with expected cash generated from future operations , and the ease of financing truck and trailer additions through leasing arrangements ( should the need arise ) will be sufficient to meet short-term and long-term liquidity needs . the company utilizes cash from operations to make discretionary investments in its marketing , transportation and exploration businesses , which comprise substantially all of the company 's investing cash outflows for each of the periods in this filing . the company does not look to proceeds from property sales to fund its cash flow needs . except for an approximate $ 9.9 million commitment for storage tank terminal arrangements and office lease space , the company 's future commitments and planned investments can be readily curtailed if operating cash flows contract . 22 historically , the company pays an annual dividend in the fourth quarter of each year , and the company paid a $ .62 per common share dividend or $ 2,615,000 to shareholders of record as of december 3 , 2012. the most significant item affecting future increases or decreases in liquidity is earnings from operations and such earnings are dependent on the success of future operations ( see item 1a . risk factors in this annual report of form 10-k ) . off-balance sheet arrangements the company maintains certain operating lease arrangements with independent truck owner-operators for use of their equipment and driver services on a month-to-month basis . in addition , the company has entered into certain lease and terminal access contracts in order to provide tank storage and dock access for its crude oil marketing business . such contracts require certain minimum monthly payments for the term of the contracts . all operating lease commitments qualify for off-balance sheet treatment . rental expense for the years ended december 31 , 2012 , 2011 , and 2010 was $ 8,110,000 , $ 7,621,000 and $ 5,870,000 , respectively . as of december 31 , 2012 , rental commitments under long-term non-cancelable operating leases and terminal arrangements for the next five years are payable as follows : 2013 - $ 3,404,000 ; 2014 - $ 1,718,000 ; 2015 - $ 1,450,000 ; 2016 - $ 1,431,000 ; 2017 – $ 1,210,000 and $ 724,000 thereafter . contractual cash obligations the company has no capital lease obligations . the company has entered into certain operating lease arrangements and terminal access agreements for tankage , truck-tractors , trailers and office space . a summary of the payment periods for contractual cash obligations is as follows ( in thousands ) : replace_table_token_17_th in addition to its lease obligations , the company is also committed to purchase certain quantities of crude oil and natural gas in connection with its marketing activities . such commodity purchase obligations are the basis for commodity sales , which generate the cash flow necessary to meet such purchase obligations . approximate commodity purchase obligations as of december 31 , 2012 are as follows ( in thousands ) : replace_table_token_18_th insurance from time to time , the marketplace for all forms of insurance enters into periods of severe cost increases .
| in contrast , crude oil prices were as generally rising during 2011 and 2010 producing inventory valuation gains of $ 3,021,000 and $ 2,272,000 , respectively . as of december 31 , 2012 , the company held 245,623 barrels of crude oil inventory at an average price of $ 95.35 per barrel . crude oil marketing operating earnings are also affected by the valuations of the company 's forward month commodity contracts ( derivative instruments ) as of the various report dates . such non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date . the company generally enters into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead ( field level ) . only those contracts qualifying as derivative instruments are accorded fair value treatment while the companion contracts to purchase crude oil at the wellhead ( field level ) are not accorded fair value treatment . the valuation of derivative instruments at period end requires the recognition of ‟mark-to-market ” gains and losses . the impact on crude oil segment operating earnings of inventory liquidations and derivative valuations is summarized as follows ( in thousands ) : replace_table_token_11_th ( 1 ) such designation is unique to the company and is not comparable to any similar measures developed by industry participants . field level operating earnings and field level purchase volumes ( see earlier table ) depict the company 's day-to-day operation of acquiring crude oil at the wellhead , transporting the material , and delivering it to market at the sales point . comparative crude oil field level operating earnings increased in 2012 relative to 2011 and in 2011 relative to 2010 with the noted volume additions and overall improved unit margins for the comparative periods . unit margins first began to widen during the third quarter of 2011 when south texas sourced production started selling at a discount to world crude oil prices due to its relative abundance in relation to the infrastructure available to deliver such oil to market . the initial burst in unit
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total revenues from continuing operations increased $ 11.8 million , or 2.4 % , to $ 502.7 million in fiscal 2018 from the $ 490.8 million in fiscal 2017. revenues from continuing operations from the 1,127 branches open throughout both fiscal years increased by 2.1 % . at march 31 , 2018 , the company had 1,177 branches in operation , an increase of 8 branches from march 31 , 2017. the increase was the result of opening 21 new branches and acquiring 5 branches , partially offset by merging 18 branches into existing branches . interest and fee income from continuing operations during fiscal 2018 increased by $ 7.8 million , or 1.8 % , from fiscal 2017. the increase was primarily due to a corresponding increase in average earning loans . net loans outstanding at march 31 , 2018 increased 6.2 % compared to march 31 , 2017 , and average net loans outstanding increased 2.2 % during fiscal 2018 compared to fiscal 2017. interest and fee income for the year also benefited from an increase in loan volumes of approximately 5.3 % . insurance commissions and other income from continuing operations increased by $ 4.0 million , or 6.4 % , over the two fiscal years . insurance commissions from continuing operations increased by $ 1.1 million , or 2.7 % , when comparing the two fiscal years due to an increase in loan volume in states where we offer our insurance product . other income from continuing operations increased by $ 2.9 million , or 13.1 % , when comparing the two fiscal years due mainly to an increase in tax return preparation income of $ 2.1 million . the provision for loan losses from continuing operations during fiscal 2018 decreased by $ 1.5 million , or 1.2 % , from the previous year . this decrease resulted from a decrease in the amount of loans that were fully reserved during the year . net charge-offs for fiscal 2018 amounted to $ 112.2 million , a 6.0 % decrease from the $ 119.4 million charged off during fiscal 2017. accounts that were 61 days or more past due represented 5.8 % and 5.3 % of our loan portfolio on a recency basis and 7.5 % and 7.0 % of our portfolio on a contractual basis at march 31 , 2018 and march 31 , 2017 , respectively . the company 's charge-off ratio ( net charge-offs as a percentage of average net loans receivable ) decreased from 16.2 % for the year ended march 31 , 2017 to 14.8 % for the year ended march 31 , 2018. the company 's fiscal 2018 charge-off ratio of 14.8 % is consistent with its historical charge-off ratios . charge-off ratios for the past ten fiscal years averaged 14.7 % , with a high of 16.7 % ( fiscal 2009 ) and a low of 12.8 % ( fiscal 2015 ) . 38 general and administrative expenses from continuing operations during fiscal 2018 increased by $ 24.8 million , or 10.2 % , over the previous fiscal year . general and administrative expenses , when divided by average open branches , increased 10.3 % when comparing the two fiscal years , and , overall , general and administrative expenses as a percent of total revenues increased to 53.5 % in fiscal 2018 from 49.8 % in fiscal 2017. the change in general and administrative expense is explained in greater detail below . personnel expense from continuing operations totaled $ 164.5 million for fiscal 2018 , a $ 5.9 million , or 3.7 % , increase over fiscal 2017. the increase was primarily driven by an increase in regular payroll related to annual pay increases and changes in headcount , as well as increased incentive payments due to improved performance , $ 2.5 million of severance-related expense stemming from the separation agreement with the company 's former ceo , and a $ 1.8 million expense related to a change in the company 's paid time off policy that accelerated the accrual of time-off within the calendar year . the policy change became effective january 1 , 2018. occupancy and equipment expense from continuing operations totaled $ 39.1 million for fiscal 2018 , a $ 1.0 million , or 2.7 % , increase over fiscal 2017. occupancy and equipment expense is generally a function of the number of branches the company has open throughout the year . in fiscal 2018 the average expense per branch increased slightly to $ 33.2 thousand , up from $ 32.6 thousand in fiscal 2017. advertising expense from continuing operations totaled $ 21.2 million for fiscal 2018 , a $ 4.6 million , or 28.0 % , increase over fiscal 2017. the company identified opportunities for customer acquisition during key time frames and , in an effort to capitalize on such opportunities , increased advertising , which resulted in more advertising campaigns being funded in fiscal 2018 when compared to the prior year . amortization of intangible assets from continuing operations totaled $ 1.0 million for fiscal 2018 , a $ 0.5 million , or 102.2 % , increase over fiscal 2017 , which primarily relates to a corresponding increase in total intangible assets during the comparative periods due to acquisitions during fiscal 2017 and fiscal 2018. other expense from continuing operations totaled $ 43.3 million for fiscal 2018 , a $ 12.8 million , or 41.7 % , increase over fiscal 2017. the increase was primarily due to approximately $ 7.2 million of expense related to the company 's mexico investigation , which began in march 2017 , and a $ 2.3 million increase in debit card fees over the prior year . debit card fees have continued to increase as customers take advantage of the company 's pay-by-phone and on-line payment options . we have also increased our investment in information technology . story_separator_special_tag interest expense from continuing operations decreased by $ 2.4 million , or 11.2 % , during fiscal 2018 when compared to the previous fiscal year as a result of a decrease in average debt outstanding of 13.7 % , partially offset by an increase in the effective interest rate from 5.8 % to 6.0 % . income tax expense from continuing operations increased $ 9.4 million , or 24.4 % for fiscal 2018 compared to fiscal 2017. the effective tax rate increased to 49.3 % for fiscal 2018 compared to 36.2 % for fiscal 2017. the increase was primarily due to a $ 10.5 million charge to tax expense related to the net impact of revaluing the u.s. deferred tax assets and liabilities and a $ 4.9 million charge to tax expense related to the foreign transition tax in fiscal 2018. the increase was partially offset by a $ 3.4 million decrease in tax expense due to the reduction of the company 's u.s. federal statutory income tax rate from 35 % to 31.55 % for fiscal 2018. mexico exit as previously disclosed , the company sold all of the issued and outstanding capital stock and equity interest of its two mexico subsidiaries , wac de mexico and swac , for a purchase price of mxn $ 826,795,050 , effective as of july 1 , 2018. the company subsequently converted the purchase price into approximately usd $ 44.36 million using applicable exchange rates . the company and its subsidiaries no longer operate in mexico . thus , the company expects its revenues and gross loans receivables to be negatively impacted in future years-compared to historical levels . further , under the terms of the stock purchase agreement , we are obligated to indemnify the purchasers for claims and liabilities relating to certain investigations of our former mexico operating segment , the company , and its affiliates by the doj or the sec that commenced prior to july 1 , 2018. any such indemnification claims could have a material adverse effect on our financial condition , including liquidity , and results of operations . regulatory matters mexico investigation 39 as disclosed in part i , item 3 , “ legal proceedings-mexico investigation ” above , as previously disclosed , the company has retained outside legal counsel and forensic accountants to conduct an investigation of its operations in mexico , focusing on the legality under the fcpa , and certain local laws of certain payments related to loans , the maintenance of the company 's books and records associated with such payments , and the treatment of compensation matters for certain employees . the investigation continues to address whether and to what extent improper payments , which may violate the fcpa and other local laws , were made approximately between 2010 and 2017 by or on behalf of wac de mexico , to government officials in mexico relating to loans made to unionized employees . the company voluntarily contacted the sec and the doj in june 2017 to advise both agencies that an internal investigation was underway and that the company intended to cooperate with both agencies . the company has and will continue to cooperate with both agencies . the sec has issued a formal order of investigation . a conclusion can not be drawn at this time as to what potential remedies these agencies may seek . the company can not determine at this time the ultimate effect that the investigation or any remedial measures will have on its financial condition or results of operations . if violations of the fcpa or other local laws occurred , the company could be subject to fines , civil and criminal penalties , equitable remedies , including profit disgorgement and related interest , and injunctive relief . in addition , any disposition of these matters could result in modifications to our business practices and compliance programs . any disposition could also potentially require that a monitor be appointed to review future business practices with the goal of ensuring compliance with the fcpa and other applicable laws . the company could also face fines , sanctions , and other penalties from authorities in mexico , as well as third-party claims by shareholders and or other stakeholders of the company . in addition , disclosure of the investigation or its ultimate disposition could adversely affect the company 's reputation and its ability to obtain new business or retain existing business from its current customers and potential customers , to attract and retain employees , and to access the capital markets . if it is determined that a violation of the fcpa has occurred , such violation may give rise to an event of default under the company 's credit agreement if such violation were to have a material adverse effect on the company 's business , operations , properties , assets , or condition ( financial or otherwise ) or if the amount of any settlement , penalties , fines , or other payments resulted in the company failing to satisfy any financial covenants . additional potential fcpa violations or violations of other laws or regulations may be uncovered through the investigation . see part i , item 1a , “ risk factors-we may be exposed to liabilities under the fcpa , and any determination that the company or any of its subsidiaries has violated the fcpa could have a material adverse effect on our business and liquidity , ” “ -our investigation of our previous operations in mexico may expose the company to other potential liabilities in addition to any potential liabilities under the fcpa and cause the company to incur substantial expenses , ” “ -we depend to a substantial extent on borrowings under our revolving credit agreement to fund our liquidity needs , ” and “ -the terms of our debt limit how we conduct our business ” for additional information . in addition to the ultimate liability for disgorgement and related interest , the company believes that it could be further liable for fines and penalties .
| the company 's year-over-year charge-off ratio ( net charge-offs as a percentage of average net loans receivable ) increased from 14.9 % for the year ended march 31 , 2018 to 16.1 % for the year ended march 31 , 2019 . customers who are new borrowers to world finance ( less than 6 months since their first origination at the time of their current loan ) as a percentage of the year-end portfolio have grown 39.4 % year over year . these `` new to world '' customers now account for 17 % of the portfolio , an increase from 13.7 % last year and an average of 12.5 % in the prior 5 fiscal years ( 2013-2017 ) . further , customers with less than 1 year tenure as a percentage of the year-end portfolio have grown 33.2 % year over year to now account for 23 % of the portfolio . this increased weighting of new borrowers , our riskiest customer type , in the portfolio contributed to the increase in delinquency and charge-off rates of the overall portfolio . while we have experienced an increase in portfolio weighting towards less tenured customers during the last 18 months , we have not seen an increase in charge-off rates when comparing the less tenured customer segment to prior years . charge-off ratios for the past ten fiscal years averaged 14.7 % , with a high of 16.2 % ( fiscal 2017 ) and a low of 12.8 % ( fiscal 2015 ) .the following table presents the company 's charge-off ratios since 2002 . 36 _ 2009 in fiscal 2009 the company 's net charge-off rate increased to 16.7 % , the highest in the company 's history due to the difficult economic environment , which put substantial pressure on our customers ' ability to repay their loans . 2015 in fiscal 2015 the company 's net charge-off rate decreased to 12.8 % . the net charge-off rate benefited from a change in branch level incentives during the year , which allows
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million and $ 4.2 million for our fiscal years ended january 31 , 2014 , 2013 and 2012 , respectively . key factors affecting our performance investment in growth . we have invested and intend to continue to invest aggressively in expanding the breadth and depth of our industry cloud for life sciences . we expect to invest in research and development to expand existing and build new solutions , sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies , professional services to ensure the success of our customers ' implementations of our solutions , and other operational and administrative functions to support our expected growth and new requirements associated with becoming a public company . we anticipate that our headcount will increase as a result of these investments . we expect our total operating expenses will increase over time , and , in some cases , have short-term negative impacts on our net income margin . adoption of our solutions by existing and new customers . most of our customers initially deploy our solutions to a limited number of users within a division or geography and may only initially deploy a limited set of our available solutions . our future growth is dependent upon our existing customers ' continued success with and renewals of subscriptions to our solutions , deployment of our solutions to additional users around the world , and the purchase of subscriptions to additional solutions . our growth is also dependent on the adoption of our solutions by new customers . in particular , our veeva vault solutions are offered to segments of the life sciences industry to which we have not previously marketed , including the research and development organizations of life sciences companies as well as emerging biotechnology companies , and we must be successful in marketing to these and other potential new segments . subscription services revenue retention rate . a key factor to our success is the renewal and expansion of our existing subscription agreements with our customers . we calculate our annual subscription services revenue retention rate for a particular fiscal year by dividing ( i ) annualized subscription revenue as of the last day of that fiscal year from those customers that were also customers as of the last day of the prior fiscal year by ( ii ) the annualized subscription revenue from all customers as of the last day of the prior fiscal year . annualized subscription revenue is calculated by multiplying the daily subscription revenue recognized on the last day of the fiscal year by 365. this calculation includes the impact on our revenues from customer non-renewals , deployments of additional users or decreases in users , deployments of additional solutions or discontinued use of solutions by our customers , and price changes for our solutions . historically , the impact of price changes on our subscription services revenue retention rate has been minimal . for our fiscal years ended january 31 , 2014 , 2013 and 2012 , our subscription services revenue retention rate was 166 % , 187 % and 159 % , respectively . 50 mix of subscription and professional services revenues . we believe our investments in professional services have driven customer success and facilitated the further adoption of our solutions by our customers . during the initial period of deployment by a customer , we generally provide a greater amount of configuration , implementation and training than later in the deployment . at the same time , many of our customers have historically purchased subscriptions for only a limited set of their total potential users during their initial deployments . as a result of these factors , the proportion of total revenues for a customer associated with professional services is relatively high during the initial deployment period . over time , as the need for professional services associated with user deployments decreases and the number of users often increases , we expect the mix of total revenues to shift more toward subscription services revenues . as a result , we expect the proportion of our total revenues from subscription services to increase over time . components of results of operations revenues we derive our revenues primarily from subscription services fees and professional services fees . subscription services revenues consist of fees from customers accessing our industry cloud solutions . professional services revenues consist primarily of fees from implementation services , configuration , training and managed services . for our fiscal year ended january 31 , 2014 , subscription services revenues constituted 70 % of total revenues and professional services and other revenues constituted 30 % of total revenues . in our fiscal year ended january 31 , 2014 , we derived approximately 95 % of our subscription services revenues from our veeva crm solutions , including veeva crm , veeva clm , veeva irep and veeva crm approved email . we enter into master subscription agreements with our customers and count each distinct master subscription agreement that has not terminated or expired as a distinct customer for purposes of determining our total number of current customers . we generally enter into a single master subscription agreement with each customer , although in some instances , affiliated legal entities within the same corporate family may enter into a separate master subscription agreement . divisions , subsidiaries and operating units of our customers often place distinct orders for our subscription services under the same master subscription agreement , and we do not count such distinct orders as new customers for purposes of determining our total customer count . story_separator_special_tag with respect to the legacy customers of advantage management solutions , inc. ( advantagems ) , which we acquired on june 20 , 2013 , and data services customers that have not purchased one of our software solutions , we count each agreement with an entity that was not previously a veeva customer and that has a known and recurring payment obligation as a distinct customer for purposes of determining our total number of current customers . new subscription orders typically have a one-year term and automatically renew unless notice of cancellation is provided in advance . if a customer adds users or solutions to an existing order , such additional orders will be coterminous with the initial order , and as a result , orders for additional users or solutions will commonly have a term of less than one year . subscription orders are generally billed beginning at the subscription commencement date in annual or quarterly increments . because the term of orders for additional users or solutions is commonly less than one year and payment terms may be quarterly , the annualized value of the orders we enter into with our customers will not be completely reflected in deferred revenue at any single point in time . accordingly , we do not believe that change in deferred revenue is an accurate indicator of future revenues for any given period of time . subscription services revenues are recognized ratably over the order term beginning when the solution has been provisioned to the customer . our subscription services agreements are generally non-cancelable during the term , although customers typically have the right to terminate their agreements for cause in the event of material breach . subscription services revenues are affected primarily by the number of customers , the number of users ( or other subscription usage metric ) at each customer that uses our solutions and the number of solutions subscribed to by each customer . 51 our professional services engagements are primarily billed on a time and materials basis and revenues are typically recognized as the services are rendered . professional services revenues are affected primarily by our customers ' demands for implementation services , configuration , training and managed services in connection with our solutions . cost of revenues cost of subscription services revenues primarily consists of fees paid to salesforce.com , inc. for our use of the salesforce platform and the associated hosting infrastructure and data center operations that are provided by salesforce.com , other third-party expenses related to data center capacity , personnel related costs associated with hosting our subscription services and providing support , operating lease expense associated with computer equipment and software and allocated overhead , amortization expense associated with capitalized internal-use software related to our subscription services and amortization expense associated with purchased intangibles related to our subscription services . cost of subscription services revenues for some of our veeva vault and veeva network solutions do not include fees to salesforce.com because the salesforce platform is not used in those solutions . we intend to continue to invest additional resources in our subscription services to broaden our offerings and increase our delivery capacity . for example , we may open additional data centers , expand our current data centers in the future and continue to make investments in the availability and security of our solutions . the timing of when we incur these additional expenses will affect our cost of revenues in absolute dollars in the affected periods . cost of professional services and other revenues consists primarily of employee-related costs associated with providing these services , including salaries , benefits and stock-based compensation expense , the cost of subcontractors , travel costs and allocated overhead . the cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscription services due to the direct labor costs and costs of subcontractors . operating expenses we accumulate certain costs such as office rent , utilities , facilities personnel and other facilities costs and allocate them across the various departments based on headcount . we refer to these costs as allocated overhead. research and development . research and development expenses consist primarily of employee-related expenses , third-party consulting fees and allocated overhead . we continue to focus our research and development efforts on adding new features and applications , increasing the functionality and enhancing the ease of use of our cloud-based applications . sales and marketing . sales and marketing expenses consist primarily of employee-related expenses , sales commissions , customer-focused events , travel-related expenses and allocated overhead . sales commissions and other incremental costs to acquire contracts are expensed as incurred . general and administrative . general and administrative expenses consist of employee-related expenses for our executive , finance and accounting , legal , human resources , management information systems personnel and other administrative employees . in addition , general and administrative expenses include legal costs , professional fees , other corporate expenses and allocated overhead . other income ( expense ) , net other income ( expense ) , net consists primarily of transaction gains or losses on foreign currency , net of interest income and amortization of investments . 52 provision for income taxes provision for income taxes consists of federal and state income taxes in the united states and income taxes in certain foreign jurisdictions . see note 9 of the notes to our consolidated financial statements . story_separator_special_tag team , an increase of $ 4.6 million in third-party consulting services and a $ 1.5 million increase in travel related to professional services projects at our customer locations . gross profit as a percentage of total revenues for year ended january 31 , 2014 , 2013 and 2012 were 61 % , 56 % and 53 % , respectively . the increases compared to the prior periods is largely due to an increase in the proportion of total revenues attributable to subscription services revenues , which have higher gross margins than professional services and other revenues .
| ninety percent of the increase in professional services and other revenues was attributable to existing customers that signed agreements with us on or prior to january 31 , 2013 , and 10 % of the increase in professional services and other revenues was attributable to customers that signed agreements with us after january 31 , 2013. professional services revenues from north america , as measured by the estimated location of the user for which the services were performed , made up 56 % of professional services revenues in fiscal 2014 and 56 % of professional services revenues in fiscal 2013. subscription services revenues were 70 % of total revenues for fiscal 2014 , compared to 57 % of total revenues for fiscal 2013 , reflecting the growth in our subscription services revenues as our customers expanded their use of our solutions across new divisions , new geographies , and new products . fiscal 2013 compared to fiscal 2012. total revenues increased $ 68.3 million , of which $ 40.7 million was from subscription services revenues . thirty-seven percent of the increase in subscription services revenues was attributable to orders from existing customers that were placed on or prior to january 31 , 2012 and the renewal of such orders through january 31 , 2013. sixty-three percent of the increase in subscription services revenues was attributable to new orders placed after january 31 , 2012 to deploy our solutions to additional users within our existing customer base and to new users at new customers . subscription services revenues from north america , as measured by the estimated location of the end users for subscription services , made up 72 % of subscription services revenues in fiscal 2013 and 89 % of subscription services revenues in fiscal 2012. this shift in geographic revenue mix was primarily due to the more rapid rate of revenue growth from deployments in both europe and asia as compared to north america . professional services and other revenues increased $ 27.6 million . seventy-eight percent of the increase in professional services and other revenues was attributable to existing customers that signed agreements with us on or prior to january 31 , 2012 , and 22 % of the increase in professional services and other revenues was attributable to customers that signed agreements with us after january 31 , 2012. professional services revenues from north america , as measured by the estimated location of the user for which the services were performed , made up 56 % of professional services revenues in fiscal 2013 and
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for assets with indicators of impairment , we then evaluate if its carrying amount may not be recoverable . we consider factors such as expected future undiscounted cash flows , estimated residual value , market trends ( such as the effects of leasing demand and competition ) and other factors in making this assessment . an asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows . impairment is then calculated as the amount by which the carrying value exceeds the estimated fair value , or for assets held for sale , as the amount by which the carrying value exceeds fair value less costs to sell . estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results . key assumptions used in estimating future cash flows and fair values include , but are not limited to , revenue growth rates , interest rates , discount rates , capitalization rates , lease renewal probabilities , tenant vacancy rates and other factors . impairment and allowance for loan losses we periodically evaluate the collectability of our loans receivable , including accrued interest , by analyzing the underlying property-level economics and trends , collateral value and quality , and other relevant factors in determining the adequacy of its allowance for loan losses . a loan is determined to be impaired when , in management 's judgment based on current information and events , it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement . specific allowances for loan losses are provided for impaired loans on an individual loan basis in the amount by which the carrying value exceeds the estimated fair value of the underlying collateral less disposition costs . delinquent loans receivable are written off against the allowance when all possible means of collection have been exhausted . a loan is placed on non-accrual status when the loan has become 60 days past due , or earlier if management determines that full recovery of the contractually specified payments of principal and interest is doubtful . while on non-accrual status , interest income is recognized only when received . reit status we will elect to be taxed as a reit for federal income tax purposes commencing with our taxable year ended december 31 , 2018. we believe that we have been organized and have operated in a manner that has allowed us to qualify as a reit commencing with such taxable year . to maintain our reit status , we are required to annually distribute to our shareholders at least 90 % of our reit taxable income , determined without regard to the dividends paid deduction and excluding any net capital gain , and meet the various other requirements imposed by the code relating to such matters as operating results , asset holdings , distribution levels and diversity of share ownership . provided that we qualify for taxation as a reit , we are generally not subject to corporate level federal income tax on the earnings distributed to our shareholders that we derive from our reit qualifying activities . we are still subject to state and local income and franchise taxes and to federal income and excise tax on our undistributed income . if we fail to qualify as a reit in any taxable year , or we elect not to maintain our reit status , and are unable to avail ourselves of certain savings provisions set forth in the code , all of our taxable income would be subject to federal income tax at regular corporate rates . unless entitled to relief under specific statutory provisions , we would be ineligible to elect to be treated as a reit for the four taxable years following the year for which we lose our qualification . it is not possible to state whether in all circumstances we would be entitled to this statutory relief . 48 results of operations : comparison of the years ended december 31 , 2018 and 2017 replace_table_token_11_th nm-percentages over 100 % are not displayed . revenues rental income rental income for the comparative period increased primarily due to smta being a net acquirer during 2018 , based on the following activity : acquisitions/contributions : ◦ nine properties acquired into the master trust 2014 segment , with a real estate investment value of $ 112.6 million ◦ ten properties contributed from spirit in conjunction with the spin-off into the other properties segment , with a real estate investment value of $ 54.2 million dispositions/distributions : ◦ 35 properties disposed from the master trust 2014 segment , with a real estate investment value of $ 45.0 million , of which ten properties were vacant ◦ 12 properties disposed from the other properties segment , with a real estate investment value of $ 59.9 million , of which two properties were vacant ◦ three properties distributed to spirit in conjunction with the spin-off from the other properties segment , with a real estate investment value of $ 3.2 million as of december 31 , 2018 and 2017 , respectively , 25 and six of our properties were vacant , representing approximately 2.9 % and 0.7 % of our owned properties , respectively . also included in rental income are tenant reimbursements , where our tenants are obligated under the lease agreement to reimburse us for certain property costs we incur , and non-cash rental income . tenant reimbursement income is driven by the tenant reimbursable property costs described below and comprised 0.8 % and 1.0 % of rental income for the years ended december 31 , 2018 and 2017 , respectively . non-cash rental income primarily consists of straight-line rental revenue and amortization of above- and below-market lease intangibles . during the years ended 49 december 31 , 2018 and 2017 , non-cash rentals were $ 3.1 million and $ 5.2 million , respectively , representing approximately 1.3 % and 2.3 % , respectively , of total rental income . story_separator_special_tag on january 16 , 2019 , shopko filed for bankruptcy , and subsequently announced that it intends to liquidate its operations . as a result of shopko 's bankruptcy filing and the subsequent foreclosure by the shopko lenders on the equity of the entity that indirectly owns the majority of our assets leased to shopko , we do not expect to receive any significant future cash flows from shopko . shopko contributed 19.1 % of our contractual rent for the year ended december 31 , 2018 , almost all of which was attributable to our other properties segment . interest income on loans receivable the increase in interest income on loans receivable is a result of the contribution from spirit of the $ 35.0 million b-1 12 % term loan with shopko as borrower prior to the completion of the spin-off . interest income on mortgage loans remained relatively flat period-over-period . in connection with shopko 's bankruptcy filing , shopko has filed pleadings asserting that any recovery under the shopko b-1 term loan will be limited and may be impaired in full . therefore , the company has recorded an allowance for loan losses of $ 33.8 million in relation to the shopko b-1 term loan , the remaining amount of the shopko b-1 term loan as of the date hereof . while the outcome of the shopko bankruptcy filing is uncertain and there can be no assurances that we will recover any amounts due to us under the shopko b-1 term loan , we intend to pursue all of our rights and remedies in connection with the bankruptcy proceedings , with the goal of maximizing the receipt of amounts due to us under the the shopko b-1 term loan . shopko contributed 86.8 % of our interest income on loans receivable for the year ended december 31 , 2018 , all of which was attributable to our other properties segment . other income period-over-period other income decreased primarily due to a decrease in lease termination fees received . for the year ended december 31 , 2018 , we received $ 0.5 million in lease termination fees primarily received from eight properties with tenants in the restaurant - casual dining industry , compared to $ 3.6 million in lease termination fees received primarily from one property with a tenant in the medical/other office industry and nine properties with tenants in the restaurant - casual dining industry during the year ended december 31 , 2017 . expenses general and administrative and transaction costs for periods prior to the spin-off , general administrative expenses and transaction costs are comprised of amounts specifically identified and amounts allocated from spirit 's financial statements . specifically identified expenses : general and administrative expenses of $ 5.0 million and $ 0.7 million during the year ended december 31 , 2018 and 2017 , respectively , were specifically identified based on direct usage or benefit . transaction costs are the expenses associated with the spin-off and , for the year ended december 31 , 2018 , $ 4.7 million were specifically identified based on direct usage or benefit . for year ended december 31 , 2017 , $ 3.2 million of transaction costs were specifically identified . as such , specifically identified expenses increased period-over-period , primarily as a result of professional costs incurred in 2018 subsequent to the spin-off in conjunction with operating as a separate publicly-traded company . allocated expenses : the increase from specifically identified expenses was offset by a decrease in allocated general and administrative expenses and transaction costs period-over-period . these have been allocated from spirit 's financial statements for the periods prior to the completion of the spin-off , based on smta 's property count relative to spirit 's property count . smta 's property count decreased from 920 properties at december 31 , 2017 compared to 893 properties at may 31 , 2018. spirit 's property count also decreased from 2,525 properties to 2,432 for the same period . as such , the allocation percentage year over year remained relatively flat . therefore , the net decrease in allocated expenses is a direct result of there being only five months of allocated expenses in 2018 compared to a full year of allocated expenses in 2017 . 50 related party fees in conjunction with the spin-off , smta entered into the asset management agreement with spirit realty , l.p. for a $ 20 million flat fee per annum , plus a promoted interest fee based on the total shareholder return of smta 's common shares during the relevant period if certain conditions are met . therefore , asset management fees of $ 11.7 million were incurred and a promoted interest fee of $ 0.8 million was recognized for the seven months subsequent to the spin-off , which was the primary driver of the increase in related party fees period-over-period . additionally , property management fees for master trust 2014 accrue daily at 0.25 % per annum of the collateral value of the master trust 2014 collateral pool less any specially serviced assets and special servicing fees which accrue daily at 0.75 % per annum of the collateral value of any assets deemed to be specially serviced per the terms of the property management and servicing agreement . collateral value of master trust 2014 increased from $ 2.0 billion at december 31 , 2016 to $ 2.6 billion at december 31 , 2017 as a result of the december 2017 issuance , and then remained flat at $ 2.6 billion until december 31 , 2018 . as a result , property management and special servicing fees paid to our manager increased $ 1.5 million period-over-period . property costs ( including reimbursable ) for the year ended december 31 , 2018 , property costs excluding bad debt expense were $ 12.3 million ( including $ 2.8 million of tenant reimbursable expenses ) compared to $ 9.1 million ( including $ 2.8 million of tenant reimbursable expenses ) for the same period in 2017. the increase in non-reimbursable costs of $ 3.2
| additionally , spirit realty , l.p. continues as the property manager and special servicer of master trust 2014 , under which spirit realty , l.p. receives property management fees which accrue daily at 0.25 % per annum of the collateral value of the master trust 2014 collateral pool less any specially serviced assets , and special servicing fees which accrue daily at 0.75 % per annum of the collateral value of any assets deemed to be specially serviced per the terms of the property management and servicing agreement . smta and spirit also entered into a separation and distribution agreement , an insurance-sharing agreement , a tax matters agreement , and a registration rights agreement in connection with the spin-off . smta expects to operate in a manner intended to enable it to qualify as a reit under the applicable provisions of the internal revenue code of 1986 , as amended . to maintain reit status , smta must meet a number of organizational and operational requirements , including a requirement to distribute annually to shareholders at least 90 % of smta 's reit taxable income , determined without regard to the dividends paid deduction and excluding any net capital gains . management believes the company has qualified and will continue to qualify as a reit and therefore , no provision has been made for federal income taxes for the period presented subsequent to the spin-off . for the period presented prior to the spin-off , the company was disregarded for federal income tax purposes , so no provision for federal income tax was made . smta is subject to certain other taxes , including state taxes , which have been reflected as income tax expense in the consolidated statements of operations and comprehensive income ( loss ) . 46 the accompanying financial statements include the consolidated accounts of the company and its wholly-owned subsidiaries for the period subsequent to the spin-off on may 31 , 2018 . the pre-spin financial statements were prepared on a carve-out basis and reflect the combined net assets and operations of the predecessor legal entities which formed the company at the time of the spin-off . gaap requires us to
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operating expenses our operating expenses consist principally of personnel related costs , including salaries and bonuses , fringe benefits and stock-based compensation as well as the cost of professional services , information technology , facilities and other administrative expenses . we classify our operating expenses int o the following four categories : research and development expense consists of personnel related costs , professional services , certification fees and software licenses incurred to support our existing install-base of telematics devices through our field application engineers , software developers , program and product managers , as well as our effort to develop new products and technologies . selling and marketing expense consists of personnel related costs including our incentive programs to support our global sales organization as well as advertising and marketing promotions of our brand and products , including media advertisement costs , merchandising and display costs , trade show and event costs , and sponsorship costs . general and administrative expense consists of personnel related costs to support our global enterprise as well as outside services for legal , accounting , insurance , information technology , investor relations and other costs associated with being a public company . intangible asset amortization is attributable to our acquired identifiable intangible assets from business combinations . our acquired intangible assets with definite lives are amortized from the date of acquisition over periods ranging from two to ten years . we expect our operating costs will increase in absolute dollars due to the anticipated growth of our business and related infrastructure as well as expansion into new geographic regions . operating expense may fluctuate as a percentage of revenues throughout the year due to discrete quarterly events and seasonal trends . 29 non-operating income ( expense ) non-operating income ( expense ) consists of ( i ) investment and interest income earned on our cash balances and investments , ( ii ) interest expense on our convertible senior unsecured notes including the amortization of note discount and debt issue costs , ( iii ) the gain on a legal settlement and ( iv ) other income ( expense ) that includes but is not limited to transaction gains and losses and foreign currency gains and losses . we recognize the gain on legal settlement on a cash basis as we receive the settlement payments from a former lojack supplier , which is further explained in “ note 18 – legal proceedings ” to the consolidated financial statements . income tax expense ( benefit ) we are subject to income taxes in the united states and related states as well as foreign jurisdictions in which we do business . our effective tax rate will approximate the u.s. statutory income tax rate plus the apportionment of state income taxes coupled with our foreign statutory rate based on the portion of taxable income allocable to each tax jurisdiction . we have adjusted our income tax provision and related deferred tax assets and liabilities due to changes in u.s. federal tax laws attributed to the tax cut and jobs act , which was enacted on december 22 , 2017. at this time , we do not anticipate any changes in our deferred incomes taxes that would necessitate an additional valuation allowance . equity in net loss of affiliate we have an investment in a technology and insurance startup company called smart driver club limited which represents a minority ownership interest that is accounted for under the equity method of accounting since we have significant influence over the investee . as a result , we record our portion of the losses incurred by this entity as equity in net loss of affiliate . adjusted ebitda in addition to our u.s. gaap results , we present adjusted ebitda as a supplemental non-gaap measure of our performance . a non-gaap financial measure is defined as a numerical measure of a company 's financial performance that excludes or includes amounts to be different than the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the statements of comprehensive income ( loss ) , balance sheets or statements of cash flows . we define adjusted ebitda as earnings before investment income , interest expenses , taxes , depreciation , amortization , stock-based compensation , acquisition and integration expenses , non-cash costs and expenses arising from purchase accounting adjustments , litigation provision , gain from legal settlement and certain other adjustments . our ceo , the chief operating decision maker ( “ codm ” ) , uses adjusted ebitda to evaluate and monitor segment performance . we believe this non-gaap financial information provides additional insight into our ongoing performance and have therefore chosen to provide this information to investors for a more consistent basis of comparison to help investors evaluate our results of ongoing operations and enable more meaningful period-to-period comparisons . pursuant to the requirements of regulation g , conditions for use of non-gaap financial measures , we have provided a reconciliation of non-gaap financial measures to the most directly comparable financial measure . see note 19 for additional information related to adjusted ebitda by reportable segments and reconciliation to net income ( loss ) . 30 story_separator_special_tag margin was due to the same reason as noted above for the increase in gross profit . operating expenses replace_table_token_12_th 34 consolidated research and development expense increased by $ 2.2 million or 11.1 % for fiscal year ended february 28 , 2017 compared to the fiscal year ended february 28 , 2016. the increase was primarily driven by the acquisition of lojack which had certain research and development initiatives that continued post-acquisition . story_separator_special_tag consolidated research and development expense as a percentage of revenues decreased to 6.3 % for the fiscal year ended february 28 , 2017 compared to 7.1 % for the fiscal year ended february 28 , 2016. consolidated selling and marketing expense increased by $ 25.7 million or 109.8 % for fiscal year ended february 28 , 2017 compared to the fiscal year ended february 28 , 2016. the increase was primarily driven by the lojack acquisition which had a large domestic sales organization to target the vast network of u.s. automotive dealerships as well as a consumer-based brand and marketing campaign . the remaining increase was due to higher payroll expense as a result of additional sales and marketing personnel and stock compensation expenses . consolidated selling and marketing expense as a percentage of revenues increased to 14.0 % for the fiscal year ended february 28 , 2017 compared to 8.3 % for the fiscal year ended february 29 , 2016. consolidated general and administrative expenses ( “ g & a ” ) increased by $ 32.1 million or 127.9 % for the fiscal year ended february 28 , 2017 compared to the fiscal year ended february 28 , 2016. the increase was due primarily to the on-going general and administrative expenses of lojack as well as transaction and integration expenses incurred in connection with the acquisition . additionally , there were higher legal expenses related to two patent infringement lawsuits and related litigation provision recorded in the year as well as higher stock compensation expenses . consolidated g & a expense as a percentage of revenues increased to 16.3 % for the fiscal year ended february 28 , 2017 compared to 8.9 % for the fiscal year ended february 28 , 2016. amortization of intangibles increased by $ 8.4 million or 127.3 % for the fiscal year ended february 28 , 2017 compared to the fiscal year ended february 28 , 2016. the increase was due to the amortization of new intangibles associated with the acquisition of lojack in the first quarter of fiscal year 2017. non-operating income ( expense ) , net investment income decreased by $ 0.2 million to $ 1.7 million for the fiscal year ended february 28 , 2017 from the fiscal year ended february 28 , 2016. the decrease was due primarily to a decline in investment income on rabbi trust assets that serve to informally fund the non-qualified deferred compensation plan . interest expense increased to $ 9.9 million for the fiscal year ended february 28 , 2017 from $ 7.6 million for the fiscal year ended february 28 , 2016. the increase was due to a full year of interest expense in fiscal 2017 on the convertible notes issued in may 2015 versus 9.5 months of interest expense on this debt in fiscal 2016. other non-operating expense for fiscal year ended february 28 , 2017 increased $ 0.1 million compared to the same period in fiscal 2016 due to an unfavorable fluctuation in foreign currency exchange rates , primarily euros to u.s. dollars . profitability measures the net loss for the fiscal year ended february 28 , 2017 was $ 7.9 million as compared to a net income of $ 16.9 million for the fiscal year ended february 28 , 2016. the decrease was primarily the result of higher operating expenses relating to patent infringement lawsuits and the transaction and integration expenses for the lojack acquisition . replace_table_token_13_th 35 adjusted ebitda for telematics systems increased by $ 13.4 million compared to the fiscal year ended february 28 , 2016 due primarily to higher revenue contributed by acquisition of lojack . adjusted ebitda for software and subscription services decreased by $ 6.6 million compared to the fiscal year ended february 28 , 2016 due primarily to increased operating expenses and partially offset by higher revenue both as a result of the lojack acquisition . adjusted ebitda for satellite decreased $ 6.1 million compared to the fiscal year ended february 28 , 2016 as the satellite business was shut down during fiscal 2017. see note 19 for additional information related to adjusted ebitda by reportable segments and reconciliation to net income ( loss ) . liquidity and capital resources in fiscal 2018 , our primary cash needs have been for working capital purposes and , to a lesser extent , capital expenditures and investments in and advances to affiliates . we have historically funded our principal business activities through cash flows generated from operations . as we continue to grow our customer base and increase our revenues , there will be a need for working capital in the future . our immediate sources of liquidity are cash , cash equivalents , marketable securities and our revolving credit facility . as of february 28 , 2018 and 2017 , our cash , cash equivalents and marketable securities totaled $ 156.0 million and $ 100.4 million , respectively . on march 30 , 2018 , we entered into a revolving credit facility with jpmorgan chase bank , n.a . that provides for borrowings of up to $ 50 million . this revolving credit facility expires on march 30 , 2020. borrowings under this revolving credit facility bear interest at either a prime or libor-based variable rate as selected by us on a periodic basis . this revolving credit facility contains financial covenants that require us to maintain a minimum level of earnings before interest , income taxes , depreciation , amortization and other noncash charges ( ebitda ) and minimum debt coverage ratios . historically , we have used funding from external sources to finance general corporate expenditures and other strategic initiatives including acquisitions and share repurchases . in may 2015 , we issued $ 172.5 million in aggregate principal amount of 1.625 % convertible senior notes which are due in may 2020. the notes will be convertible into cash , shares of common stock or a combination of cash and common stock at our election .
| this increase in gross margin in fiscal 2018 was primarily due to the presence of the lower margin satellite business in the prior year . operating expenses replace_table_token_8_th consolidated research and development expense increased by $ 3.8 million or 17.1 % for the fiscal year ended february 28 , 2018 compared to the same period last year . the increase was primarily driven by increased employee compensation and benefits due to increased headcount . consolidated research and development expense as a percentage of revenues increased to 7.0 % for the fiscal year ended february 28 , 2018 compared to 6.3 % in the same period last year . we are investing in research and development of new products and technologies to be sold through the u.s. and international sales channels . consolidated selling and marketing expense increased by $ 1.1 million or 2.1 % for the fiscal year ended february 28 , 2018 compared to the same period last year . the increase was primarily driven by an increase in employee benefit expenses and incentive compensation as well as an increase in professional services as we completed our calamp and lojack brand refresh initiatives during fiscal 2018. consolidated general and administrative expense decreased by $ 5.0 million or 8.8 % for the fiscal year ended february 28 , 2018 compared to the same period last year . the decrease was primarily driven by a decline in legal expenses related to a patent infringement lawsuit . amortization of intangibles decreased by $ 0.1 million or 0.5 % for the fiscal year ended february 28 , 2018 compared to the same period last year due to completion of amortization on certain older intangible assets . 32 non-operating income ( expense ) , net investment income increased by $ 0.6 million to $ 2.3 million for the fiscal year ended february 28 , 2018 from $ 1.7 million for the same period last year . the increase was due primarily to an increase in investment income on
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story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > security , compliance & certifications : asure has also made significant investment outside of core r & d dollars into compliance and certifications , including soc 1 type 2 for asurehcm in q2 , soc 1 type 2 for our hubs in q3 , soc 2 type 2 for our hosted applications in q4 , fedramp certification in q3 , and other initiatives . coinciding with our move to aws , we continued to invest in improved security tools and enhancements to our products to address the evolving cybersecurity and fraud threats in the hcm and payroll industries . our development efforts for future releases and enhancements are driven by feedback received from our existing and potential customers and by gauging market trends . we believe we have the appropriate development team to design and enhance our solution suite and integrated platform . amortization of intangible assets amortization expenses in 2019 were $ 11,765 , an increase of $ 4,284 , or 57.3 % , as compared to $ 7,481 in 2018. amortization expenses as a percentage of revenues were 16.1 % and 11.8 % % for 2019 and 2018 , respectively . in 2019 , we accelerated the amortization after a reassessment of the useful lives of certain trade names in relation to our rebranding efforts , resulting in an increase in amortization expense . impairment of goodwill during fiscal 2019 , we determined that the estimated fair value of our hcm reporting unit was less than its carrying value . therefore , we compared the carrying value of the reporting unit to its fair value in order to determine if an impairment exists . in addition to performing the income based approach discussed above we compared the market value of our common stock to our hcm reporting unit 's carrying value noting its carrying value exceeded market value . a non-cash , before-tax impairment charge of $ 35,060 was recognized to reduce the carrying amount of the goodwill to its estimated fair value as of december 31 , 2019. there was no goodwill impairment recognized in 2018. interest expense and other , net interest expense and other , net was $ 15,447 for the year ended 2019 as compared to $ 8,615 in the year ended 2018. interest expense and other , net is primarily comprised of loss from our extinguishment of debt and interest expense which increased in 2019 due the to the higher debt balances due from acquisitions . income taxes at december 31 , 2019 , we had federal net operating loss carryforwards of approximately $ 33,700 , federal r & d credit carryforwards of approximately $ 3,739 and alternative minimum tax credit carryforwards of approximately $ 31 . the net operating 28 loss and federal r & d credit carryforwards will expire in varying amounts from 2020 through 2038 , if not utilized . federal net operating losses generated in 2018 and after are carried forward indefinitely . income tax benefit attributable to continuing operations increased from $ 7,982 in 2018 to $ 24,111 in 2019 , a $ 16,129 , or 202.1 % , increase . these figures represent an effective tax rate of 36.3 % and 41.2 % in 2019 and 2018 , respectively . in 2019 , we recorded income tax benefits from continuing operations primarily related to the utilization of current year losses and losses previously offset by valuation allowance to offset the tax provision attributable to discontinued operations . in addition , we recognized a deferred tax benefit due to the creation of an indefinite life deferred tax asset related to impairment of goodwill . the creation of this additional indefinite deferred tax asset provided an ability to offset such deferred tax asset against our previously recognized indefinite life deferred tax liability related to tax deductible goodwill . because we have not generated domestic net income in any period to date , we have recorded a full valuation allowance against our domestic net deferred tax assets , exclusive of any remaining tax deductible goodwill after application of indefinite life deferred tax assets . realization of any of our domestic deferred tax assets depends upon future earnings , the timing and amount of which are uncertain . as a result of our various acquisitions in prior years , utilization of the net operating losses and credit carryforwards may be subject to a substantial annual limitation due to the “ change in ownership ” provisions of section 382 of the internal revenue code of 1986. the annual limitation may result in the expiration of net operating losses before utilization . due to the uncertainty surrounding the timing of realizing the benefits of our favorable tax attributes in future tax returns , we have placed a valuation allowance against our net deferred tax asset , exclusive of jurisdictions in which we have net deferred tax liabilities . during 2019 , we decreased the valuation allowance attributable to continuing operations by approximately $ 14,849 due primarily to operations and acquisitions . liquidity and capital resources ( amounts in thousands ) replace_table_token_3_th working capital . we had working capital of $ 17,854 at december 31 , 2019 , an increase of $ 6,411 from $ 11,443 at december 31 , 2018. we attribute the increase in our working capital primarily to an increase in cash and cash equivalents due to the divestiture of our workspace management business . working capital at december 31 , 2019 includes $ 5,500 of short term deferred revenue , an increase in short term deferred revenue of $ 2,613 compared to december 31 , 2018. deferred revenue is an obligation to perform future services . we expect that deferred revenue will convert to future revenue as we perform our services , but this does not represent future payments . deferred revenue can vary based on seasonality , expiration of initial multi-year contracts and deals that are billed after implementation rather than in advance of service delivery . operating activities . story_separator_special_tag net cash used in operating activities was $ 450 in 2019. the $ 450 of cash used in operating activities during 2019 , including discontinued operations , was primarily driven by our net income of $ 30,001 and increases in deferred revenue of $ 5,662 , and accrued expenses and other long-term obligations of $ 5,649 . this was offset by non-cash adjustments of $ ( 35,215 ) , increases in accounts receivable of $ 1,446 and inventory of $ 1,581 , and a decrease in accounts payable of $ 3,174 . net cash used in operating activities was $ 7,129 in 2018. the $ 7,129 of cash used in operating activities during 2018 was primarily driven by our net loss of $ 7,548 , increases in inventory and accounts receivable of $ 2,948 and $ 1,719 , respectively , and a decrease in accrued expenses of $ 2,410 , offset by non-cash adjustments of $ 8,571. investing activities . net cash provided by investing activities during 2019 was $ 96,942 , which was primarily driven by the proceeds from the sale of discontinued operations . cash used in investing activities during 2018 was $ 107,228. the cash used in investing activities in 2018 is primarily comprised of the 2018 acquisitions . financing activities . net cash used in financing activities of $ 82,995 in 2019 was primarily due to the payments of our notes payable and debt financing costs . net cash provided by financing activities of $ 101,788 in 2018 was primarily due to an increase of $ 36,750 in our indebtedness and net proceeds of approximately $ 39,449 from the issuance of our common stock in an underwritten public offering we completed in june 2018 , partially offset by payments on debt of $ 11,645 and debt financing fees of $ 1,693 . 29 sources of liquidity . as of december 31 , 2019 , asure 's principal sources of liquidity consisted of approximately $ 28,826 of cash and cash equivalents , future cash generated from operations of our business over the next twelve months , and $ 10,000 available for borrowing under our wells fargo revolver . based on current internal projections , we believe that we have and or will generate sufficient cash for our operational needs , including any required debt payments , for at least the next twelve months from issuance of this annual report on form 10-k. we continue to be focused on growing our existing software operations and seeking accretive and complimentary strategic acquisitions as part of our growth strategy . we believe the available sources of liquidity described above will be sufficient to fund such growth activities but may raise additional capital or incur additional indebtedness to supplement those sources as we execute on our growth plan . shelf registration in april 2018 , we filed a universal shelf registration statement on form s-3 with the securities and exchange commission ( “ sec ” ) to provide access to additional capital , if needed . pursuant to the shelf registration statement , we may from time to time offer to sell in one or more offerings shares of our common stock or other securities having an aggregate value of up to $ 175,000 ( which includes approximately $ 60,000 of unsold securities that were previously registered on our currently effective registration statements ) . the shelf registration statement relating to these securities became effective on april 16 , 2018. in june 2018 , we completed an underwritten public offering in which we sold an aggregate of 2,375,000 shares of our common stock at a public offering price of $ 17.50 per share . we realized net proceeds of approximately $ 38,900 after deducting underwriting discounts and estimated offering expenses . as of december 31 , 2018 , there is approximately $ 133,400 remaining available under the shelf registration statement . credit agreement in march 2014 , we entered into a credit agreement ( the “ credit agreement ” ) with wells fargo , as administrative agent , and the lenders that are party thereto . the credit agreement contains customary events of default , including , among others , payment defaults , covenant defaults , judgment defaults , bankruptcy and insolvency events , cross defaults to certain indebtedness , incorrect representations or warranties , and change of control . in some cases , the defaults are subject to customary notice and grace period provisions . in march 2014 and in connection with the credit agreement , we and our wholly-owned active subsidiaries entered into a guaranty and security agreement with wells fargo bank . under the guaranty and security agreement , we and each of our wholly-owned active subsidiaries have guaranteed all obligations under the credit agreement and granted a security interest in substantially all of our and our subsidiaries ' assets . in december 2019 , we entered into a third amended and restated credit agreement ( the “ third restated credit agreement ” ) with wells fargo bank , as agent and lender , amending and restating the terms of the second amended and restated credit agreement dated as of march 2018. the third restated credit agreement provides for $ 20,000,000 in term loans and a $ 10,000,000 revolver . the third restated credit agreement amends the applicable margin rates for determining the interest rate payable on the loans as follows : replace_table_token_4_th the outstanding principal amount of the term loan is payable as follows : $ 125,000 beginning on march 31 , 2020 and the last day of each fiscal quarter thereafter through and including december 31 , 2021 ; and $ 250,000 beginning on march 31 , 2022 and the last day of each fiscal quarter thereafter . the outstanding principal balance and all accrued and unpaid interest on the term loans is due on december 31 , 2024 .
| 26 gross profit and gross margin consolidated gross profit was $ 43,314 in 2019 and $ 39,504 in 2018 , a decrease of $ 3,810 , or 9.6 % . gross margin as a percentage of revenues was 59.2 % for 2019 and 62.1 % for 2018. gross margin decreased due to our growing investment in hcm service resources and migration to secure cloud hosting services . our cost of sales relates primarily to direct product costs , compensation and related consulting expenses , hardware expenses , facilities and related expenses and the amortization of our purchased software development costs . we include intangible amortization related to developed and acquired technology within cost of sales . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses were $ 42,093 in 2019 and $ 36,765 in 2018 , an increase of $ 5,328 , or 14.5 % . sg & a expenses as a percentage of revenues were 57.5 % and 57.8 % for 2019 and 2018 , respectively . sg & a increased due to a full year of 2018 acquisition and integration related expenses and 2019 acquisition related expenses , as well as increased headcount as we continue to expand and increased selling costs as we focus on expanding recognition of our brand . additionally , we have invested into a new erp system and resources to improve the financial reporting process . we may incur significant additional legal expenses and or professional services-related expenses in the future if we pursue further acquisitions of products or businesses , even if we ultimately do not consummate any acquisition . research and development expenses research and development ( “ r & d ” ) expenses were $ 5,351 in 2019 and $ 5,998 in 2018 , a decrease of $ 647 , or 10.8 % . r & d expenses as a percentage of revenues were 7.3 % % and 9.4 % for 2019 and 2018 , respectively . key 2019 product highlights include : asure payroll & tax smb : in 2019 we made
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following such challenges , the process of repairing damaged credit among such consumers and efforts to save for a home loan down-payment often require substantial time . improving consumer confidence in the u.s. economy is evident among manufactured home buyers interested in our products for seasonal or retirement living that have been concerned about financial stability , and appear to be less hesitant to commit to a new home purchase . we believe sales of our products may continue to increase as employment and consumer confidence levels continue to recover . the two largest manufactured housing consumer demographics , young adults and those who are 55+ years old , are both growing . the u.s. adult population is estimated to expand by approximately 11.8 million between 2016 and 2021. young adults born from 1976 to 1995 , sometimes referred to as gen y , represent a large segment of the population . late-stage gen y is approximately 2 million people larger than the next age category born from 1966 to 1975 , gen x , and is considered to be in the peak home-buying years . gen y represents prime first-time home buyers who may be attracted by the affordability , diversity of style choices and location flexibility of factory-built homes . the age 55 and older category is reported to be the fastest growing segment of the u.s. population . this group is similarly interested in the value proposition ; however , they are also motivated by the energy efficiency and low maintenance requirements of systems-built homes , and by the lifestyle offered by planned communities that are specifically designed for homeowners that fall into this age group . 32 consumer financing for the retail purchase of manufactured homes needs to become generally more available before marked emergence from current low home shipment levels can occur . restrictive underwriting guidelines , irregular appraisal processes , higher interest rates compared to site-built homes , regulatory burdens , a limited number of institutions lending to manufactured home buyers and limited secondary market availability for manufactured home loans are significant constraints to industry growth . we are working directly with other industry participants to develop manufactured home consumer financing models to attract industry financiers interested in furthering or expanding lending opportunities in the industry . we have invested in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities . countryplace developed chattel lending programs to grow sales of homes through traditional distribution point as well . we believe that growing our participation in chattel lending may provide additional sales growth opportunities for our factory-built housing operation . we are also working through industry trade associations to encourage favorable legislative and gse action to address the mortgage financing needs of potential buyers of affordable homes . federal law requires the gses to issue a regulation to implement the `` duty to serve '' requirements specified in the federal housing enterprises financial safety and soundness act of 1992 , as amended by the housing and economic recovery act of 2008. on may 8 , 2017 , fnma and fhlmc released their underserved markets plan that describes , with specificity , the actions they will take over a three-year period to fulfill the `` duty to serve '' obligation . the focus of each of the three-year plans is to establish steps to ensure chattel loans can be purchased in bulk prior to proceeding with a chattel loan pilot . expansion of the secondary market for chattel lending through the gses could provide further demand for housing , as lending options would likely become more available to home buyers . although some limited progress has been made in the area , meaningful positive impact in the form of increased home orders has yet to be realized . see `` regulatory developments '' below . while sales activity of existing homes has improved , the current lending environment that favors site-built housing and more affluent home buyers has not provided improved capabilities for affordable-home buyers to facilitate a new home purchase . in addition , the contingency contract process , wherein existing manufactured home owners must sell their existing manufactured home in order to facilitate the purchase of a new factory-built home continues to be somewhat impeded . based on the relatively low cost associated with manufactured home ownership , our products have traditionally competed with rental housing 's monthly payment affordability . rental housing activity is reported to have continued to increase in recent years . as a result , tenant housing vacancy rates appear to have declined , causing a corresponding rise in associated rental rates . these rental market factors may cause some renters to become interested buyers of affordable-housing alternatives , including manufactured homes . further , with respect to the general rise in demand for rental housing , we have realized a larger proportion of orders from developers and community owners for new manufactured homes intended for use as rental housing . the company is responsive to the unique product and related requirements of these home buyers and values the opportunity to provide homes that are well suited for these purposes . the backlog of sales orders at april 1 , 2017 varied among our factories , but in total was $ 88.8 million , or approximately seven weeks of current production levels , compared to $ 47.9 million at april 2 , 2016 . retailers may cancel orders prior to production without penalty . accordingly , until the production of a particular home has commenced , we do not consider our order backlog to be firm orders . 33 the company participates in certain commercial loan programs with members of the company 's independent wholesale distribution chain . under these programs , the company provides a significant amount of the funds that independent financiers then lend to distributors to finance retail inventories of our products . story_separator_special_tag in addition , the company has entered into direct commercial loan arrangements with distributors , communities and developers under which the company provides funds for financing homes ( see note 6 to the consolidated financial statements ) . the company 's involvement in commercial loans has increased the availability of manufactured home financing to distributors and users of our products . we believe that our participation in wholesale financing is helpful to retailers , communities and developers and allows our homes additional opportunities for exposure to potential home buyers . these initiatives support the company 's ongoing efforts to expand our distribution base in all of our markets with existing and new customers . however , the initiatives expose the company to risks associated with the creditworthiness of certain customers and business partners , including independent retailers , developers , communities and inventory financing partners . with manufacturing facilities strategically positioned across the united states , we utilize local market research to design homes to meet the demands of our customers . we have the ability to customize floor plans and designs to fulfill specific needs and interests . by offering a full range of homes from entry-level models to large custom homes with the ability to engineer designs in-house , we can accommodate virtually any customer request . in addition to homes built to the federal hud code , we construct modular homes that conform to state and local codes , park models and cabins and light commercial buildings at many of our manufacturing facilities . we employ a concerted effort to identify niche market opportunities where our diverse product lines and custom building capabilities provide us with a competitive advantage . our green building initiatives involve the creation of an energy efficient envelope and higher utilization of renewable materials . these homes provide environmentally-friendly maintenance requirements , typically lower utility costs , specially designed ventilation systems and sustainability . cavco also builds homes designed to use alternative energy sources , such as solar and wind . building green may significantly reduce greenhouse gas emissions without sacrificing features , style or comfort . from bamboo flooring and tankless water heaters to solar-powered homes , our products are diverse and tailored to a wide range of consumer interests . innovation in housing design is a forte of the company and we continue to introduce new models at competitive price points with expressive interiors and exteriors that complement home styles in the areas in which they are located . we maintain a conservative cost structure in an effort to build added value into our homes . we have placed a consistent focus on developing synergies among all operations . in addition , the company has worked diligently to maintain a solid financial position . our balance sheet strength and position in cash and cash equivalents should help us avoid liquidity problems and enable us to act effectively as market opportunities present themselves . in 2008 , we announced a stock repurchase program under which a total of $ 10.0 million may be used to repurchase our outstanding common stock . the repurchases may be made in the open market or in privately negotiated transactions in compliance with applicable state and federal securities laws and other legal requirements . the level of repurchase activity is subject to market conditions and other investment opportunities . the plan does not obligate us to acquire any particular amount of common stock and may be suspended or discontinued at any time . the repurchase program will be funded using our available cash . no repurchases have been made under this program to date . regulatory developments in 2010 , the dodd-frank act was passed into law . the dodd-frank act is a sweeping piece of legislation and the financial services industry continues to assess its implications and implement necessary changes in procedures and business practices . the dodd-frank act established the cfpb to regulate consumer financial products and services . although many rules have been implemented , the full impact will not be known for years as revisions and the development of additional rules continue , and congress and the new president consider amending part of the act . enforcement actions are in the early stages and the effects of possible litigation related to the regulations remains unknown . 34 in 2014 , certain cfpb mortgage finance rules required under the dodd-frank act became effective . the rules apply to consumer credit transactions secured by a dwelling , which include real property mortgages and chattel loans ( financed without land ) secured by manufactured homes . the rules defined standards for origination of `` qualified mortgages , '' established specific requirements for lenders to prove borrowers ' ability to repay loans and outlined the conditions under which qualified mortgages are subject to safe harbor limitations on liability to borrowers . the rules also established interest rates and other cost parameters for determining which qualified mortgages fall under safe harbor protection . among other issues , qualified mortgages with interest rates and other costs outside the limits are deemed `` rebuttable '' by borrowers and expose the lender and its assignees ( including investors in loans , pools of loans , and instruments secured by loans or loan pools ) to possible litigation and penalties . while many manufactured homes are currently financed with agency-conforming mortgages in which the ability to repay is verified , and interest rates and other costs are within the safe harbor limits established under the cfpb mortgage finance rules , certain loans to finance the purchase of manufactured homes , especially chattel loans and non-conforming land-home loans , may fall outside the safe harbor limits . the rules have caused some lenders to curtail underwriting such loans , and some investors are reluctant to own or participate in owning such loans because of the uncertainty of potential litigation and other costs . as a result , some prospective buyers of manufactured homes may be unable to secure the financing necessary to complete purchases .
| further , fluctuations in net factory-built housing revenue per home sold are the result of changes in product mix , which results from home buyer tastes and preferences as they select home types/models , as well as optional home upgrades when purchasing the home . these selections vary regularly based on consumer interests , local housing preferences and economic circumstances . our product prices are also periodically adjusted for the cost and availability of raw materials included in , and labor used to produce , each home . for these reasons , we have experienced , and expect to continue to experience , volatility in overall net factory-built housing revenue per home sold . financial services segment revenue decreased primarily from changes made to the recognition of certain ceded insurance commissions that took effect this fiscal year and lower interest income earned on securitized loan portfolios that continue to amortize , offset by increased higher home loan sales volume and premium revenue from a greater number of insurance policies in force . gross profit . the following table summarizes gross profit for fiscal years 2017 and 2016 . replace_table_token_6_th the increase in factory-built housing gross profit was the result of higher home sales volume . gross profit increased for financial services mainly as a result of fewer weather-related insurance claims overall and higher home loan sales volume , offset by lower net interest income earned on securitized loan portfolios that continue to amortize . 38 selling , general and administrative expenses . the following table summarizes s elling , general and administrative expenses for fiscal years 2017 and 2016 . replace_table_token_7_th factory-built housing selling , general and administrative expenses increased from higher salary and incentive compensation expense from improved earnings on increased home sales . selling , general and administrative expenses for financial services increased primarily from higher salary and incentive compensation costs related to improved earnings . as a percentage of net revenue , selling , general and administrative expenses declined from increased utilization on higher net revenue . interest expense . the following table summarizes interest expense for fiscal years 2017 and 2016 . year
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based on currently available information , we anticipate the same level of activity through the end of the first quarter of 2020 with the three large crews in the u.s. operating well into the second quarter of 2020. while the seismic market remains challenging , conversations with our clients , primarily providers of multi-client data libraries , are positive for continued levels of activity through 2020. while our revenues are mainly affected by the level of client demand for our services , our revenues are also affected by the pricing for our services that we negotiate with our clients and the productivity and utilization level of our data acquisition crews . factors impacting productivity and utilization levels include client demand , commodity prices , whether we enter into turnkey or dayrate contracts with our clients , the number and size of crews , the number of recording channels per crew , crew downtime related to inclement weather , delays in acquiring land access permits , agricultural or hunting activity , holiday schedules , short winter days , crew repositioning and equipment failure . to the extent we experience these factors , our operating results may be affected from quarter to quarter . consequently , our efforts to negotiate more favorable contract terms in our supplemental service agreements , mitigate permit access delays and improve overall crew productivity may contribute to growth in our revenues . the majority of our revenues were derived from turnkey contracts for the years ending december 31 , 2019 and 2018. while turnkey contracts allow us to capitalize on improved crew productivity , we also bear more risks related to weather and crew downtime . we expect the majority of our contracts to be turnkey as we continue our operations in the mid-continent , western and southwestern regions of the u.s. in which turnkey contracts are more common . over time , we have experienced continued increases in recording channel capacity on a per-crew or project basis and high utilization of cableless and multicomponent equipment . this increase in channel count demand is driven by client needs and is necessary in order to produce higher resolution images , increase crew efficiencies and undertake larger scale projects . in response to project-based channel requirements , we routinely deploy a variable number of channels on a variable number of crews in an effort to maximize asset utilization and meet client needs . while the markets for oil and natural gas have been very volatile and are likely to continue to be so in the future , and we can make no assurances as to future levels of domestic exploration or commodity prices , we believe opportunities 20 exist for us to enhance our market position by responding to our clients ' continuing desire for higher resolution subsurface images . if economic conditions continue to weaken such that our clients continue to reduce their capital expenditures or if the sustained drop in oil and natural gas prices worsens , it could continue to result in diminished demand for our seismic services , could cause downward pressure on the prices we charge and would affect our results of operations . story_separator_special_tag style= '' margin-left:10.2941176470588 % ; margin-right:10.2941176470588 % ; '' > 21 companies may not calculate ebitda in the same manner as us . further , the results presented by ebitda can not be achieved without incurring the costs that the measure excludes : interest , taxes , and depreciation and amortization . the reconciliation of our ebitda to our net loss and net cash provided by ( used in ) operating activities , which are the most directly comparable gaap financial measures , are provided in the following tables ( in thousands ) : replace_table_token_3_th replace_table_token_4_th liquidity and capital resources introduction . our principal sources of cash are amounts earned from the seismic data acquisition services we provide to our clients . our principal uses of cash are the amounts used to provide these services , including expenses related to our operations and acquiring new equipment . accordingly , our cash position depends ( as do our revenues ) on the level of demand for our services . historically , cash generated from our operations along with cash reserves and borrowings from commercial banks have been sufficient to fund our working capital requirements and , to some extent , our capital expenditures . cash flows . the following table shows our sources and uses of cash ( in thousands ) for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_5_th year ended december 31 , 2019 versus year ended december 31 , 2018 net cash provided by operating activities was $ 9,480,000 and $ 12,871,000 for the years ended december 31 , 2019 and 2018 , respectively . the decrease in cash provided by operating activities was primarily due to a decrease in our operating level of deferred revenue as of december 31 , 2019. net cash provided by investing activities was $ 4,185,000 for the year ended december 31 , 2019 and includes $ 8,233,000 of proceeds from maturities of short-term investments that were not reinvested offset by cash capital expenditures of $ 4,396,000. net cash used in investing activities was $ 8,596,000 for the year ended december 31 , 2018 and includes $ 6,000,000 of proceeds from maturities of short-term investments that were not reinvested offset by cash capital expenditures of $ 15,745,000 . 22 net cash used in financing activities was $ 11,256,000 for the year ended december 31 , 2019 and includes principal payments of $ 8,165,000 on our notes and $ 2,855,000 on our finance leases , and outflows of $ 236,000 associated with taxes related to stock vesting . story_separator_special_tag net cash provided by financing activities was $ 2,517,000 for the year ended december 31 , 2018 and includes proceeds from notes payable used to purchase seismic data acquisition equipment of $ 6,518,000 offset by principal payments of $ 1,180,000 on our notes and $ 2,699,000 on our finance leases , and outflows of $ 121,000 associated with taxes related to stock vesting . we continually strive to supply our clients with technologically advanced 3-d data acquisition recording services and data processing capabilities . we maintain equipment in and out of service in anticipation of increased future demand for our services . capital resources . historically , we have primarily relied on cash generated from operations , cash reserves and borrowings from commercial banks to fund our working capital requirements and , to some extent , our capital expenditures . recently , we have funded some of our capital expenditures through finance leases and equipment term loans . from time to time in the past , we have also funded our capital expenditures and other financing needs through public equity offerings . dominion credit facility . on september 30 , 2019 , we entered into a new loan and security agreement ( the “ loan agreement ” ) with dominion bank ( the “ lender ” ) . the loan agreement provides for a revolving credit facility ( the “ revolving credit facility ” ) in an amount up to the lesser of ( i ) $ 15,000,000 or ( ii ) a sum equal to ( a ) 80 % of our eligible accounts receivable plus 100 % of the amount on deposit with the lender in our collateral account , consisting of a restricted cdars account of $ 5,000,000 ( the “ deposit ” ) . under the revolving credit facility , interest will accrue at an annual rate equal to the lesser of ( i ) 6.00 % and ( ii ) the greater of ( a ) the prime rate as published from time to time in the wall street journal or ( b ) 3.50 % . we will pay a commitment fee of 0.10 % per annum on the difference of ( a ) $ 15,000,000 minus the deposit minus ( b ) the daily average usage of the revolving credit facility . the loan agreement contains customary covenants for credit facilities of this type , including limitations on disposition of assets . we are also obligated to meet certain financial covenants under the loan agreement , including maintaining a tangible net worth of $ 75,000,000 and specified ratios with respect to current assets and liabilities and debt to tangible net worth . our obligations under the loan agreement are secured by a security interest in the collateral account ( including the deposit ) with the lender and future accounts receivable and related collateral . as of december 31 , 2019 , we have not borrowed any amounts under the revolving credit facility . the maturity date of the loan agreement is september 30 , 2020. we do not currently have any notes payable under the revolving credit facility . veritex credit agreement . on september 30 , 2019 , our line of credit ( the “ veritex line of credit ” ) under the amended and restated loan and security agreement ( as amended , the “ veritex loan agreement ” ) by and between us and veritex community bank ( “ veritex ” ) matured pursuant to its terms . no amounts were borrowed under the veritex line of credit . in connection with the maturity of the veritex line of credit and entry into the loan agreement with dominion bank , we paid off all amounts owed pursuant to the term loan under the veritex loan agreement of $ 4,355,665. veritex letters of credit . as of december 31 , 2019 , veritex has issued two letters of credit under the veritex loan agreement . the first letter of credit is in the amount of $ 1,767,000 to support payment of our insurance obligations . the second letter of credit is in the amount of $ 583,000 to support our workers compensation insurance . each of the letters of credit are secured by a certificate of deposit with veritex . other indebtedness . as of december 31 , 2019 , we have two notes payable to a finance company for various insurance premiums totaling $ 1,746,000. in addition , we lease certain seismic recording equipment and vehicles under leases classified as finance leases . our consolidated balance sheet as of december 31 , 2019 includes finance leases of $ 2,412,000. contractual obligations . we believe that our capital resources , including our short‑term investments , cash flow from operations , and funds available under our revolving credit facility , will be adequate to meet our current operational needs . we believe that we will be able to finance our 2020 capital expenditures through cash flow from operations , borrowings from commercial lenders , and the funds available under our revolving credit facility . however , our ability to satisfy working capital requirements , meet debt repayment obligations , and fund future capital requirements will depend 23 principally upon our future operating performance , which is subject to the risks inherent in our business , and will also depend on the extent to which the current economic climate adversely affects the ability of our customers , and or potential customers , to promptly pay amounts owing to us under their service contracts with us . the following table summarizes payments due in specific periods related to our contractual obligations with initial terms exceeding one year as of december 31 , 2019 ( in thousands ) : replace_table_token_6_th off‑balance sheet arrangements as of december 31 , 2019 , we had no off‑balance sheet arrangements .
| income tax benefit was $ 239,000 for the year ended december 31 , 2019 compared to $ 798,000 for the same period of 2018. the effective tax benefit rates for the years ended december 31 , 2019 and 2018 were approximately 1.5 % and 3.1 % , respectively . our effective tax rates decreased compared to the corresponding period from the prior year primarily due to the fuel tax and the amt credits . our effective tax rates differ from the statutory federal rate of 21 % for certain items such as state and local taxes , valuation allowances , non‑deductible expenses and discrete items . use of ebitda ( non‑gaap measure ) we define ebitda as net income ( loss ) plus interest expense , interest income , income taxes , and depreciation and amortization expense . our management uses ebitda as a supplemental financial measure to assess : · the financial performance of our assets without regard to financing methods , capital structures , taxes or historical cost basis ; · our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate ebitda in a similar manner ; and · the ability of our assets to generate cash sufficient for us to pay potential interest costs . we also understand that such data are used by investors to assess our performance . however , the term ebitda is not defined under generally accepted accounting principles ( “ gaap ” ) , and ebitda is not a measure of operating income , operating performance or liquidity presented in accordance with gaap . when assessing our operating performance or liquidity , investors and others should not consider this data in isolation or as a substitute for net income ( loss ) , cash flow from operating activities or other cash flow data calculated in accordance with gaap . in addition , our ebitda may not be comparable to ebitda or similarly titled measures utilized by other companies since such
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this is evidenced by the institute for supply management 's purchasing managers ' index ( “ pmi ” ) , which reported strength in the last seven months of the year with readings above 50 % , indicating general expansion in factory activity . this strength has continued into 2021 with a january reading of 58.7. however , while pmi reports an increase in month-over-month activity , u.s. industrial production , while improved from historically low levels reported in april and may of 2020 , reported contraction through the end of 2020. this indicates that conditions have improved recently , but are still well below year-ago levels . according to the metal service center institute , north american service center volumes declined by 10.7 % in 2020 compared to 2019. on a north american basis , we experienced demand contraction more severe than the industry , with tons sold down by 17.0 % over the same period . demand softness was experienced across all of ryerson 's end-markets , but most significantly in oil and gas , commercial ground transportation , and food processing and agricultural equipment sectors on a year-over-year basis . when customer demand falls , our operations typically generate countercyclical cash flow as our working capital needs decrease . covid-19 the global outbreak of covid-19 was declared a pandemic by the world health organization and a national emergency by the u.s. government in march 2020 and has negatively affected the u.s. and global economies , disrupted global supply chains , resulted in significant travel and transport restrictions , mandated closures and stay-at-home orders , and created significant disruption of the financial markets . as of the date of this filing , covid-19 continues to be a substantial risk factor for business operations and the company continues to monitor and address these risks and uncertainties as conditions develop . in response to the covid-19 pandemic , ryerson implemented several policies and procedures to protect the health and welfare of our employees first and foremost , while operating as an essential business and maintaining our liquidity . at the beginning of the pandemic , we communicated and enforced social distancing practices by alternating employee shifts , eliminating congregation , suspending non-essential travel , and implementing work from home arrangements for those that could work remotely . we also mobilized a task force and engaged our communications team to establish open lines of communications for our employees to ensure that all members of the ryerson team are informed and supported throughout the pandemic . even as the pandemic continues into the beginning of 2021 , we remain resilient and committed to protecting our workforce . led by our dedicated covid-19 response team , we continue to follow cdc and other relevant governmental guidance appropriate for our business , carefully monitor covid-19 data in the areas in which we operate , and strive to be safe and nimble in executing our internal response . while some of our locations are more likely to progress through our phased “ back to normal business activity ” approach more quickly than others , we remain committed to operating our business under covid-19 safety policies until we are certain that related risks have subsided . to support the sustainability of current circumstances , we are supporting our workforce by reinforcing the importance of mental health and promoting the use of existing benefits such as prescription delivery and telemedicine . further , we are encouraging our workforce to receive the flu vaccine and , in some locations , we are providing the opportunity to receive the flu vaccine on-site . additionally , we are encouraging our workforce to receive the covid-19 vaccine when it is available . our workforce in our warehouse facilities is classified as group 1b , as described by the cdc , as essential workers , and in many jurisdictions are now eligible to take the vaccine when supply is available . the extent of the impact of the covid-19 pandemic on our operational and financial performance will depend on future developments , including the duration and spread of the pandemic , vaccine rollouts , and related actions taken by government officials to prevent disease spread , all of which are uncertain and can not be predicted . certain of our facilities have experienced temporary work disruptions as a result of covid-19 , but we have generally continued to operate during stay-at-home mandates due to our business being deemed essential by state and local government authorities . while the majority of our customers that announced temporary closures have at this time resumed operations , our business and the business of our customers continues to be impacted by economic pressures and the ultimate impact of covid-19 remains uncertain . furthermore , we deployed a dedicated covid-19 team to closely monitor all critical areas daily including cash positioning and credit line availability and projections as well as our debt covenant requirements and working capital needs . we continue to actively manage relationships with our customers and vendors to ensure that we balance our receivables and payables cycles . examples of 32 specific actions taken in response to covid-19 include increased focus on working capital management with targeted inventory reductions , receivables risk assessment , limiting discretionary spending , temporarily furloughing employees or reducing work hours , reducing executive and salaried employee pay , delaying salary increases , eliminating non-essential travel , delaying or reducing hiring activities , deferring certain discretionary capital expenditures , payroll tax and pension contribution deferrals , and accelerating alternative minimum tax credit refunds as provided for under the coronavirus aid , relief , and economic security act ( “ the cares act ” ) . we intend to continue to assess the effect of ongoing government guidance related to covid-19 that may be issued and intend to take advantage of opportunities that support our balance sheet . with respect to liquidity , we took the actions listed above to bolster our financial condition and have contingency plans in place to reduce costs while supporting business operations . story_separator_special_tag during the fourth quarter , ryerson restored employee salaries to their previous levels , brought back furloughed employees , and increased work hours to service strengthening business . the company will also resume limited hiring activities . ryerson continues to closely monitor its liquidity position as the economy begins to improve . 2020 performance highlights these key metrics illustrate ryerson 's financial performance for the full year 2020 compared to 2019 : replace_table_token_3_th compared to 2019 , ryerson 's revenues decreased by 23 % as tons shipped decreased by 15.6 % and average selling prices decreased by 8.7 % , affected by pandemic induced demand shocks and commodity price deflation . however , both pricing and demand environments improved as the year progressed , leading to fourth quarter 2020 volume and pricing growth of 0.6 % and 2.0 % , respectively , compared to the third quarter of 2020. gross margin decreased 50 bps from 2019 due to a $ 57 million reduction in lifo income during the year caused by falling costs in inventory , offset by impacts of significantly reduced inventory levels and selling from higher costed lifo layers as the company lowered inventory levels in line with demand . warehousing , delivery , selling , general , and administrative expenses for 2020 decreased by $ 82.5 million , or 13.0 % , compared to 2019 primarily due to lower salaries and wages due to workforce and compensation reductions of $ 36.4 million in response to the outbreak of covid-19 . net loss attributable to ryerson holding corporation was $ 65.8 million , or a loss of $ 1.73 per diluted share , in 2020 compared to $ 82.4 million of net income attributable to ryerson holding corporation , or $ 2.17 per diluted share , for 2019. to provide greater insight into the company 's 2020 operating trends apart from the year 's one-time transactions , ryerson provides adjusted net income ( loss ) and diluted adjusted earnings ( loss ) per share figures , which are not u.s. generally accepted accounting principles ( “ gaap ” ) financial measures , to compliment the reported gaap net income ( loss ) and diluted earnings ( loss ) per share figures . management uses these metrics to assess year over year performance excluding non-recurring transactions . adjusted net income ( loss ) and adjusted diluted earnings ( loss ) per share do not represent , and should not be used as a substitute for , net income or earnings per share determined in accordance with gaap . illustrated in the below table , the 2020 net loss attributable to ryerson of $ 65.8 million includes $ 17.7 million of expenses largely related to the redemption price paid to creditors as well as unamortized debt issuance costs written off related to the refinance of the 11.0 % senior secured notes due 2022 ( “ 2022 notes ” ) as well as the redemption of $ 50.0 million of the 8.50 % senior secured notes due 2028 ( the “ 2028 notes ” ) completed in the fourth quarter . it also includes $ 64.6 million of nonrecurring pension settlement expenses driven by the third quarter partial annuitization of our pension liabilities and a lump sum settlement offering in the fourth quarter . see “ pension funding ” discussion below for further details on these transactions . after adjusting for these non-core business transactions , the related benefit for income taxes , and $ 2.2 million of restructuring expenses , the adjusted net loss attributable to ryerson for 2020 is $ 3.1 million , a decrease of $ 71.0 million compared to the prior year 's adjusted net income attributable to ryerson of $ 67.9 million which included adjustments for a gain on sale of assets 33 related to the fourth quarter 2019 sale and leaseback transaction , an insurance settlement gain , restructuring , loss on retirement of debt , and related income taxes . replace_table_token_4_th driven by successful working capital management throughout the year , ryerson generated strong cash from operating activities in 2020 of $ 278 million , an increase of $ 85 million over the previous year . as previously discussed , throughout 2020 in response to the covid-19 market environment , ryerson took early and decisive actions to protect the liquidity and recovery capacity of the organization . as a result of these actions , ryerson ended 2020 with a strong global liquidity of $ 373 million , composed of $ 312 million of availability under the ryerson credit facility and foreign debt facilities , and $ 61 million of cash and cash equivalents . the below bar chart illustrates ryerson 's liquidity position compared to previous years . total liquidity is not a gaap financial measure . we believe that total liquidity provides additional information for measuring our ability to fund our operations . total liquidity does not represent , and should not be used as a substitute for , net income or cash flows from operations as determined in accordance with gaap and total liquidity is not necessarily an indication of whether cash flow will be sufficient to fund our cash requirements . ryerson 's 2020 strategy achievements ryerson 's market strategy focuses on providing excellent customer experiences consistently with speed at scale . our culture is based on our trademarked “ say yes , figure it out ” mantra as we strive to grow volume and sustainably expand margins by increasing our fabrication business and improving our speed through our use of both tools and analytics . ryerson 's financial strategy includes a focus on generating strong cash from operating activities , enabled by industry-leading working capital management and a stronger through the cycle operating model to effectively decrease both net debt and fixed cash commitments . throughout 2020 , the company made substantial progress on this strategy . in july , ryerson successfully refinanced its 34 2022 notes and issued $ 500 million in 8.50 % 2028 notes .
| the average cost of materials sold decreased across almost all product lines with the average cost of materials sold for our carbon plate , carbon flat , carbon long , and aluminum flat product lines decreasing more than our other product lines during 2020. during 2020 , lifo income was $ 12 million related to decreases in pricing for all product lines . in addition , there was a significant reduction in tons in inventory to manage working capital throughout the pandemic , which led to the liquidation of older lifo layers that were at a higher cost . during 2019 , lifo income was $ 69 million related to decreases in pricing for all product lines . gross profit replace_table_token_8_th gross profit dollars decreased in 2020 compared to 2019 reflecting the impact of the global outbreak of covid-19 , which led to a decrease in tons sold and average selling prices . while our revenue per ton decreased during 2020 , our cost of materials sold decreased at a slower pace resulting in lower gross margins compared to the prior year . operating expenses replace_table_token_9_th total operating expenses in 2020 were $ 60.6 million lower than in 2019. the decrease in operating expenses in 2020 was primarily due to lower salaries and wages due to workforce and compensation reductions of $ 36.4 million in response to the outbreak of covid-19 . the lower headcount also reduced employee benefit expenses by $ 12.3 million in 2020. in addition , expenses were impacted by changes in the following categories : lower selling , general , and administrative expenses of $ 24.3 million primarily due to lower use of outside technical services and reduced travel and entertainment expenses ; lower delivery expenses of $ 10.8 million due to lower shipments ; lower operating supplies of $ 7.7 million ; 39 lower depreciation of $ 4.2 million ; and a restructuring charge of $ 2.2 million in 2020 compared to a charge of $ 2.4 million in 2019. charges in both periods included severance costs for staff reductions . the year 2019 included a gain on the sale of
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( h ) new accounting pronouncements : the company has evaluated the recent accounting pronouncements through asu 2013-04 and believes that none of them will have a material effect on the company 's financial statements . note 2 - investment in trust account : since the closing of the offering , the gross proceeds have been held in the trust account . as described in note 1 , the trust account may be invested in u.s. `` government securities , `` defined as any treasury bill or equivalent securities issued by the united states government having a maturity of one hundred and eighty ( 180 ) days or less or money market funds meeting the conditions specified in rule 2a-7 under the investment company act of 1940 , until the earlier of ( i ) the consummation of its initial business transaction or ( ii ) the distribution of the trust account as described below . investment securities in the trust account at december 31 , 2012 consist of an institutional money market account that meets the conditions specified in rule 2a-7 under the investment company act of 1940 with an investment bank . the story_separator_special_tag overview the following discussion should be read in conjunction with our financial statements , together with the notes to those statements , included elsewhere in this report . our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events . we are a blank check company formed on january 24 , 2006 for the purpose of acquiring one or more operating businesses or assets through a merger , capital stock exchange , asset acquisition , stock purchase , reorganization , exchangeable share transaction or other similar business transaction . we intend to use cash from the proceeds of the offering , our capital stock , incurred debt , or a combination of cash , capital stock and debt , in effecting our initial business transaction . the issuance of additional shares of our capital stock : · may significantly reduce the equity interest of investors in the offering ; · may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to the holders of our common stock ; · may likely cause a change in control if a substantial number of our shares of common stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and most likely will also result in the resignation or removal of our present officers and directors ; and · may adversely affect prevailing market prices for our common stock and or warrants . similarly , if we incur substantial debt , it could result in : · default and foreclosure on our assets if our operating cash flow after a business transaction is insufficient to pay our debt obligations ; · acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that require the maintenance of certain financial ratios or reserves and any such covenant is breached without a waiver or renegotiation of that covenant ; · our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; · covenants that limit our ability to acquire capital assets or make additional acquisitions ; · our inability to obtain additional financing , if necessary , if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding ; 39 · our inability to pay dividends on our common stock ; · using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if declared , expenses , capital expenditures , acquisitions and other general corporate purposes ; · limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate ; · increased vulnerability to adverse changes in general economic , industry and competitive conditions and adverse changes in government regulation ; and · limitations on our ability to borrow additional amounts for expenses , capital expenditures , acquisitions , debt service requirements , execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt . story_separator_special_tag assuming that a business combination is not consummated during that time . all the expenses relating to the offering were funded by proceeds from loans with bcm . prior to the consummation of our initial business transaction , in order to fund all expenses relating to investigating and selecting a target business , negotiating an acquisition agreement and consummating such acquisition and our other working capital requirements , bcm has agreed to loan us funds from time to time , or at any time , up to $ 800,000. all these loans will be due and payable upon the completion of our initial business transaction and will be on terms that waive any and all rights to the funds in the trust account . the terms of such loans will not have any recourse against the trust account nor pay any interest prior to the consummation of our business transaction and be no more favorable than could be obtained by a third party . we do not believe we will need to raise additional funds other than the loans provided or to be provided to us from bcm until the consummation of our initial business transaction to meet the expenditures required for operating our business . however , we may need to raise additional funds through a private offering of debt or equity securities if such funds are required to consummate a business transaction that is story_separator_special_tag ( h ) new accounting pronouncements : the company has evaluated the recent accounting pronouncements through asu 2013-04 and believes that none of them will have a material effect on the company 's financial statements . note 2 - investment in trust account : since the closing of the offering , the gross proceeds have been held in the trust account . as described in note 1 , the trust account may be invested in u.s. `` government securities , `` defined as any treasury bill or equivalent securities issued by the united states government having a maturity of one hundred and eighty ( 180 ) days or less or money market funds meeting the conditions specified in rule 2a-7 under the investment company act of 1940 , until the earlier of ( i ) the consummation of its initial business transaction or ( ii ) the distribution of the trust account as described below . investment securities in the trust account at december 31 , 2012 consist of an institutional money market account that meets the conditions specified in rule 2a-7 under the investment company act of 1940 with an investment bank . the story_separator_special_tag overview the following discussion should be read in conjunction with our financial statements , together with the notes to those statements , included elsewhere in this report . our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events . we are a blank check company formed on january 24 , 2006 for the purpose of acquiring one or more operating businesses or assets through a merger , capital stock exchange , asset acquisition , stock purchase , reorganization , exchangeable share transaction or other similar business transaction . we intend to use cash from the proceeds of the offering , our capital stock , incurred debt , or a combination of cash , capital stock and debt , in effecting our initial business transaction . the issuance of additional shares of our capital stock : · may significantly reduce the equity interest of investors in the offering ; · may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to the holders of our common stock ; · may likely cause a change in control if a substantial number of our shares of common stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and most likely will also result in the resignation or removal of our present officers and directors ; and · may adversely affect prevailing market prices for our common stock and or warrants . similarly , if we incur substantial debt , it could result in : · default and foreclosure on our assets if our operating cash flow after a business transaction is insufficient to pay our debt obligations ; · acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that require the maintenance of certain financial ratios or reserves and any such covenant is breached without a waiver or renegotiation of that covenant ; · our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; · covenants that limit our ability to acquire capital assets or make additional acquisitions ; · our inability to obtain additional financing , if necessary , if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding ; 39 · our inability to pay dividends on our common stock ; · using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if declared , expenses , capital expenditures , acquisitions and other general corporate purposes ; · limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate ; · increased vulnerability to adverse changes in general economic , industry and competitive conditions and adverse changes in government regulation ; and · limitations on our ability to borrow additional amounts for expenses , capital expenditures , acquisitions , debt service requirements , execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt . story_separator_special_tag assuming that a business combination is not consummated during that time . all the expenses relating to the offering were funded by proceeds from loans with bcm . prior to the consummation of our initial business transaction , in order to fund all expenses relating to investigating and selecting a target business , negotiating an acquisition agreement and consummating such acquisition and our other working capital requirements , bcm has agreed to loan us funds from time to time , or at any time , up to $ 800,000. all these loans will be due and payable upon the completion of our initial business transaction and will be on terms that waive any and all rights to the funds in the trust account . the terms of such loans will not have any recourse against the trust account nor pay any interest prior to the consummation of our business transaction and be no more favorable than could be obtained by a third party . we do not believe we will need to raise additional funds other than the loans provided or to be provided to us from bcm until the consummation of our initial business transaction to meet the expenditures required for operating our business . however , we may need to raise additional funds through a private offering of debt or equity securities if such funds are required to consummate a business transaction that is
| on march 20 , 2012 , the funds in the trust account were transferred to an investment bank and invested in an institutional money market account that meets the conditions specified in rule 2a-7 under the investment company act of 1940. for the year ended december 31 , 2012 , we had a net loss of $ 393,000 , consisting of expense due to our activities in relation to the initial business transaction , expense due to the preparation and filing of our reports with the sec , and state franchise taxes , offset by approximately $ 30,000 of income from the trust . this compares with a net loss of $ 293,000 for the year ended december 31 , 2011 , consisting of legal , accounting , audit and other professional service fees incurred in relation to the preparation and filing of our reports with the sec , state franchise taxes and a minor amount of interest expense with no material income from the trust . 40 for the cumulative period from january 24 , 2006 ( inception ) to december 31 , 2012 , we had a net loss of $ 796,000 , consisting of legal , accounting , audit and other professional service fees incurred in relation to our formation , the filing of our registration statement on form 10-sb in may 2007 , the filing of our periodic reports on form 10-q and form 10-k , interest expense and legal , accounting , audit , printing and other professional service fees incurred in relation to the offering , state franchise taxes and our activities in relation to the initial business transaction . we will not generate any operating revenues until after the consummation of our initial business transaction , at the earliest . we will continue to generate non-operating income in the form of interest income on cash and cash equivalents in the trust account . we expect to incur increased expenses in 2013 as a result of activities relating to our initial business transaction , including due diligence expenses . as we expect to continue to generate net losses , we do not anticipate incurring substantial income or other tax expense ( other than state franchise taxes ) until the consummation of our initial business transaction , at the earliest . liquidity and capital resources as of december 31 , 2012 , we had assets equal to $ 28,802,000 , comprised of cash in the trust
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principally located in chelmsford , united kingdom and grenoble , france , e2v had sales of approximately £236 million for its fiscal year ended march 31 , 2016. e2v 's results have been included since the date of the acquisition and include $ 273.7 million in net sales and operating income of $ 37.3 million , which included $ 8.3 million in acquisition-related costs and $ 11.2 million in additional intangible asset amortization expense for fiscal year 2017. fiscal year 2017 includes pretax charges of $ 27.0 million related to the acquisition of e2v , which included $ 13.0 million in transaction costs , including stamp duty , advisory , legal and other consulting fees and other costs recorded to selling , general and administrative expenses , $ 5.7 million in inventory fair value step-up amortization expense recorded to cost of sales , $ 6.0 million related to a foreign currency option contract expense to hedge the e2v purchase price recorded as other expense and $ 2.3 million in bank bridge facility commitment expense recorded to interest expense . of these amounts , $ 8.3 million impacted segment operating income . on july 20 , 2017 , teledyne instruments , inc. completed the acquisition of assets of scientific systems , inc. ( “ ssi ” ) for $ 31.0 million in cash . a subsequent cash payment of $ 0.3 million related to a purchase price adjustment was made in 2017. headquartered in state college , pa. , ssi is a manufacturer of precision components and specialized subassemblies used primarily in analytical and diagnostic instrumentation , such as high performance liquid chromatography systems and specific medical devices . ssi designs and manufactures high pressure positive-displacement piston pumps for a wide variety of analytical , clinical , sample prep and fluid-metering applications and is part of the instrumentation segment . on november 2 , 2016 , teledyne instruments , inc. acquired assets of in usa , inc. ( “ in usa ” ) , headquartered in norwood , massachusetts , for $ 10.2 million in cash . in usa is a manufacturer of a range of ozone generators , ozone analyzers and other gas monitoring instruments utilizing ultraviolet and infrared based technologies . teledyne relocated and consolidated manufacturing into the owned facility of teledyne advanced pollution instrumentation in san diego , california . on december 6 , 2016 , teledyne instruments , inc. acquired hanson research corporation ( “ hanson research ” ) , headquartered in chatsworth , california , for $ 25.0 million , net of cash acquired . hanson research specializes in analytical instrumentation for the pharmaceutical industry . on may 3 , 2016 , teledyne dalsa , inc. , a canadian-based subsidiary , acquired the assets and business of caris , inc. ( “ caris ” ) , based in fredericton , new brunswick , canada , for $ 26.2 million , net of cash acquired . caris is a leading developer of geospatial software designed for the hydrographic and marine community . on april 15 , 2016 , teledyne lecroy , inc. , a u.s.-based subsidiary , acquired assets of quantum data , inc. ( “ quantum data ” ) , based in elgin , illinois , for $ 17.3 million in cash . quantum data is a market leader in video protocol analysis test tools . on april 6 , 2016 , teledyne lecroy , inc. also acquired frontline test equipment , inc. ( “ frontline ” ) , based in charlottesville , virginia , for $ 13.7 million in cash . frontline is a market leader in wireless protocol analysis test tools . 30 each of the 2016 acquisitions are part of the instrumentation segment except for caris which is part of the digital imaging segment . see note 3 to our consolidated financial statements for additional information about our recent acquisitions . consolidated operating results our fiscal year is determined based on a 52- or 53-week convention ending on the sunday nearest to december 31. fiscal years 2018 , 2017 and 2016 each contained 52 weeks . the following are selected financial highlights for 2018 , 2017 and 2016 ( in millions , except per-share amounts ) : replace_table_token_6_th our businesses are aligned in four business segments : instrumentation , digital imaging , aerospace and defense electronics and engineered systems . our four business segments and their respective percentage contributions to our total sales in 2018 , 2017 and 2016 are summarized in the following table : replace_table_token_7_th 31 story_separator_special_tag replace_table_token_11_th 35 we reported net sales of $ 2,603.8 million in 2017 , compared with net sales of $ 2,149.9 million for 2016 , an increase of 21.1 % . net income was $ 227.2 million ( $ 6.26 per diluted share ) in 2017 , compared with net income of $ 190.9 million ( $ 5.37 per diluted share ) in 2016 , an increase of 19.0 % . total year 2017 and 2016 reflected pretax charges totaling $ 4.2 million and $ 17.3 million , respectively , for severance and facility consolidation charges . net income for 2017 and 2016 also included net discrete tax benefits of $ 21.9 million and $ 10.9 million , respectively . total year 2017 also included provisional charges of $ 4.7 million for the estimated impact of the tax act . net income for 2017 and 2016 included pretax charges totaling $ 27.0 million and $ 7.9 million , respectively , related to e2v acquisition related expenses . we also recorded a gain in 2016 of $ 17.9 million on the sale of a former operating facility in california . net sales the increase in net sales in 2017 , compared with 2016 , reflected higher sales in each segment . sales in 2017 included organic revenue growth of $ 155.9 million plus $ 298.0 million in incremental net sales from recent acquisitions , primarily e2v . the incremental sales from the e2v acquisition in 2017 was $ 273.7 million . story_separator_special_tag sales under contracts with the u.s. government were approximately 24 % of net sales in 2017 and 27 % of net sales in 2016. sales to international customers represented approximately 46 % of sales in net 2017 and 43 % of net sales in 2016. cost of sales total company cost of sales increased by $ 294.5 million in 2017 , compared with 2016 , which primarily reflected the impact of higher net sales . the total company cost of sales as a percentage of sales for 2017 was 62.4 % , compared with 61.8 % for 2016. selling , general and administrative expenses selling , general and administrative expenses , including company-funded research and development and bid and proposal expense , in total dollars were higher in 2017 , compared with 2016. the increase reflected the impact of higher sales , partially offset by lower severance and facility consolidation expenses of $ 9.1 million . corporate administrative expense in 2017 was $ 63.0 million , compared with $ 46.2 million in 2016. the increase in corporate administrative expense reflected higher compensation expense and $ 10.4 million in acquisition transaction expense related to the e2v acquisition in 2017. corporate administrative expense in 2016 reflected $ 1.9 million in acquisition transaction expense related to the e2v acquisition . for 2017 , we recorded a total of $ 14.2 million in stock option expense , of which $ 4.5 million was recorded within corporate expense and $ 9.7 million was recorded in the operating segment results . for 2016 , we recorded a total of $ 11.6 million in stock option expense , of which $ 3.2 million was recorded within corporate expense and $ 8.4 million was recorded in the operating segment results . selling , general and administrative expenses as a percentage of sales was 25.3 % for 2017 , compared with 27.0 % for 2016 and reflected the impact of the e2v acquisition which carried a lower selling , general and administrative expense percentage than the other teledyne businesses and lower severance and facility consolidation expenses . pension service expense pension service expense is included in both cost of sales and selling general and administrative expense . pension service expense was $ 11.2 million for both 2017 and 2016. operating income operating income for 2017 was $ 321.7 million , compared with $ 240.5 million for 2016 , an increase of 33.8 % . the increase in operating income primarily reflected higher operating income in each segment , partially offset by higher corporate expense . operating income in 2017 and 2016 reflected $ 4.2 million and $ 17.3 million in severance and facility consolidation costs , respectively . the incremental operating income included in the results for 2017 from recent acquisitions was $ 43.8 million which reflected $ 13.0 million in additional intangible asset amortization expense . interest expense , interest income , non-service retirement benefit income and other income and expense total interest expense , including credit facility fees and other bank charges , was $ 35.5 million in 2017 compared with $ 23.6 million in 2016 and reflected the impact of higher debt levels in 2017 due to the acquisition of e2v . interest expense in 2017 included $ 2.3 million in fees related to the terminated bridge facility in connection with the acquisition of e2v . interest income was $ 2.4 million in 2017 and $ 0.3 million in 2016. non-service retirement benefit income was $ 13.9 million in 2017 , compared with $ 13.3 million in 2016. other income and expense in 2017 and 2016 reflected $ 6.0 million and $ 5.5 million , respectively , of expense for a foreign currency option contract related to the e2v acquisition . other income and expense for 2016 included a gain of $ 17.9 million on the sale of a former operating facility in california . 36 income taxes the company 's effective tax rate for 2017 was 20.8 % , compared with 20.9 % for 2016. total year 2017 reflected $ 17.2 million in net discrete income tax benefits , which included an $ 8.5 million income tax benefit related to the release of valuation allowance for which the deferred tax assets are now determined more-likely-than-not to be realizable , $ 8.5 million income tax benefit as a result of the remeasurement of uncertain tax positions due to expiration of statute of limitation , $ 8.8 million in net discrete tax benefits related to share-based accounting partially offset by $ 4.6 million related to adjustments for uncertain tax positions and the $ 4.7 million provisional charge , related to the tax act . total year 2016 reflected $ 10.9 million in net discrete income tax benefits . the net discrete income tax benefits of $ 10.9 million , includes $ 6.7 million in income tax expense related to the $ 17.9 million gain on the sale of the operating facility and a $ 8.5 million income tax benefit related to the adoption of asu no . 2016-09 , as well as $ 9.1 million income tax benefit for the remeasurement of uncertain tax positions due to the expiration of statute of limitations , the release of valuation allowances and a favorable tax ruling in the netherlands . excluding the net discrete income tax benefits in both years , and the gain and related taxes on the operating facility sale in 2016 , the effective tax rates would have been 26.8 % for 2017 and 27.4 % for 2016. segments the following discussion of our four segments should be read in conjunction with note 12 to the notes to consolidated financial statements . instrumentation replace_table_token_12_th our instrumentation segment provides monitoring and control instruments for marine , environmental , industrial and other applications , as well as electronic test and measurement equipment . we also provide power and communications connectivity devices for distributed instrumentation systems and sensor networks deployed in mission critical , harsh environments .
| the amount recorded to other expense related to a foreign currency option contract . net sales the increase in net sales in 2018 , compared with 2017 , reflected higher net sales in each segment . net sales in 2018 included revenue growth of $ 182.9 million plus $ 115.1 million in incremental net sales from recent acquisitions , primarily e2v . the incremental net sales from the march 2017 e2v acquisition in 2018 was $ 103.0 million . sales under contracts with the u.s. government were approximately 23 % of net sales in 2018 and 24 % of net sales in 2017 . sales to international customers represented approximately 47 % of net sales in 2018 and 46 % of net sales in 2017 . cost of sales total company cost of sales increased by $ 167.0 million in 2018 , compared with 2017 , which primarily reflected the impact of higher net sales . the total company cost of sales as a percentage of sales for 2018 was 61.7 % , compared with 62.4 % for 2017 . 33 selling , general and administrative expenses selling , general and administrative expenses , including company-funded research and development and bid and proposal expense , were higher in 2018 , compared with 2017. the increase primarily reflected the impact of higher sales and higher research and development and bid and proposal expense . the 2017 amount included $ 13.0 million in acquisition related expenses for the e2v acquisition . corporate administrative expense in 2018 was $ 56.0 million , compared with $ 63.0 million in 2017. the 2017 amount included $ 10.4 million in acquisition related expenses for the e2v acquisition . for 2018 , we recorded a total of $ 19.8 million in stock option expense , of which $ 6.3 million was recorded within corporate expense and $ 13.5 million was recorded in the operating segment results . for 2017 , we recorded a total of $ 14.2 million in stock
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these systems incorporate lithium-ion batteries ( or other advanced battery chemistries ) with our proprietary bms into our standard dc power systems . ● dc solar hybrid power systems . these systems incorporate photovoltaic and other sources of renewable energy into our dc hybrid power system . our dc power systems are available in diesel , natural gas , liquid propane gas , gasoline and biofuel formats , with diesel , natural gas and liquid propane gas being the predominant formats and are capable of being remotely monitored by our global network management tool using our proprietary software technology , allowing us and our customers to collect performance data and update our products remotely . 34 we install , sell and service our products within our identified markets through our direct sales force and a network of independent service providers and dealers . in addition , we have established strategic relationships with local service partners in international markets to jointly promote , distribute and service our products . during the years ended december 31 , 2018 and 2017 , 90 % and 88 % , respectively , of our total net sales were within the telecommunications market . in 2018 , 85 % of our total net sales were derived from our three largest customers , 53 % from at & t , 22 % from t-mobile , and 10 % from verizon wireless . in 2017 , 85 % of our total net sales were derived from our two largest customers , 71 % from verizon wireless and 14 % from at & t . during those periods , the majority of our sales were comprised of our dc base powers systems . critical accounting policies our financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and judgments that may have a significant impact on the portrayal of our financial condition and results of operations . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ materially from these estimates . we believe that the following critical accounting policies , among others , affect our more significant judgment and estimates used in the preparation of our financial statements : revenue recognition . during 2017 , we recognized revenue from the sale of completed production units and parts when there is persuasive evidence that an arrangement exists , delivery of the product has occurred and title has passed , the selling price is both fixed and determinable , and collectability is reasonably assured , all of which occurs upon shipment of our product or delivery of the product to the destination specified by the customer . once a product is delivered , we do not have a post-delivery obligation to provide additional services to the customer . on january 1 , 2018 , we adopted asu 2014-09 , revenue from contracts with customers ( topic 606 ) , ( asc 606 ) . the underlying principle of asc 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected . asc 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract ( s ) , which includes ( 1 ) identifying the contract ( s ) or agreement ( s ) with a customer , ( 2 ) identifying our performance obligations in the contract or agreement , ( 3 ) determining the transaction price , ( 4 ) allocating the transaction price to the separate performance obligations , and ( 5 ) recognizing revenue as each performance obligation is satisfied . under asc 606 , revenue is recognized when performance obligations under the terms of a contract are satisfied , which occurs for us upon shipment or delivery of products or services to our customers based on written sales terms , which is also when control is transferred . revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer . the implementation of asc 606 had no impact on our financial statements and no cumulative effect adjustment was recognized . 35 we determine whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the customer , which usually occurs when we place the product with the customer 's carrier or deliver the product to a customer 's location . we regularly review our customers ' financial positions to ensure that collectability is reasonably assured . except for warranties , we have no post-sales obligations . warranty costs . we provide limited warranties for parts and labor at no cost to our customers within a specified time period after the sale . the warranty terms are typically from one to five years . provisions for estimated expenses related to product warranties are made at the time products are sold . these estimates are established using historical information about the nature , frequency and average cost of warranty claim settlements as well as product manufacturing and recovery from suppliers . management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty costs . we estimate the actual historical warranty claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty purposes . our product warranty obligations are included in other accrued liabilities in the balance sheets . story_separator_special_tag as of december 31 , 2018 and 2017 , we had accrued a liability for warranty reserve of $ 175,000 and $ 175,000 , respectively . management believes that the warranty accrual is appropriate ; however actual claims incurred could differ from original estimates , requiring adjustments to the accrual . the product warranty accrual is allocated to current and liabilities in the balance sheets . inventory . we write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value-based upon assumptions about future demand , future pricing and market conditions . if actual future demand , future pricing or market conditions are less favorable than those projected by management , additional inventory write-downs may be required and the differences could be material . once established , write-downs are considered permanent adjustments to the cost basis of the obsolete or unmarketable inventories . income taxes . our estimate of income taxes payable , deferred income taxes and the effective tax rate is based on an analysis of many factors including interpretations of federal and state income tax laws , the difference between tax and financial reporting bases of assets and liabilities , estimates of amounts currently due or owed in various jurisdictions , and current accounting standards . we review and update our estimates on a quarterly basis as facts and circumstances change and actual results are known . we recognize income taxes for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in our financial statements or tax returns . a valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized . effects of inflation the impact of inflation and changing prices has not been significant on the financial condition or results of operations of our company . impact of recent accounting pronouncements see “ note 1 – organization and summary of significant accounting policies – recent accounting pronouncements ” of the notes to financial statements commencing on page f-11 of this annual report on form 10-k for management 's discussion as to the impact of recent accounting pronouncements . jumpstart our business startups act of 2012 on april 5 , 2012 , the jobs act was enacted . 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 have irrevocably elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . 36 we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , if as an “ emerging growth company ” we choose to rely on such exemptions , we may not be required to , among other things , ( i ) provide an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 , ( ii ) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the dodd-frank wall street reform and consumer protection act , ( iii ) comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) , and ( iv ) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer 's compensation to median employee compensation . these exemptions will apply until we no longer meet the requirements of being an “ emerging growth company. ” we will remain an “ emerging growth company ” until the earliest of ( i ) the last day of the fiscal year in which we have total annual gross revenues of $ 1.07 billion or more ; ( ii ) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering ; ( iii ) the date on which we have issued more than $ 1 billion in nonconvertible debt during the previous three years ; or ( iv ) the date on which we are deemed to be a large accelerated filer under the rules of the sec . financial performance summary – year ended december 31 , 2018 our revenues increased by $ 9,627,628 , or 67 % , to $ 24,046,354 for the year ended december 31 , 2018 , as compared to $ 14,418,726 for the year ended december 31 , 2017. we reported a net loss of $ 848,252 for 2018 , as compared to net loss of $ 757,416 for 2017. the increase in revenues during 2018 is a direct result of increased sales of our dc power systems to u.s. tier-1 telecommunications customers and expansion of our customer base in the u.s. telecommunications market .
| u.s. telecommunications customers accounted for 90 % of our total net sales during 2018 , as compared to 88 % of total net sales in 2017. our strategy to diversify our customer base resulted in us securing the three largest u.s. tier-1 telecommunications providers , at & t , t-mobile and verizon wireless , as our customers with each representing 53 % , 22 % , and 10 % , respectively , of our total net sales in 2018. in 2017 , at & t and verizon wireless represented 71 % , and 15 % , respectively , of our total net sales . cost of sales . cost of sales increased by $ 6,957,016 , or 72 % , to $ 16,614,574 during 2018 , compared to $ 9,657,558 during 2017. cost of sales as a percentage of net sales increased from 67 % in 2017 to 69 % in 2018. in 2018 , higher volume in net sales to top tier-1 customers resulted in volume discounts thereby increasing the cost of sales as percentage of net sales . due to a rapid ramp up in production required to meet delivery commitments we were unable to capitalize on inherent manufacturing efficiencies resulting from larger volumes . in addition , we added a manufacturing facility equipped with state-of-the-art automated manufacturing equipment . during 2018 , we also increased our direct labor force by 45 % to meet production demands . in the short term implementing these initiatives negatively affected our labor efficiencies , resulting in increased direct labor cost . during the fourth quarter of 2018 , we saw modest gains in labor efficiencies and output as we trained our new direct labor force . 38 gross profit . our gross profit during 2018 increased by $ 2,670,612 to $ 7,431,780 , as compared to $ 4,761,168 during 2017. gross profit as a percentage of net sales decreased to 31 % in 2018 , as compared to 33 % in 2017. the decrease in gross profit as a percentage of net sales during 2018 was primarily due a combination of sales discounts offered for large volume orders from tier-1 customers and lower labor efficiencies resulting from a ramp up in production . in addition , we also recognized a modest increase in raw material costs resulting from tariffs placed on aluminum and other commodities purchased from international suppliers . during the second half of 2018 , we were able to substantially reduce our engine costs
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financing availability as of december 31 , 2019 , we had $ 563.8 million in total available borrowing capacity under our revolving credit facility , which was comprised of $ 381.4 million of availability under the u.s. sub-facility and $ 182.4 million of availability under the canadian sub-facility . available borrowing capacity under our receivables facility was $ 185.0 million . these debt facilities were amended and restated in september 2019. the revolving credit facility and the receivables facility mature in september 2024 and september 2022 , respectively . see note 10 of the notes to consolidated financial statements for further information regarding these facilities . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to supplier programs , bad debts , inventories , insurance costs , goodwill , income taxes , contingencies and litigation . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . if actual market conditions are less favorable than those projected by management , additional adjustments to reserve items may be required . we believe the following critical accounting policies affect our judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition our revenue arrangements generally consist of single performance obligations to transfer a promised good or service , or a combination of goods and services . revenue is recognized when control has transferred to the customer , which is generally when the product has shipped from one of our facilities or directly from a supplier . for products that ship directly from suppliers to customers , we act as the principal in the transaction and recognize revenue on a gross basis . revenue for integrated supply services is recognized over time based on hours incurred as the transfer of control occurs as the services are being performed . we generally satisfy our performance obligations within a year or less . we generally do not have significant financing terms associated with our contracts ; payments are normally received within 60 days . there are generally no significant costs associated with obtaining customer contracts . we generally pass through warranties offered by manufacturers or suppliers to our customers . sales taxes ( and value added taxes in foreign jurisdictions ) collected from customers and remitted to governmental authorities are excluded from net sales . supplier volume rebates we receive rebates from certain suppliers based on contractual arrangements with such suppliers . since there is a lag between actual purchases and the rebates received from suppliers , we estimate and accrue the approximate amount of rebates available at a specific date based on forecasted purchases and the rebate provisions of the various supplier contracts . we record the amounts as other accounts receivable in the consolidated balance sheets and the corresponding rebate income is recorded as a reduction to cost of goods sold . allowance for doubtful accounts we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we have a systematic procedure using historical data and reasonable assumptions of collectability made at the local branch level and on a consolidated corporate basis to estimate allowances for doubtful accounts . excess and obsolete inventory we write down our inventories to the lower of cost and net realizable value based on internal factors derived from historical analysis of actual losses . we use past data to identify items in excess of 36 months supply relative to demand or movement . we then analyze the ultimate disposition of identified excess inventories as they are sold , returned to supplier , or scrapped . this historical item-by-item analysis allows us to develop an estimate of the likelihood that an item identified as being in excess supply ultimately becomes obsolete . we apply the estimate to inventories currently in excess of 36 months supply , and reduce the carrying value of inventories by the derived amount . we revisit and test our assumptions on a periodic basis . historically , we have not had material changes to our assumptions . 19 goodwill and indefinite-lived intangible assets goodwill and indefinite-lived intangible assets are tested for impairment annually during the fourth quarter using information available at the end of september , or more frequently if triggering events occur , indicating that their carrying value may not be recoverable . we test for goodwill impairment on a reporting unit level and the evaluation involves comparing the fair value of each reporting unit to its carrying value . the fair values of the reporting units are determined using a combination of a discounted cash flow analysis and market multiples . assumptions used for these fair value techniques , including expected operating margin and discount rate , are based on a combination of historical results , current forecasts , market data and recent economic events . we evaluate the recoverability of indefinite-lived intangible assets using the relief-from-royalty method based on projected financial information . the determination of fair value involves significant management judgment and we apply our best judgment when assessing the reasonableness of financial projections . fair values are sensitive to changes in underlying assumptions and factors . story_separator_special_tag as a result , there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results . we performed our annual impairment tests of goodwill and indefinite-lived intangible assets during the fourth quarter . a possible indicator of goodwill impairment is the relationship of a company 's market capitalization to its book value . as of december 31 , 2019 , our market capitalization exceeded our book value and the fair values of our reporting units exceeded their carrying values . accordingly , there were no impairment losses identified as a result of our annual test . intangible assets we account for certain economic benefits purchased as a result of our acquisitions , including customer relations , distribution agreements , technology and trademarks , as intangible assets . most trademarks have an indefinite life . we amortize all other intangible assets over a useful life determined by the expected cash flows produced by such intangibles and their respective tax benefits . useful lives vary between 5 and 20 years , depending on the specific intangible asset . income taxes we account for income taxes under the asset and liability method , which requires the recognition of deferred income taxes for events that have future tax consequences . under this method , deferred income taxes are recognized ( using enacted tax laws and rates ) based on the future income tax effects of differences in the carrying amounts of assets and liabilities for financial reporting and tax purposes . the effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the period of change . we recognize deferred tax assets at amounts that are expected to be realized . to make such determination , management evaluates all positive and negative evidence , including but not limited to , prior , current and future taxable income , tax planning strategies and future reversals of existing temporary differences . a valuation allowance is recognized if it is “ more-likely-than-not ” that some or all of a deferred tax asset will not be realized . we regularly assess the realizability of deferred tax assets . we account for uncertainty in income taxes using a `` more-likely-than-not '' recognition threshold . due to the subjectivity inherent in the evaluation of uncertain tax positions , the tax benefit ultimately recognized may materially differ from the estimate . we recognize interest and penalties related to uncertain tax benefits as part of interest expense and income tax expense , respectively . the tcja imposed a one-time tax on the deemed repatriation of undistributed foreign earnings ( the `` transition tax '' ) . except for a portion of the previously taxed foreign earnings that have been repatriated , we continue to assert that the remaining undistributed earnings of our foreign subsidiaries , the majority of which were subject to the transition tax , are indefinitely reinvested . we believe we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriating cash held by these foreign subsidiaries . upon any future repatriation , additional tax expense or benefit may be incurred ; however , we do not believe such amount would be material . the provisions of the tcja also introduced u.s. taxation on certain global intangible low-taxed income ( `` gilti '' ) . we have elected to account for gilti tax as a component of income tax expense . future adjustments ( if any ) resulting from additional regulatory guidance regarding the accounting for the income tax effects of tcja will be recognized as discrete income tax expense or benefit in the period in which guidance is issued . 20 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > from the remeasurement of a financial instrument , as well as accelerated amortization of debt discount and debt issuance costs totaling $ 0.8 million due to early repayments of our then outstanding term loan facility . income taxes . our effective tax rate was 21.2 % in 2019 compared to 19.8 % in 2018 . the higher effective tax rate in the current year is primarily due to the full application of the international provisions of u.s. tax reform . net income . net income de creased by $ 3.2 million , or 1.4 % , to $ 222.2 million in 2019 , compared to $ 225.4 million in 2018 . net loss attributable to noncontrolling interests . net loss attributable to noncontrolling interests in 2019 and 2018 was $ 1.2 million and $ 2.0 million , respectively . net income attributable to wesco international . net income and earnings per diluted share attributable to wesco international were $ 223.4 million and $ 5.14 per share , respectively , in 2019 , compared with $ 227.3 million and $ 4.82 per share , respectively , in 2018 . adjusted net income and earnings per diluted share attributable to wesco international were $ 225.9 million and $ 5.20 per share , respectively , for the year ended december 31 , 2019 . the following table sets forth adjusted net income attributable to wesco international and adjusted earnings per diluted share : twelve months ended adjusted income from operations : december 31 , 2019 december 31 , 2018 income from operations $ 346.2 $ 352.4 merger-related transaction costs 3.1 — adjusted income from operations $ 349.3 $ 352.4 twelve months ended adjusted provision for income taxes : december 31 , 2019 december 31 , 2018 provision for income taxes $ 59.9 $ 55.7 income tax effect of merger-related transaction costs 0.6 — adjusted provision for income taxes $ 60.5 $ 55.7 22 replace_table_token_6_th note : income from operations , the provision for income taxes and earnings per diluted share for the year ended december 31 , 2019 are adjusted to exclude $ 3.1 million of anixter merger-related transaction costs and the related income tax effect .
| sg & a expenses for 2019 were $ 1.2 billion , an in crease of $ 21.2 million , or 1.8 % , from 2018 . sg & a expenses as a percentage of net sales improved to 14.0 % in 2019 from 14.1 % in 2018 . the in crease in sg & a expenses reflects the impact of the sls acquisition and transactions costs related to our merger with anixter , partially offset by lower variable payroll expenses and the absence of a bad debt charge that was recorded in the prior year . sg & a payroll expenses for 2019 of $ 812.9 million increased by $ 8.7 million compared to 2018 . the increase in sg & a payroll expenses was primarily due to wage inflation and the impact of the sls acquisition , which were partially offset by lower variable compensation expense and benefit costs . the remaining sg & a expenses for 2019 of $ 360.2 million increased by $ 12.4 million compared to 2018 . the increase in the remaining sg & a expenses was primarily due to the impact of the sls acquisition . 21 depreciation and amortization . depreciation and amortization de creased $ 0.9 million to $ 62.1 million in 2019 , compared with $ 63.0 million in 2018 . income from operations . income from operations de creased by $ 6.2 million to $ 346.2 million in 2019 , compared to $ 352.4 million in 2018 . income from operations as a percentage of net sales was 4.1 % and 4.3 % in 2019 and 2018 , respectively . adjusted for merger-related transaction costs of $ 3.1 million , income from operations was $ 349.3 million for 2019 , or 4.2 % of net sales . net interest and other . net interest and other totaled $ 64.2 million in 2019 , compared with $ 71.4 million in 2018 , a de crease of 10.2 % . the resolution of transfer pricing matters associated with the canadian taxing authority resulted in non-cash interest income of $
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acquisitions acquisitions in fiscal year 2011 in november 2010 , we acquired 100 % of the outstanding shares of car insurance.com , inc. , or carinsurance.com , a florida-based online insurance business , and certain of its affiliated companies , in exchange for $ 49.7 million in cash , for its capacity to generate online visitors in the financial services market . in july 2010 , we acquired the website business insurance.com from insurance.com group , inc. , an ohio-based online insurance business , in exchange for $ 33.0 million in cash and the issuance of a $ 2.6 million non-interest-bearing , unsecured promissory note , for its capacity to generate online visitors in the financial services market . during fiscal year 2011 , in addition to the acquisitions of carinsurance.com and insurance.com , we acquired 13 other online publishing businesses . also , in august 2011 , we acquired 100 % of the outstanding equity interests of narrowcast group , llc , a kentucky-based internet media company , in exchange for $ 23,961 in cash , to broaden our media access in the business-to-business market . acquisitions in fiscal year 2010 in november 2009 , we acquired the website business internet.com , a division of webmediabrands , inc. , or internet.com , a new york-based internet media company , in exchange for $ 15.9 million in cash and the issuance of a $ 1.7 million non-interest-bearing , unsecured promissory note , to broaden our media access and client base in the b2b market . in october 2009 , we acquired the website business insure.com from life quotes , inc. , or insure.com , an illinois-based online insurance quote service and brokerage business , in exchange for $ 15.0 million in cash and the issuance of a $ 1.0 million non-interest-bearing , unsecured promissory note , for its capacity to generate online 36 visitors in the financial services market . during fiscal year 2010 , in addition to the acquisitions of internet.com and insure.com , we acquired 31 other online publishing businesses . acquisitions in fiscal year 2009 in august 2008 , we acquired 100 % of the outstanding shares of u.s. citizens for fair credit card terms , inc. , or cardratings , an arkansas-based online marketing company , in exchange for $ 10.4 million in cash and the issuance of $ 5.0 million in non-interest-bearing , secured promissory notes , for its capacity to generate online visitors in the financial services market . during fiscal year 2009 , in addition to the acquisition of cardratings , we acquired 33 other online publishing businesses . our acquisition strategy may result in significant fluctuations in our available working capital from period to period and over the years . we may use cash , stock or promissory notes to acquire various businesses or technologies , and we can not accurately predict the timing of those acquisitions or the impact on our cash flows and balance sheet . large acquisitions or multiple acquisitions within a particular period may significantly affect our financial results for that period . we may utilize debt financing to make acquisitions , which could give rise to higher interest expense and more restrictive operating covenants . we may also utilize our stock as consideration , which could result in substantial dilution . development and acquisition of targeted media one of the primary challenges of our business is finding or creating media that is targeted enough to attract prospects economically for our clients and at costs that work for our business model . in order to continue to grow our business , we must be able to continue to find or develop quality targeted media on a cost-effective basis . our inability to find or develop high quality targeted media could impair our growth or adversely affect our financial performance . seasonality our results are subject to significant fluctuation as a result of seasonality . in particular , our quarters ending december 31 ( our second fiscal quarter ) typically demonstrate seasonal weakness . in our second fiscal quarters , there is lower availability of lead supply from some forms of media during the holiday period on a cost effective basis and some of our clients request fewer leads due to holiday staffing . in our quarters ending march 31 ( our third fiscal quarter ) , this trend generally reverses with better lead availability and often new budgets at the beginning of the year for our clients with fiscal years ending december 31. basis of presentation general we operate in two segments : dms and dss . for further discussion and financial information about our reporting segments , see note 14 to our consolidated financial statements . net revenue dms . our dms business generates revenue from fees earned through the delivery of qualified leads , clicks and , to a lesser extent , display advertisement , or impressions . we deliver targeted and measurable results through a vertical focus that we classify into the following client verticals : financial services , education and other ( which includes home services , b2b and medical ) . dss . our dss business generated approximately 1 % of net revenue in fiscal years 2011 , 2010 and 2009 from the provision of a hosted solution and related services for clients in the direct selling industry . we expect dss to continue to represent an immaterial portion of our business . 37 cost of revenue cost of revenue consists primarily of media costs , personnel costs , amortization of acquisition-related intangible assets , depreciation expense and amortization of internal software development costs relating to revenue-producing technologies . media costs consist primarily of fees paid to website publishers that are directly related to a revenue-generating event and pay-per-click , or ppc , ad purchases from internet search companies . we pay these internet search companies and website publishers on a revenue-share , a cost-per-lead , or cpl , cost-per-click , or cpc and cost-per-thousand-impressions , or cpm basis . personnel costs include salaries , stock-based compensation expense , bonuses and employee benefit costs . story_separator_special_tag personnel costs are primarily related to individuals associated with maintaining our servers and websites , our editorial staff , client management , creative team , compliance group and media purchasing analysts . costs associated with software incurred in the development phase or obtained for internal use are capitalized and amortized in cost of revenue over the software 's estimated useful life . we anticipate that our cost of revenue will increase in absolute dollars as we continue to increase our revenue base and product offerings . operating expenses we classify our operating expenses into three categories : product development , sales and marketing , and general and administrative . our operating expenses consist primarily of personnel costs and , to a lesser extent , professional services fees , rent and allocated costs . personnel costs for each category of operating expenses generally include salaries , stock-based compensation expense , bonuses and commissions and employee benefit costs . product development . product development expenses consist primarily of personnel costs and professional services fees associated with the development and maintenance of our technology platforms , development and launching of our websites , product-based quality assurance and testing . we believe that continued investment in technology is critical to attaining our strategic objectives and , as a result , we expect product development expenses to increase in absolute dollars in the future . sales and marketing . sales and marketing expenses consist primarily of personnel costs and , to a lesser extent , allocated overhead costs , professional services fees , travel costs , advertising and marketing materials . we expect sales and marketing expenses to increase in absolute dollars as we hire additional personnel in sales and marketing to support our increasing revenue base and product offerings . general and administrative . general and administrative expenses consist primarily of personnel costs of our executive , finance , legal , corporate and business development , employee benefits and compliance , technical support and other administrative personnel , as well as accounting and legal professional services fees and other corporate expenses . we expect general and administrative expenses to increase in absolute dollars in future periods as we continue to invest in corporate infrastructure and incur additional expenses associated with being a public company , including increased legal and accounting costs , higher insurance premiums , investor relations costs and compliance costs associated with section 404 of the sarbanes-oxley act of 2002. interest and other income ( expense ) , net interest and other income ( expense ) , net , consists primarily of interest expense , other income and expense and interest income . interest expense is related to our credit facility and promissory notes issued in connection with our acquisitions and includes imputed interest . borrowings under our credit facility and related interest expense could increase as we continue to implement our acquisition strategy . interest income represents interest received on our cash , cash equivalents and marketable securities , which may increase or decrease depending on market interest rates and the amounts invested . other income ( expense ) , net , includes foreign currency exchange gains and losses and other non-operating items . 38 income tax expense we are subject to tax in the united states as well as other tax jurisdictions or countries in which we conduct business . earnings from our limited non-u.s. activities are subject to local country income tax and may be subject to u.s. income tax . story_separator_special_tag stock-based compensation expense of $ 1.5 million . the increase in compensation 40 expense was due to a 20 % increase in average headcount affected by additional hiring in connection with development projects , as well as increased performance bonus expense due to the achievement of specified financial metrics during fiscal year 2010 and an increase in the number of individuals eligible for such bonus . professional services fees also increased due to these development projects . sales and marketing expenses sales and marketing expenses increased $ 0.7 million , or 4 % , in fiscal year 2011 compared to fiscal year 2010 , primarily due to increased compensation expense of $ 0.5 million . sales and marketing expenses increased $ 0.5 million , or 3 % , in fiscal year 2010 compared to fiscal year 2009 , due to increased personnel costs of $ 1.0 million partially offset by decreases in various smaller items . the increase in personnel costs was due to increased stock-based compensation expense of $ 1.7 million , partially offset by a decline in compensation expense of $ 0.7 million due to a decrease of 18 % in average headcount affected by a reduction in workforce since the third quarter of fiscal year 2009 , while bonuses and commissions increased due to the achievement of specified financial metrics during fiscal year 2010. general and administrative expenses general and administrative expenses increased $ 1.9 million , or 10 % , in fiscal year 2011 compared to fiscal year 2010 , due to increased professional service fees of $ 1.4 million , higher insurance premiums of $ 0.3 million , state franchise tax charges of $ 0.3 million and various smaller increases in general and administrative expenses , partially offset by decreased personnel costs of $ 0.2 million . professional service fees and insurance premiums increased due to our continued investment in corporate infrastructure and related expenses associated with being a public company , including increased compliance costs .
| the increase in our other client vertical revenue was primarily affected by growth in our b2b client vertical revenue resulting from our acquisition of internet.com in november 2009 and , to a lesser extent , due to growth in our medical client vertical resulting from our acquisition of the website business of eldercarelink in april 2009. our education client vertical revenue remained relatively flat , increasing $ 0.8 million , or 1 % . the slight increase was driven by growth from a majority of our education clients , almost entirely offset by revenue decline from a single client . cost of revenue cost of revenue increased $ 51.3 million , or 21 % , in fiscal year 2011 compared to fiscal year 2010 , driven by an increase in media costs of $ 28.9 million due to higher lead and click volumes , increased personnel costs of $ 10.6 million and increased amortization of acquisition-related intangible assets of $ 6.9 million resulting from acquisitions in fiscal year 2011 and 2010. the increase in personnel costs was attributable to a 34 % increase in average headcount , primarily resulting from acquisitions . gross margin , which is the difference between net revenue and cost of revenue as a percentage of net revenue , remained flat at 28 % in fiscal year 2011 , as higher margins from publisher arrangements and a higher mix of traffic from owned and operated targeted media were offset by the above-mentioned increase in headcount and related personnel costs , as well as higher amortization expense . cost of revenue increased $ 59.1 million , or 33 % , in fiscal year 2010 compared to fiscal year 2009 , driven by a $ 41.2 million increase in media costs due to lead and click volume increases , increased personnel costs of $ 10.7 million and increased amortization of acquisition-related intangible assets of $ 3.2 million resulting from acquisitions in fiscal year 2009 and 2010. the increase in personnel costs was attributable to a 17 % increase in average headcount , resulting from the acquisition of internet.com in november 2009 , as well as the expansion of our business . gross margin declined from 30 % in fiscal year 2009 to 28 % in fiscal year 2010 , due to the above-mentioned increase in headcount and related compensation expense , as well as due to
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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 , 2012 and 2011 , our allowance for doubtful accounts was $ 15.9 million and $ 17.6 million , respectively . historically , we have recognized bad debt expense between 0.4 % and 1.3 % of rental income and it was 0.4 % in 2012 reflecting positive economic changes and their impact to our tenants . 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 $ 5.8 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 , 2012 and 2011 , accounts receivable include approximately $ 56.1 million and $ 50.5 million , respectively , related to straight-line rents . correspondingly , these estimates of collectability have a direct impact on our net income . 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 , the repairs required to maintain the condition of our assets , and general economic and real estate factors . certain events could occur that would materially affect our estimates 29 and assumptions related to depreciation . 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 compute 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 . 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 . the capitalized costs associated with developments and redevelopments are depreciated over the life of the improvement . 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 . when applicable , as lessee , we classify our leases of land and building as operating or capital leases . story_separator_special_tag 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 . 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 $ 129 million and $ 6 million , respectively , for 2012 and $ 96 million and $ 4 million , respectively , for 2011 . we capitalized external and internal costs related to other property improvements of $ 52 million and $ 1 million , respectively , for 2012 and $ 46 million and $ 1 million , respectively , for 2011 . we capitalized external and internal costs related to leasing activities of $ 9 million and $ 6 million , respectively , for 2012 and $ 8 million and $ 5 million , respectively , for 2011 . the amount of capitalized internal costs for salaries and related benefits for development and redevelopment activities , other property improvements , and leasing activities were $ 5 million , $ 1 million , and $ 5 million , respectively , for 2012 and $ 4 million , $ 1 million , and $ 5 million , respectively , for 2011 . additionally , 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 . 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 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 . 30 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 . the calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including revenues , operating expenses , required maintenance and development expenditures , market conditions , demand for space by tenants and rental rates over long periods . because our properties typically have a long life , the assumptions used to estimate the future recoverability of book value requires significant management judgment . actual results could be significantly different from the estimates . these estimates have a direct impact on net income , because recording an impairment charge results in a negative adjustment to net income . contingencies we are sometimes involved in lawsuits , warranty claims , and environmental matters arising in the ordinary course of business . management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters . we accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated . if an unfavorable outcome is probable and a reasonable estimate of the loss is a range , we accrue the best estimate within the range ; however , if no amount within the range is a better estimate than any other amount , the minimum within the range is accrued . any difference between our estimate of a potential loss and the actual outcome would result in an increase or decrease to net income .
| the increase was primarily attributable to : $ 272.2 million in net proceeds from the term loan in november 2011 , $ 100.0 million increase in senior note repayments as we repaid the $ 175.0 million 6.00 % senior notes in july 2012 compared to the $ 75.0 million 4.5 % senior notes in february 2011 , $ 42.7 million decrease in net proceeds from the issuance of common shares due primarily to the sale of 1.7 million shares under our atm equity program in 2011 compared to 1.0 million in 2012 , and $ 10.6 million increase in dividends paid to shareholders due to an increase in the dividend rate and increased number of shares outstanding , partially offset by $ 244.8 million in net proceeds from the issuance of 3.00 % senior notes in july 2012 , $ 81.2 million decrease in net repayments on our revolving credit facility , net of financing costs , and $ 38.5 million decrease in repayment of mortgages , capital leases and notes payable primarily due to the payoff of three mortgages totaling $ 78.4 million in 2011 compared to four mortgages totaling $ 41.0 million in 2012. contractual commitments the following table provides a summary of our fixed , noncancelable obligations as of december 31 , 2012 : replace_table_token_17_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 ) amounts reflect our share of principal and interest payments on our unconsolidated joint venture 's fixed rate debt . ( 3 ) variable rate debt includes a $ 9.4 million bond that had an interest rate of 0.21 % at december 31 , 2012 and our revolving credit facility , which currently has no outstanding balance and bears interest at libor plus 1.15 % . ( 4 ) a master lease on melville mall includes a fixed price put option requiring us to purchase the property for $ 5.0 million plus the assumption of the owners ' mortgage debt . the current mortgage loan matures on september 1 , 2014 , is 42 expected to be refinanced at maturity , and has an outstanding contractual balance of $ 21.5 million at december 31 , 2012 . the real estate commitments currently include the fixed $ 5.0 million and all payments related to the current mortgage loan are included in
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when a claim is reported to us , our claims department completes a case‑basis valuation and establishes a case reserve for the estimated amount of the ultimate payment as soon as practicable and after it has sufficient information to form a judgment about the probable ultimate losses and lae associated with that claim , with a goal of setting the case reserve at the ultimate expected loss and lae amount . our claims department updates their case‑basis valuations upon receipt of additional information . the case reserve is based primarily upon an evaluation of the following factors : the type of loss ; the severity of injury or damage ; our knowledge of the circumstances surrounding the claim ; the jurisdiction of the occurrence ; policy provisions related to the claim ; expenses intended to cover the ultimate cost of settling claims , including investigation and defense of lawsuits resulting from such claims , costs of outside adjusters and experts , and all other expenses which are identified to the case ; and any other information considered pertinent to estimating the indemnity and expense exposure presented by the claim . ibnr reserves are determined by subtracting case reserves from total estimated loss and lae reserves , which are based on the ultimate expected losses and lae less paid loss and lae . our actuarial department develops estimated ultimate loss and lae on a quarterly basis . our reserve review committee ( which includes our chief executive officer , president , chief financial officer , other members of executive management , and key actuarial , underwriting and claims personnel ) meets each quarter to review our actuaries ' estimated ultimate expected loss and lae . the carried reserves reflect management 's best estimate of the outstanding loss and lae liabilities . management arrives at this estimate after reviewing an internal analysis prepared by the company 's certified actuary . we use several generally accepted actuarial methods to develop estimated ultimate loss and lae estimates by line of business and accident year . this process relies on the basic assumption that past experience , adjusted for the effects of current developments and likely trends , is a reasonable basis for predicting future outcomes . these methods utilize various inputs , including but not limited to : written and earned premiums ; paid and reported losses and lae ; expected initial loss and lae ratio , which is the ratio of incurred losses and lae to earned premiums ; and expected claim reporting and payout patterns based on our own loss experience and supplemented with insurance industry data where applicable . the principal standard actuarial methods used by our actuaries for their comprehensive reviews include : loss ratio method—this method uses loss and lae ratios for prior accident years , adjusted for current trends , to determine an appropriate expected loss and lae ratio for a given accident year ; 31 loss development methods—loss development methods assume that the losses and lae yet to emerge for an accident year are proportional to the paid or reported loss and lae amounts observed to‑date . the paid loss development method uses losses and lae paid to date , while the reported loss development method uses losses and lae reported to date ; bornheutter‑ferguson method—this method is a combination of the loss ratio and loss development methods , where the loss development factor is given more weight as an accident year matures ; and frequency/severity method—this method projects claim counts and average cost per claim on a paid or reported basis for high frequency , low severity products . our actuaries give different weights to each of these methods based upon the amount of historical experience data by line of business and by accident year , and based on judgment as to what method is believed to result in the most accurate estimate . the application of each method by line of business and by accident year may change in the future if it is determined that a different emphasis for each method would result in more accurate estimates . our actuaries also analyze several diagnostic measures by line of business and accident year , including but not limited to : reported and closed frequency and severity , claim reporting and claim closing patterns , paid and incurred loss ratio development , and ratios of paid loss and lae to incurred loss and lae . after the actuarial methods and diagnostic measures have been performed and analyzed , our actuaries use their judgment and expertise to select an estimated ultimate loss and lae by line of business and by accident year . our actuaries estimate an ibnr reserve for our unallocated lae not specifically identified to a particular claim , namely our internal claims department salaries and associated general overhead and administrative expenses associated with the adjustment and processing of claims . these estimates , which are referred to as unallocated loss adjustment expense ( `` ulae '' ) reserves , are based on internal cost studies and analyses reflecting the relationship of ulae paid to actual paid and incurred losses . we select factors that are applied to case reserves and ibnr reserve estimates in order to estimate the amount of ulae reserves applicable to estimated loss reserves at the balance sheet date . we allocate the applicable portion of our estimated loss and lae reserves to amounts recoverable from reinsurers under reinsurance contracts and report those amounts separately from our loss and lae reserves as an asset on our balance sheet . the estimation of ultimate liability for losses and lae is a complex , imprecise and inherently uncertain process , and therefore involves a considerable degree of judgment and expertise . story_separator_special_tag our loss and lae reserves do not represent an exact measurement of liability , but are estimates based upon various factors , including but not limited to : actuarial projections of what we , at a given time , expect to be the cost of the ultimate settlement and administration of claims reflecting facts and circumstances then known ; estimates of future trends in claims severity and frequency ; assessment of asserted theories of liability ; and analysis of other factors , such as variables in claims handling procedures , economic factors , and judicial and legislative trends and actions . most or all of these factors are not directly or precisely quantifiable , particularly on a prospective basis , and are subject to a significant degree of variability over time . in addition , the establishment of loss and lae reserves makes no provision for the broadening of coverage by legislative action or judicial interpretation or for the extraordinary future emergence of new types of losses not sufficiently represented in our historical experience or which can not yet be quantified . as a result , an integral component of our loss and lae reserving process is the use of informed subjective estimates and judgments about our ultimate exposure to losses and lae . accordingly , the ultimate liability may be more or less than the current estimate . the effects of change in the estimated loss and lae reserves are included in the results of operations in the period in which the estimate is revised . our reserves consist entirely of reserves for property and liability losses , consistent with the coverages provided for in the insurance policies directly written or assumed by us under reinsurance contracts . occasionally , several years may elapse between the occurrence of an insured loss , the reporting of the loss to us and our payment of the loss . the level of ibnr reserves in relation to total reserves depends upon the characteristics of the specific line of business , particularly related to the speed with which claims are reported and outstanding claims are paid . lines of business for which claims are reported slowly will have a higher percentage of ibnr reserves than lines of business that report and settle claims more quickly . 32 the following table shows the ratio of ibnr reserves to total reserves net of reinsurance recoverables as of december 31 , 2016 ( dollars in thousands ) : replace_table_token_8_th although we believe that our reserve estimates are reasonable , it is possible that our actual loss and lae experience may not conform to our assumptions and may , in fact , vary significantly from our assumptions . accordingly , the ultimate settlement of losses and the related lae may vary significantly from the estimates included in our financial statements . we continually review our estimates and adjust them as we believe appropriate as our experience develops or new information becomes known to us . such adjustments are included in current operations . our loss and lae reserves do not represent an exact measurement of liability , but are estimates . the most significant assumptions affecting our ibnr reserve estimates are the loss development factors applied to paid losses and case reserves to develop ibnr by line of business and accident year . although historical loss development provides us with an indication of future loss development , it typically varies from year to year . thus , for each accident year within each line of business we select one loss development factor out of a range of historical factors . we generated a sensitivity analysis of our net reserves which represents reasonably likely levels of variability in our selected loss development factors . we believe the most meaningful approach to the sensitivity analysis is to vary the loss development factors that drive the ultimate loss and lae estimates . we applied this approach on an accident year basis , reflecting the reasonably likely differences in variability by level of maturity of the underlying loss experience for each accident year . generally , the most recent accident years are characterized by more unreported losses and less information available for settling claims , and have more inherent uncertainty than the reserve estimates for more mature accident years . therefore , we used variability factors of plus or minus 10 % for the most recent accident year , 5 % for the preceding accident year , and 2.5 % for the second preceding accident year . there is minimal expected variability for accident years at four or more years ' maturity . 33 the following table displays ultimate net loss and lae and net loss and lae reserves by accident year for the year ended december 31 , 2016 . we applied the sensitivity factors to each accident year amount and have calculated the amount of potential net loss and lae reserve change and the impact on 2016 reported pre-tax income and on net income and shareholders ' equity at december 31 , 2016 . we believe it is not appropriate to sum the illustrated amounts as it is not reasonably likely that each accident year 's reserve estimate assumptions will vary simultaneously in the same direction to the full extent of the sensitivity factor . we also believe that such changes to our reserve balance would not have a material impact on our operating results , financial position , or liquidity . the net income and shareholders ' equity amounts include an income tax rate assumption of 34 % . the dollar amounts in the table are in thousands . replace_table_token_9_th investment valuation and impairment we carry fixed maturity and equity securities classified as available‑for‑sale at fair value , and unrealized gains and losses on such securities , net of any deferred taxes , are reported as a separate component of accumulated other comprehensive income . we do not have any securities classified as trading or held‑to‑maturity . we evaluate our available‑for‑sale investments regularly to determine whether there have been declines in value that are other‑than‑temporary .
| interest expense decreased primarily due to the decrease in outstanding borrowings in 2016 until the fourth quarter when the company drew $ 4.0 million on the revolver . prior to fourth quarter the borrowings were lower because the previously outstanding borrowings under the revolver were repaid from the proceeds received from the company 's ipo , in august 2015. income tax expense for the year ended december 31 , 2016 , the company had $ 0 of current federal income tax expense due to current year losses , which can provide no benefit , and $ 70,000 of state income tax expense . the company also had a deferred tax benefit of $ 147,000 related to a $ 400,000 write-off of intangible assets resulting from the merger of acic into wpic in 2016 . for the year ended december 31 , 2015 , the company had $ 0 of federal income tax expense and $ 48,000 of state income tax expense . the company has established an $ 8.4 million valuation allowance against 100 % of the net deferred tax assets for 2016 , which would increase book value per share by $ 1.10 if reversed in the future , based on current income tax rates . the valuation allowance was $ 5.2 million for 2015 . as of december 31 , 2016 , the company has net operating loss carryforwards for federal income tax purposes of $ 22.8 million , which expire in tax years 2019 through 2036. of this amount , $ 15.1 million are limited in the amount that can be utilized in any one year and may expire before they are realized under section 382 of the internal revenue code . the company has state net operating loss carryforwards of $ 8.7 million , which expire in tax years 2030 through 2036 . 41 results of operations - 2015 compared to 2014 the following table summarizes our operating results for the years indicated ( dollars in thousands ) : summary operating results replace_table_token_17_th * percentage change is not meaningful premiums earned premiums are earned ratably over the term of the policy ,
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profitability within the segment was also impacted by unusually high healthcare cost experienced during the fiscal year . backlog backlog represents firm orders received from dealers or directly from end customers . the following table presents a summary of our backlog by segment : replace_table_token_15_th each of our three segments has a backlog of new vehicle orders that generally extends out from two to twelve months in duration . orders from our dealers and end customers are evidenced by a contract , firm purchase order or reserved production slot for delivery of one or many vehicles . these orders are reported in our backlog at the aggregate selling prices , net of discounts or allowances . at the end of fiscal year 2020 , our backlog was $ 1,778.5 million , compared to $ 1,317.0 million at the end of fiscal year 2019. the increase in total backlog was due to increases in fire & emergency and recreation segment backlogs , partially offset by a decrease in the commercial segment . the increase in fire & emergency segment backlog was primarily due to the acquisition of 47 spartan er and increased ambulance orders partially offset by lower backlog resulting from increased throughput at a primary fire plant . the increase in recreation segment backlog was the result of increased orders across all product categories . the decrease in commercial segment backlog was primarily the result of the sale of two shuttle bus businesses , decreased school bus order intake and production against a large municipal transit order partially offset by increased order intake for terminal trucks and industrial sweepers . quarterly results of operations ( unaudited ) the following table sets forth selected unaudited quarterly statement of operations data for each of the quarters in fiscal years 2020 and 2019. the information for each of these quarters has been prepared on the same basis as our audited financial statements included elsewhere in this annual report on form 10-k and , in the opinion of management , includes all adjustments , which include only normal recurring adjustments , necessary for the fair presentation of the results of operations for these periods in accordance with generally accepted accounting principles in the united states ( “ u.s . gaap ” ) . this data should be read in conjunction with our audited financial statements and related notes included elsewhere in this annual report on form 10-k. these quarterly operating results are not necessarily indicative of our operating results for a full year or any future period . replace_table_token_16_th ( a ) reflects costs incurred in connection with business acquisitions and capital market transactions . these expenses consist primarily of legal , accounting and due diligence expenses . ( b ) reflects the reimbursement of expenses to the company 's primary equity holder . ( c ) restructuring costs for fiscal year 2020 resulted from the sunset of certain ambulance brands , move from a centralized to a decentralized aftermarket parts business , severance costs related to reductions in force across all segments , and lease termination costs related to the closure of a spartan er facility . restructuring costs for fiscal year 2019 of $ 5.7 million were primarily attributable to headcount reductions in the f & e segment and our corporate office as well as a facility closure in the recreation segment and lease termination costs . ( d ) reflects costs that are directly attributable to restructuring activities , including leadership changes and inventory liquidation associated with the decentralization of the company 's aftermarket parts business , but do not meet the definition of restructuring under asc 420 . 48 ( e ) reflects expenses associated with the vesting of equity awards and award modifications . ( f ) reflects legal fees and costs incurred to litigate and settle legal claims against us which are outside the normal course of business . costs include payments : ( i ) for fees and costs to litigate and settle non-ordinary course product , intellectual property and employment disputes , and ( ii ) for fees and costs to litigate the putative securities class actions and derivative action pending against us and certain of our directors and officers . ( g ) reflects losses related to the sale of our shuttle bus businesses . refer to note 6 , divestitures , restructuring and impairments , to our 2020 audited consolidated financial statements appearing elsewhere in this annual report on form 10-k. ( h ) reflects gain on acquisition of spartan er . refer to note 3 , acquisitions , to our 2020 audited consolidated financial statements appearing elsewhere in this annual report on form 10-k. ( i ) reflects impairment charges associated with the liquidation of all rental vehicles , sunset of certain ambulance brands and decentralization of the company 's aftermarket parts business . refer to note 6 , divestitures , restructuring and impairments , to our 2020 audited consolidated financial statements appearing elsewhere in this annual report on form 10-k. non-cash impairment charges in the prior year were related to both the assets held for sale and other assets which were liquidated during the year . ( j ) adjusted ebitda attributable to businesses that were classified as held for sale , which represents shuttle bus businesses and rev coach during fiscal year 2020 and revability during fiscal year 2019 . ( k ) reflects the expense associated with the deferred purchase price payments to sellers of lance . the company paid $ 5.0 million during the first quarter of 2019 and $ 5.0 million during the second quarter of fiscal year 2020 to fully settle the deferred liability . liquidity and capital resources story_separator_special_tag company 's share repurchase program is executed from time to time through open market or through private transactions . shares purchased under the share repurchase program are retired and returned to authorized and unissued status . story_separator_special_tag during fiscal year 2019 , the company repurchased 717,597 shares under this repurchase program at a total cost of $ 8.3 million at an average price per share of $ 11.62. there were no repurchases under this program during fiscal year 2020 and the program expired on september 4 , 2020. term loan on april 25 , 2017 , we entered into a $ 75.0 million term loan ( “ term loan ” or “ term loan agreement ” ) and incurred $ 2.0 million in debt issuance costs . the term loan agreement expires on april 25 , 2022. certain subsidiaries of the company are guarantors under the term loan . on july 18 , 2018 , the company exercised a $ 50.0 million incremental commitment option under the term loan agreement , which increased total borrowing under the facility from $ 75.0 million to $ 125.0 million . the company incurred an additional $ 0.6 million of debt issuance costs related to the incremental commitment option . proceeds from the incremental commitment were used to repay a portion of the outstanding borrowings under the april 2017 abl facility . 50 on march 29 , 2019 , the company exercised a $ 50.0 million incremental commitment option under the term loan agreement , which increased total borrowing under the facility from $ 125.0 million to $ 175.0 million . the company incurred an additional $ 0.8 million of debt issuance costs related to the incremental commitment option , which were deducted from proceeds received by the company . proceeds from the incremental commitment were used to repay a portion of the outstanding borrowings under the april 2017 abl facility . on october 18 , 2019 , the company amended the term loan agreement to raise the maximum leverage net ratio to 4.00 to 1.00 from 3.50 to 1.00. additionally , the company received a waiver related to the excess cash flow calculation payment for fiscal year 2019. the company incurred $ 0.2 million of debt issuance costs related to the amendment . on january 31 , 2020 , the company amended the term loan agreement , in contemplation of its pending acquisition of spartan er , to raise the maximum net leverage ratio to 5.00 to 1.00 from 4.00 to 1.00. the company incurred $ 0.4 million of debt issuance costs related to the amendment . on april 29 , 2020 , the company amended the term loan agreement to eliminate the maximum leverage ratio covenant and replace it with a fixed charge coverage ratio test with a minimum ratio of 1.25 to 1.00. the fixed charge coverage ratio covenant will remain in effect through the fourth quarter of fiscal year 2020. the maximum leverage ratio covenant will be reinstated at 5.25 to 1.00 starting in the first quarter of fiscal year 2021 and decline by 25 basis points each subsequent quarter , to a final level of 4.25 to 1.00 in first quarter of fiscal 2022. the applicable interest rate margins increased by 75 basis points corresponding with the amendment . the company incurred $ 0.2 million of debt issuance costs related to the amendment . the company may voluntarily prepay principal , in whole or in part , at any time , without penalty . the company is obligated to prepay certain minimum amounts based on the company 's excess cash flow , as defined in the term loan agreement . we were required to make a $ 1.6 million excess cash flow payment in fiscal year 2020. the term loan is also subject to mandatory prepayment if the company or any of its restricted subsidiaries receives proceeds from certain events , including certain asset sales and casualty events , and the issuance of certain debt and equity interests . the term loan agreement contains certain financial covenants . the company was in compliance with all financial covenants under the term loan as of october 31 , 2020. april 2017 abl facility on april 25 , 2017 , we entered into a new $ 350.0 million revolving credit and guaranty agreement ( the “ april 2017 abl facility ” or “ abl agreement ” ) with a syndicate of lenders . the april 2017 abl facility provides for revolving loans and letters of credit in an aggregate amount of up to $ 350.0 million . the total april 2017 abl facility is subject to a $ 30.0 million sublimit for swing line loans and a $ 35.0 million sublimit for letters of credit , along with certain borrowing base and other customary restrictions as defined in the abl agreement . the april 2017 abl facility expires on april 25 , 2022. on december 22 , 2017 , the company exercised a $ 100.0 million incremental borrowing capacity option under the april 2017 abl facility to fund the lance camper acquisition , which increased total borrowing capacity under the facility from $ 350.0 million to $ 450.0 million . the company incurred an additional $ 0.4 million of debt issuance costs related to the incremental borrowing capacity option . on january 31 , 2020 , the company increased total borrowing capacity under the facility , in anticipation of its acquisition of spartan er , from $ 450.0 million to $ 500.0 million . the company incurred an additional $ 0.4 million of debt issuance costs related to the incremental borrowing capacity option . principal may be repaid at any time during the term of the abl facility without penalty . the april 2017 abl facility contains certain financial covenants . we were in compliance with all financial covenants under the abl facility as of october 31 , 2020. as of october 31 , 2020 , our availability under the april 2017 abl facility was $ 283.4 million .
| cash flow the following table shows summary cash flows for fiscal years 2020 , 2019 and 2018 : replace_table_token_17_th net cash provided by ( used in ) operating activities net cash provided by operating activities for fiscal year 2020 was $ 55.7 million , compared to $ 52.5 million for fiscal year 2019. the generation of positive cash from operating activities for fiscal year 2020 compared to the prior year was related to improved net working capital efficiency , specifically related to receivables and inventory . 49 net cash provided by operating activities for fiscal year 2019 was $ 52.5 million , compared to net cash used of $ 19.2 million for fiscal year 2018. the increase in cash provided by operating activities for fiscal year 2019 compared to the prior year was due to improved net working capital efficiency , offset by a decrease in net income . net cash provided by ( used in ) investing activities net cash provided by investing activities for fiscal year 2020 was $ 1.7 million , compared to $ 0.2 million for fiscal year 2019. the increase in net cash provided by investing activities was primarily due to cash proceeds from the sale of shuttle bus , partially offset by cash used to purchase spartan er , and reductions in proceeds from asset sales and capital expenditures . net cash provided by investing activities for fiscal year 2019 was $ 0.2 million , compared to net cash used of $ 119.6 million for fiscal year 2018. net cash provided by investing activities for fiscal year 2019 of $ 0.2 million was primarily due to the sale of targeted assets , partially offset by cash used for capital expenditures . net cash used in investing activities for fiscal year 2018 of $ 119.6 million was primarily due to business acquisition activity and capital expenditures . in fiscal year 2018 , the company completed the acquisition of lance . net cash ( used in ) provided by financing activities net cash used in financing activities for fiscal year 2020 was $ 49.3 million , compared to $ 61.3 million for fiscal year 2019. the decrease in cash used was primarily due to no stock repurchases in fiscal year 2020 and a reduction in dividends paid . the net cash used in fiscal year 2020 was primarily to repay debt and pay dividends . net cash used in financing activities
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in accordance with sop 97-2 , as there was no vendor specific objective evidence of the fair value of the perpetual license at the effective date of the amendment , revenue associated with the hosting services was deferred until april 30 , 2008 , when the sale of the perpetual license occurred . we recognized revenue for the hosting services of $ 10.0 million in the second quarter of 2008. all costs associated with the hosting services were expensed as incurred from july 2007 through april 2008. in december 2007 , we acquired for $ 0.8 million the assembled workforce and certain property assets used by siemens to provide services to trx . the assembled workforce and assets acquired constitute a business as defined by eitf issue 98-3 determining whether a nonmonetary transaction involves receipt of productive assets or of a business , and accordingly we accounted for this transaction as a business combination under sfas no . 141 , business combinations. while the employees and related assets migrated from siemens to us in december 2007 , we did not finalize the related purchase agreement or pay consideration for the purchase until september 2008. in june 2008 , we and bcd travel provided mutual notice of the parties ' intent not to renew the amended and restated master agreement by and between trx technology and bcd travel ( the master agreement ) . we are in discussions with bcd travel regarding a new contract , and the six-month notice was required pursuant to the current master agreement . as a result of the notice , the master agreement expired by its terms on december 31 , 2008 , and did not automatically renew for an additional one year term . we expect a new agreement for trx services between us and bcd travel to be finalized in the first quarter of 2009. in 2008 , we entered into a new office lease pursuant to which we rent approximately 44,000 square feet of office space in atlanta . we relocated our existing atlanta operations to the new location in november 2008 and did not renew our existing lease agreement , which expired on october 31 , 2008. the initial term of the new lease , which commenced on november 1 , 2008 , is 11 years , and we received access to the space during october 2008 to complete construction . we have an option to extend the term of the lease for two additional five year terms , subject to the satisfaction of certain conditions specified in the lease . the lease provides for approximate annual lease payments , net of excused rent , as follows : $ 0.6 million in each of years one through four , $ 0.9 million in each of years five through seven , and $ 1.0 million in each of years eight through 11. in addition to the base rent , beginning in 2010 , we are responsible for our pro rata share of certain other customary costs and charges . as security for our obligations under the lease , we delivered to the landlord an irrevocable letter of credit in the amount of $ 1.5 million , utilizing a portion of our existing credit facility . industry factors impacting our operating results include the channel shifts toward online bookings and direct distribution , cost compression in the travel processing supply chain , use of corporate credit cards , airline seat capacity , changing and increasing access methods to reach supplier inventory , supplier commission rates , gds 21 index to financial statements incentive levels , and overall economic conditions . our estimates of future results are primarily affected by assumptions of transaction volumes , pricing levels , our ability to efficiently scale with our clients , and client retention and acquisition . these anticipated results may be impacted by seasonality of the travel industry and credit card volumes related to travel . sources of revenue we principally operate a transaction-based business model under long-term contracts using hosted technology applications . transaction and other revenues are derived from two principal service offerings : transaction processing : we generate transaction processing revenue from service and processing fees based primarily on the number of data records we process . also included in transaction revenue is customer care revenue , which consists of generated service fees based primarily on the number or length of telephone calls answered or the number of email responses delivered . data reporting : we generate data reporting revenue from service and processing fees based primarily on the number of data records we consolidate , the number of users accessing the data , the number of sources from which we receive data , and the frequency of data submissions . transaction-based revenues are recognized when we perform the services . in connection with providing transaction processing and data reporting services , we generate revenues from short-term projects to customize or enhance service delivery . revenue generated from short-term project work is recognized as the services are performed , which is generally when billed . revenue from implementation or set-up fees is recognized over the life of the client contract . client reimbursements reflect pass-through items , primarily voice and data costs and items such as ticket envelopes that we bill to our clients at cost . in the future , if our clients decide to pay these items directly , our client reimbursement revenue and client reimbursement expense will decrease accordingly . historically , we have experienced sales cycles of six to eighteen months with respect to several of our larger clients . additionally , the implementation of our services can take up to one year depending on the size and complexity of the service offering and the speed at which our clients implement the service offering to their customer base . in 2006 , we began offering components of our technology solutions to clients and potential clients . story_separator_special_tag this change has reduced the length of our sales cycle and has also reduced the average amount of revenue initially earned from each of our clients . costs our expenses include operating , selling , general and administrative , technology development , restructuring and depreciation and amortization . operating expenses include salaries , benefits , and related overhead of personnel directly and indirectly supporting service delivery . personnel indirectly supporting service delivery include information technology , client services , training , and business integration personnel . operating expenses also include communication costs , technology hosting , and processing errors . operating expenses are impacted by our revenue mix , with customer care services generally having higher operating expenses as a percentage of revenue due to the labor-intensive nature of providing customer care services . our ability to efficiently manage and utilize our employees along with our ability to provide services from low-cost labor markets also impacts operating expenses . selling , general and administrative expenses include salaries , benefits and related overhead associated with the selling and marketing of our products and services , as well as other support functions , including executive , accounting , legal , centralized human resources and administration . selling , general and administrative expenses also include professional services and insurance . 22 index to financial statements technology development expenses primarily include salaries , benefits and related overhead of personnel focusing on developing and maintaining our technologies . depreciation and amortization expenses relate to fixed assets , software development costs and other intangible assets . we currently purchase substantially all of our equipment . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , costs and expenses , and related disclosures . on an ongoing basis , we evaluate our estimates and assumptions . our actual results may differ from these estimates . we believe that , of our significant accounting policies described in note 2 of the notes to our consolidated financial statements included elsewhere in this form 10-k , the following accounting policies involve a greater degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to assist investors in fully understanding and evaluating our consolidated financial condition and results of operations . revenue recognition . a significant portion of our revenue is recognized based on objective criteria that do not require significant estimates or uncertainties . accordingly , revenues recognized under these methods do not require the use of significant estimates that are susceptible to change . we recognize revenue in accordance eitf issue 00-21 , accounting for revenue arrangements with multiple deliverables , when certain other consulting or other services are combined with our transaction processing revenues and with sec staff accounting bulletin no . 104 , revenue recognition , when all of the following have occurred : ( 1 ) persuasive evidence of an arrangement exists , ( 2 ) services have been performed , ( 3 ) the fee for services is fixed or determinable , and ( 4 ) collectibility is reasonably assured . generally , these criteria are considered to have been met as follows : for transaction revenue , in which we perform ticketing , file-finishing , data consolidation and reporting , and customer care services , when the services are provided ; for short-term client-specific customizations , which do not generate direct on-going incremental transaction revenue , when the customization has been delivered to our client ; and for implementation and set-up fees , which generate direct on-going incremental transaction revenue , over the life of the underlying transaction service agreement . related costs are deferred and recognized as expenses over the life of the underlying transaction service agreement . with respect to the citibank amendment discussed above in the overview section , the sale of the license , the compensation for the assets referred to above , and the hosting services are all elements of the amendment . revenue recognition for these elements is governed by sop 97-2. in accordance with sop 97-2 , as there was no vendor specific objective evidence of the fair value of the perpetual license at the time of the amendment , revenue associated with the hosting services was being deferred until april 30 , 2008 , when the sale of the perpetual license occurred . we recognized revenue for the hosting services of $ 10.0 million in the second quarter of 2008. all costs associated with the hosting services were expensed as incurred from july 2007 through april 2008. internal-use software development costs . we account for internal-use software development costs in accordance with american institute of certified public accountants ( aicpa ) statement of position 98-1 , accounting for the cost of software developed or obtained for internal use , or sop 98-1. sop 98-1 specifies that software costs , including internal payroll costs , incurred in connection with the development or acquisition of software for internal use is charged to technology development expense as incurred until the project enters the application development phase . costs incurred in the application development phase are capitalized and depreciated over an estimated useful life of three years , beginning when the software is ready for use .
| the increase in selling , general and administrative expenses for 2008 compared to the prior year was primarily due the recognition of $ 1.8 million in compensation expense primarily related to amounts due to our previous chief executive officer and president pursuant to the terms of his employment agreement , as amended , partially offset by a program to reduce our cost structure primarily through reductions in personnel , contract labor and travel in preparation for expected revenues in 2009. technology development expenses . the decrease in technology development expense for 2008 compared to the prior year was primarily due to a program to reduce our cost structure primarily through reductions in personnel and contract labor in preparation for significantly lower revenues in 2009 , partially offset by our 25 index to financial statements increased investment in new product technology related to our data reporting , reservation processing and online booking product offerings during the first half of 2008. depreciation and amortization . the decrease for 2008 compared to the prior year was primarily due to the reduction in depreciation expense with the sale of certain assets to citibank during the second quarter of 2008 , partially offset by an increase in depreciation expense due to the acceleration of depreciation of leasehold improvements related to our previous atlanta location , for which the lease ended in october 2008. interest income . the decrease for 2008 compared to the prior year was primarily due to reduced average cash balances available for investment . interest expense . the decrease for 2008 compared to the prior year was primarily due to a reduction of interest expense as we repay our note payable related to the acquisition of certain assets and assumption of certain liabilities of hi-mark and as a result of a lower prime and libor interest rates , partially offset by additional interest expense related to our credit facility borrowings . income tax provision . income tax provision of $ 0.8 million was recorded in 2008 and relates to deferred tax liabilities related to our goodwill which can not be utilized to offset deferred tax assets . deferred tax expense for 2008 and our deferred tax liability as of december 31 , 2008 includes
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the modest increase in the base effective tax rate was due to less benefit from the u.s. manufacturer 's deduction , as well as from other domestic tax adjustments , partially offset by greater benefit from distribution of earnings between high- and low-tax jurisdictions and the change in treatment of the excess tax benefit from share-based compensation resulting from the adoption of asu 2016-09 in 2017. see note 2 to the consolidated financial statements for further information about this new accounting standard . the company generated $ 349.4 million in cash from operations during 2017 , compared with $ 398.7 million in 2016. the majority of the year-over-year decrease is attributable to a $ 50 million voluntary contribution to the company 's u.s. qualified defined benefit pension plan in the fourth quarter of 2017 and timing of payments and collection of receivables , partially offset by lower year-over-year income tax payments . cash flow from operations is expected to be between $ 560 and $ 580 million in 2018. outlook in 2018 , management 's focus will be on driving synergies related to the businesses acquired in 2017 , accelerating organic growth , improving manufacturing productivity and using the company 's strong financial position to make strategic acquisitions primarily aimed at its targeted growth areas of thermoforming , flexibles and protective packaging , along with select consolidating industrial opportunities primarily in emerging markets . the company has identified a number of targeted growth projects , the majority of which fall within its consumer packaging , display and packaging , and protective solutions segments and emerging markets that are expected to help drive organic growth . in addition , a key area of focus will be on ramping up production and improving operating efficiency at the company 's new contract packaging services center near atlanta , georgia . expected cost increases in raw materials , particularly tinplate steel and old corrugated containers ( occ ) , could create pressure on reported earnings . an offsetting factor could be the realization of forecasted declines in the value of the us dollar which would increase the reported earnings of our foreign operations . in large part , productivity efforts will be focused on reducing our operations ' unit-cost-to-produce through the continued internal roll out of the sonoco performance system , our systematic approach to operational excellence . management expects overall volume in 2018 to increase approximately 2 % . although the company has projected that overall price/cost will be positive in 2018 , the likelihood of continued volatility in key raw material prices could make pricing for their recovery more challenging . manufacturing productivity is expected to more than offset the projected increases in labor and other costs . excluding the non-recurring settlement charges recognized in 2017 , the company projects total benefit plan expense to be approximately $ 8 million lower in 2018 than in 2017. this anticipated decrease is primarily due to greater expected returns on plan assets due to a higher asset base . partially offsetting this favorable impact is the effect of lower discount rates . total contributions in 2018 to the company 's domestic and international pension and postretirement plans are expected to be approximately $ 38.5 million . in consideration of the above factors , management is projecting overall margins for both gross profit and base ebit to improve modestly over 2017 levels . absent any additional borrowings in 2018 from acquisition activity , net interest expense is expected to increase approximately $ 3 million driven by higher average annual debt balances from funding 2017 acquisitions . the consolidated effective tax rate on base earnings is expected to be between 26 % and 27 % in 2018 compared with 31.1 % in 2017. the anticipated year-over-year decline is driven by the enactment of the tax act . the company does not provide projected gaap earnings results due to the likely occurrence of one or more of the following , the timing and magnitude of which we are unable to reliably forecast : possible gains or losses on the sale of businesses or other assets , restructuring costs and restructuring-related impairment charges , acquisition-related costs , and the income tax effects of these items and or other income tax-related events . these items could have a significant impact on the company 's future gaap financial results . acquisitions and dispositions acquisitions the company completed two acquisitions during 2017 at a cost of $ 383.8 million , net of cash acquired . on march 14 , 2017 , the company completed the acquisition of packaging holdings , inc. and subsidiaries , including peninsula packaging llc ( packaging holdings ) , for $ 218.8 million , net of cash acquired . packaging holdings manufactures thermoformed packaging for a wide range of whole fresh fruits , pre-cut fruits and produce , prepared salad mixes , as well as baked goods in retail supermarkets from five manufacturing facilities , including four in the united states and one in mexico . the company financed the transaction with a combination of cash and borrowings , including a $ 150,000 three-year term loan . the acquisition of packaging holdings is expected to add approximately $ 190 million of annual sales in the company 's consumer packaging segment . on july 24 , 2017 , the company completed the acquisition of clear lam packaging , inc. ( clear lam ) for $ 165.0 million net of cash acquired . final consideration will be subject to an 20 sonoco 2017 annual report | form 10-k adjustment for working capital , which is expected to be completed by the end of the first quarter of 2018. clear lam manufactures high barrier flexible and forming films used to package a variety of products for consumer packaged goods companies , retailers and other industrial manufacturers , with a focus on structures used for perishable foods . it has production facilities in elk grove village , illinois , and nanjing , china . story_separator_special_tag the company financed a portion of the transaction with $ 100 million in borrowings from a $ 250 million five-year term loan with the remaining purchase price funded from available short-term credit facilities . the acquisition of clear lam is expected to add approximately $ 140 million of annual sales in the company 's consumer packaging segment . the company completed four acquisitions during 2016 at a cost of $ 88.6 million , net of cash acquired . on june 24 , 2016 , the company completed an acquisition in its paper and industrial converted products segment of a small tube and core business in australia for $ 0.9 million in cash . on august 30 , 2016 , the company completed the acquisition in its protective solutions segment of the temperature-controlled cargo container assets , licenses , trademarks , and manufacturing rights from aar corporation . total consideration for this business was $ 6.0 million consisting of a current cash payment of $ 3.0 million , non-contingent deferred cash consideration of $ 2.0 million , and contingent consideration valued at $ 1.0 million . also in the protective solutions segment , laminar medica ( laminar ) , a privately held specialty medical products company based in the u.k. , was acquired on september 19 , 2016 for $ 17.2 million , net of cash acquired . on november 1 , 2016 , the company completed the acquisition in its consumer packaging segment of plastic packaging inc. ( ppi ) , a privately held hickory , nc-based flexible packaging company for $ 67.6 million , net of cash acquired . founded in 1957 , ppi specializes in short-run , customized flexible packaging for consumer brands in markets including : food products ( i.e . frozen foods , baked goods , seafood ) , pet products ( i.e . dry food , bird seed , litter ) , confection ( i.e . seasonal promotions , heat-sealed chocolate packaging , hard and soft candy ) , and health and personal care ( i.e . nutraceuticals , diapers , tissues/wipes ) . the company completed two acquisitions during 2015 at an aggregate cost of $ 21.2 million , of which $ 17.4 million was paid in cash . on april 1 , 2015 , the company acquired a 67 % controlling interest in graffo paranaense de embalagens s/a ( graffo ) , a flexible packaging business located in brazil . graffo serves the confectionery , dairy , pharmaceutical and tobacco markets in brazil with approximately 230 employees . total consideration paid for graffo was approximately $ 18.3 million , including cash of $ 15.7 million , and assumed debt of $ 2.6 million . on september 21 , 2015 , the company acquired the high-density wood plug business from smith family companies , inc. , in hartselle , alabama . total consideration for the acquisition was $ 2.9 million , including cash of $ 1.8 million and a contingent purchase liability of $ 1.1 million . the contingent liability payment of $ 1.1 million was paid in september 2017 , upon the second anniversary of the acquisition . dispositions on november 7 , 2016 , the company completed the sale of its rigid plastics blow molding operations to amcor rigid plastics usa , llc and amcor packaging canada , inc. for approximately $ 280 million , with the company receiving net cash proceeds of $ 271.8 million . in conjunction with the sale , the company recognized a gain on the disposition , net of associated fees , of $ 104.3 million . the company 's rigid plastics blow molding operations included seven manufacturing facilities in the u.s. and canada with approximately 850 employees producing containers serving the personal care and food and beverage markets . the disposition of these operations is expected to negatively impact the 2017 year-over-year sales comparison by approximately $ 175 million . the decision to sell the blow molding operations was made to focus on , and provide resources to further enhance , the company 's targeted growth businesses , including flexible packaging , thermoformed rigid plastics , and temperature-assurance packaging . this sale did not notably affect operating margin percentages for the company 's consumer packaging segment , nor did it represent a strategic shift for the company having a major effect on the entity 's operations and financial results . see note 3 to the consolidated financial statements for further information about acquisition and disposition activities . restructuring and asset impairment charges due to its geographic footprint ( 298 locations in 33 countries ) and the cost-competitive nature of its businesses , the company is constantly seeking the most cost-effective means and structure to serve its customers and to respond to fundamental changes in its markets . as such , restructuring costs have been and are expected to be a recurring component of the company 's operating costs . the amount of these costs can vary significantly from year to year depending upon the scope and location of the restructuring activities . the following table recaps the impact of restructuring and asset impairment charges on the company 's net income for the periods presented ( dollars in thousands ) : replace_table_token_4_th during 2017 , the company announced the closure of an expanded foam protective packaging plant in the united states and five tubes and cores plants three in the united states , one in belgium , and one in china . asset impairment charges recorded in 2017 included a $ 17.8 million charge in the fourth quarter of 2017 recognized as a result of the company 's decision to shut down its # 9 boiler in the hartsville , south carolina manufacturing complex . in addition , the company recognized severance charges throughout 2017 related to the elimination of approximately 255 positions in conjunction with the company 's ongoing organizational effectiveness efforts . during 2016 , the company announced the closure of four tubes and cores plantsone in the united states , one in canada , one in ecuador , and one in switzerland .
| over the next three to four years , the company aspires to achieve base earnings before interest , taxes , depreciation and amortization ( ebitda ) margins of 16 % per year , and increase return on net assets employed to 11 % or more , subject to the impacts of potential acquisitions ( see use of non-gaap financial measures below ) . although achieving these goals could 18 sonoco 2017 annual report | form 10-k prove to be difficult , the company believes it will be successful by focusing on the following : organic sales growth , including new product development and expansion in emerging international markets ; strategic acquisitions ; and margin enhancement through more effective customer relationship management , organizational design , indirect spend management , and improved manufacturing productivity , supply chain and back office support processes . use of non-gaap financial measures to assess and communicate the financial performance of the company , sonoco management uses , both internally and externally , certain financial performance measures that are not in conformity with generally accepted accounting principles ( non-gaap financial measures ) . these non-gaap financial measures reflect the company 's gaap operating results adjusted to remove amounts , including the associated tax effects , relating to restructuring initiatives , asset impairment charges , environmental charges , acquisition-related costs , gains or losses from the disposition of businesses , excess property insurance recoveries , pension settlement charges , certain income tax events and other items , if any , including other income tax-related adjustments and or events , the exclusion of which management believes improves the period-to-period comparability and analysis of the underlying financial performance of the business . the adjusted non-gaap results are identified using the term base , for example , base earnings. the company 's base financial performance measures are not in accordance with , nor an alternative for , measures conforming to generally accepted accounting principles and may be different from non-gaap measures used by other companies . in addition , these non-gaap measures are not based on any comprehensive set of accounting rules or principles . sonoco continues to provide all information required by gaap , but it believes that evaluating its ongoing operating results may not be as useful if an investor or other user is limited to reviewing only gaap financial measures . the company uses the non-gaap base performance measures presented
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the company 's wholesale shipping and handling expenses were $ 1.6 million and $ 1.9 million in the years ended december 31 , 2016 and 2015 , respectively . these costs were included in selling and administrative expenses . the company 's gross earnings may not be comparable to other companies , as some companies may include distribution costs and shipping and handling expenses in cost of sales . north american wholesale segment selling and administrative expenses include , and are primarily related to , distribution costs , salaries and commissions , advertising costs , employee benefit costs and depreciation . wholesale selling and administrative expenses decreased $ 627,000 in 2016 , compared to the prior year . excluding the non-recurring adjustments related to the umi trademark and the bogs/rafters earnout payment , wholesale selling and administrative expenses were down $ 2.3 million between years , primarily due to lower employee benefit costs and advertising costs . as a percent of net sales , wholesale selling and administrative expenses were 25 % and 23 % in 2016 and 2015 , respectively . excluding the non-recurring adjustments described above , wholesale selling and administrative expenses as a percent of net sales were 23 % and 22 % in 2016 and 2015 , respectively . north american retail segment net sales net sales in the company 's north american retail segment were $ 21.9 million in 2016 , down 1 % compared to $ 22.1 million in 2015. same store sales , which include u.s. internet sales , were up 1 % for the year . there were three fewer domestic retail stores operating in 2016 than there were in 2015 , as four stores closed and one store opened . stores are included in same store sales beginning in the store 's 13 th month of operations after its grand opening . the increase in same store sales was due to an increase in the company 's u.s. internet business . earnings from operations earnings from operations in the north american retail segment were $ 2.1 million in 2016 , down 16 % compared to $ 2.5 million in 2015. retail gross earnings as a percent of net sales were 65.0 % in 2016 and 65.7 % in 2015. selling and administrative expenses for the retail segment include , and are 17 primarily related to , rent and occupancy costs , employee costs , advertising expense and freight . selling and administrative expenses as a percent of net sales were 55 % in 2016 compared to 54 % in 2015. the decrease in retail earnings from operations was primarily due to lower net sales at the company 's brick and mortar locations . the company reviews its long-lived assets for impairment in accordance with accounting standards codification ( asc ) 360 , property plant and equipment ( asc 360 ) . see note 2 in the notes to consolidated financial statements for further information . a $ 113,000 impairment charge was recognized following the 2016 impairment test . no impairment charges were recognized in 2015. other the company 's other businesses include its wholesale and retail operations in australia , south africa , asia pacific and europe . in 2016 , net sales of the company 's other businesses were $ 47.5 million , up 1 % compared with $ 47.1 million in 2015. this increase was primarily due to higher net sales in florsheim europe 's wholesale business . earnings from operations at florsheim australia and florsheim europe were $ 2.7 million in 2016 , down 9 % compared to $ 3.0 million in 2015. this decrease was primarily due to lower operating earnings at the company 's retail store in macau , resulting from lower sales . other income and expense and taxes the majority of the company 's interest income comes from investments in marketable securities . interest income was $ 773,000 , $ 763,000 and $ 936,000 in 2017 , 2016 and 2015 , respectively . the decrease from 2015 to 2016 was primarily due to lower average investment balances between years . interest expense was $ 15,000 , $ 436,000 , and $ 181,000 in 2017 , 2016 , and 2015 , respectively . in 2017 , the company paid off its revolving line of credit which resulted in lower interest expense this year . in 2016 , interest expense was up mainly due to interest recognized on a 2016 tax settlement . the major components of other expense , net , were as follows : replace_table_token_10_th the company adopted asu 2017-07 in the first quarter of 2017 and retrospectively applied it to all periods presented . this required to company to reclassify the non-service cost components of pension expense from selling and administrative expenses to other expense , net , in the consolidated statements of earnings . the decrease in other expense from 2016 to 2017 was mainly due to a $ 1.1 million decrease in the non-service cost components of pension expense . pension expense decreased in 2017 as a result of freezing benefits under the pension plan , effective december 31 , 2016. the decrease in other expense from 2015 to 2016 was due mainly to the change in foreign exchange gains/ ( losses ) recognized in those years . in 2016 , the company recognized $ 513,000 in foreign currency transaction gains , which resulted mainly from unrealized gains on foreign exchange contracts entered into by florsheim australia . in 2015 , the company recognized $ 961,000 in foreign currency transaction losses , which resulted mainly from unrealized losses on foreign exchange contracts entered into by florsheim australia , as well as losses from the revaluation of intercompany loans between the company 's wholesale segment and florsheim australia . the non-service cost components of pension expense were also down in 2016 , relative to 2015 , mainly due to the adoption of the spot-rate approach on january 1 , 2016. see further details regarding this approach in 18 note 11 of the consolidated financial statements . story_separator_special_tag finally , other expense in 2015 included $ 473,000 of expense related to the operating losses and write-off of an investment by florsheim australia in a foreign joint venture . the effective tax rate for 2017 was 30.2 % , compared with 23.0 % in 2016 and 37.7 % in 2015. in 2017 , following the enactment of the tcja on december 22 , 2017 , the company recognized a $ 1.5 million tax benefit due to the revaluation of deferred tax assets and liabilities from the change in the u.s. federal corporate tax rate . this tax benefit reduced the company 's effective rate for 2017. in 2016 , the effective rate was lower due to the reversal of a deferred tax liability on corporate-owned life insurance policies . in 2015 , the effective rate was up due to a higher state tax liability as well as higher effective tax rates at the company 's foreign locations . liquidity & capital resources the company 's primary sources of liquidity are its cash and short-term marketable securities , which aggregated $ 29.4 million at december 31 , 2017 , and $ 18.3 million at december 31 , 2016 , and its revolving line of credit . in 2017 , the company generated $ 33.5 million of cash from operations , compared with generating $ 46.9 million of cash from operations in 2016 , and using $ 5.4 million of cash in operations in 2015. fluctuations in net cash from operating activities over the three-year period have mainly resulted from changes in net earnings and operating assets and liabilities , and most significantly , the year-end inventory balances . in 2016 , operating cash flows were up due largely to a reduction in inventory levels that year ; inventory levels were reduced in accordance with customer orders , and also to reflect a more conservative position based on the overall retail environment . the company 's capital expenditures were $ 1.6 million , $ 6.0 million and $ 2.5 million in 2017 , 2016 and 2015 , respectively . the company expects capital expenditures will be between $ 2.0 million and $ 3.0 million in 2018. in 2016 , capital expenditures were up due to improvements that were made to the company 's distribution center in glendale , wisconsin to increase its capacity , as well as remodeling projects to improve two of the company 's florida retail stores , and the build out of the new store opened in florida in 2016. the company paid cash dividends of $ 9.1 million , $ 8.9 million and $ 8.5 million in 2017 , 2016 and 2015 , respectively . the company continues to repurchase its common stock under its share repurchase program when the company believes market conditions are favorable . in 2017 , the company repurchased 548,539 shares for a total cost of $ 15.2 million . in 2016 , the company repurchased 410,983 shares for a total cost of $ 11.0 million . in 2015 , the company repurchased 354,741 shares for a total cost of $ 9.9 million . at december 31 , 2017 , the remaining total shares available to purchase under the program was approximately 1.0 million shares . at december 31 , 2017 , the company had a $ 60 million unsecured revolving line of credit with a bank expiring november 4 , 2018. the line of credit bears interest at the daily london interbank offered rate ( libor ) plus 0.75 % . at december 31 , 2017 , there were no outstanding borrowings on the line of credit . the highest balance on the line of credit during 2017 was $ 4.8 million . at december 31 , 2016 , outstanding borrowings were approximately $ 4.3 million at an interest rate of 1.52 % . the highest balance on the line of credit during 2016 was $ 28.4 million . in connection with the bogs acquisition , the company had two earn-out payments due to the former shareholders of bogs . the company made the first earn-out payment of $ 1,270,000 in the first quarter of 2013. the second and final earn-out payment of $ 5,217,000 was made in march 2016. for additional information , see note 10 in the notes to consolidated financial statements . as of december 31 , 2017 , $ 2.9 million of cash and cash equivalents was held by the company 's foreign subsidiaries . in the fourth quarter of 2016 , the company reviewed its liquidity needs and sources of capital , including evaluating whether it would need the cash available under corporate-owned life insurance 19 policies on two former executives . it was determined that the chances were remote that the company would need to surrender the policies to satisfy liquidity needs , and , as a result , the company reversed the $ 3.1 million deferred tax liability related to the policies . the company will continue to evaluate the best uses for its available liquidity , including , among other uses , capital expenditures , continued stock repurchases and additional acquisitions . the company believes that available cash and marketable securities , cash provided by operations , and available borrowing facilities will provide adequate support for the cash needs of the business through march 2019 , although there can be no assurances . off-balance sheet arrangements the company does not utilize any special purpose entities or other off-balance sheet arrangements . commitments the company 's significant contractual obligations are its supplemental pension plan and its operating leases . these obligations are discussed further in the notes to consolidated financial statements . the company also has significant obligations to purchase inventory . future obligations under operating leases are disclosed in note 13 of the notes to consolidated financial statements . the table below provides summary information about these obligations as of december 31 , 2017. replace_table_token_11_th * purchase obligations relate entirely to commitments to purchase inventory .
| on december 31 , 2016 , the company froze its pension plan which resulted in reducing pension expense by approximately $ 2.2 million in 2017. also , in 2017 , the company retrospectively adopted a new accounting rule that required the company to reclassify the non-service cost components of pension expense from selling and administrative expenses to other expense in the consolidated statements of earnings . accordingly , $ 1.1 million of the cost savings was recognized in selling and administrative expenses and the remaining $ 1.1 million of cost savings was recognized in other expense , net in the consolidated statements of earnings . 13 diluted earnings per share were $ 1.60 per share in 2017 , compared to $ 1.56 per share in 2016. excluding the non-recurring adjustments described above , diluted earnings per share , as adjusted , were $ 1.45 per share in 2017 and $ 1.36 per share in 2016. financial position highlights at december 31 , 2017 , cash and marketable securities totaled $ 47.1 million and there was no debt outstanding . during 2017 , the company generated $ 33.5 million of cash from operations , and collected $ 4.3 million in proceeds from stock option exercises . the company used funds to pay off $ 4.3 million on its revolving line of credit , repurchase $ 15.2 million of its common stock , pay $ 9.1 million of dividends , and purchase a net of $ 2.0 million in marketable securities . in addition , the company spent $ 1.6 million on capital expenditures . 2017 vs. 2016 segment analysis net sales and earnings from operations for the company 's segments , as well as its other operations , in the years ended december 31 , 2017 and 2016 , were as follows : replace_table_token_6_th north american wholesale segment net sales net sales in the company 's north american wholesale segment for the years ended december 31 , 2017 and 2016 , were as follows : replace_table_token_7_th 14 stacy adams net sales were down in 2017 due to lower sales to
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a valuation allowance related to a deferred income tax asset is recorded when it is more likely than not that some portion of the deferred income tax asset will not be realized . deferred income tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates on the date of enactment . the company recognizes all material tax positions , including all significant uncertain tax positions , in which it is more likely than not that the position will be sustained based on its technical merits and if challenged by the relevant taxing authorities . at each balance sheet date , unresolved uncertain tax positions are reassessed to determine whether subsequent developments require a change in the amount of recognized tax benefit . recent accounting pronouncements there are no recently issued accounting pronouncements or standards updates that we have yet to adopt that are expected to have a material effect on our financial position , results of operations , or cash flows . results of operations and financial condition for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 the following are the consolidated results of our operations for the year ended december 31 , 2011 compared to the year ended december 31 , 2010. as discussed above , our reconstructive division and spine division were discontinued during 2010. replace_table_token_2_th 13 revenues revenues from continuing operations amounted to $ 12,000 for the year ended december 31 , 2011 compared with $ 0 for 2010. revenues from continuing operations represented royalties received from arthrex in connection with the arthrex asset purchase agreement . in the future , we expect our primary source of revenue to be royalty payments under the arthrex asset purchase agreement . general and administrative expenses general and administrative expenses for the year ended december 31 , 2011 increased by $ 47,000 as compared to the year ended december 31 , 2010. general and administrative expenses represent our continuing operating expenses associated with remaining a public company , including business insurance expense and professional fees such as legal , accounting and audit services . the primary reason for the increase in 2011 relates to an increase in insurance expense of approximately $ 122,000 due to increased product liability insurance limits required in conjunction with the sale of the reconstructive and spine assets , as well as increased outside accounting fees of $ 59,000 relating to the closing of the arthrex and altus sales transactions . these increases were offset by a decrease in legal fees of $ 134,000 in 2011 as compared to 2010. our legal expenses were higher in 2010 due to increased corporate activity and administrative legal matters , as we had not discontinued our operations . in the future , we expect our legal and other professional fees to be at a reduced level . other income ( expense ) during the year ended december 31 , 2011 , we had interest expense of $ 25,000 , which was primarily the result of interest accrued on $ 500,000 of notes payable outstanding as of december 31 , 2010 which were repaid in 2011. this was offset by $ 11,000 of interest income earned during 2011. our interest income during 2010 amounted to approximately $ 11,000 , along with other income of $ 30,000 relating to the sale of certain instruments . these amounts were offset by interest expense of approximately $ 14,000 relating to short-term borrowings . going forward , we expect to generate interest incomefrom the cash we have on hand . liquidity and capital resources as discussed previously , during the quarter ended june 30 , 2011 , we sold substantially all of our assets relating to the spine and reconstructive divisions , which were discontinued during the fourth quarter of 2010. this resulted in net cash provided by investing activities for the year ended december 31 , 2011 of $ 16,138,000 , which included gross proceeds from the sale of the assets of $ 17,175,000 , less $ 900,000 of the funds placed in restricted cash escrow accounts , less purchases of equipment of $ 137,000. during 2010 , we had net cash used in investing activities of $ 1,069,000 for the purchase of property and equipment . net cash used in operating activities was $ 3,087,000 for the year ended december 31 , 2011 compared to $ 4,277,000 in 2010. our overall operating costs were lower in 2011 due to the announced discontinued operations during the fourth quarter of 2010. during 2010 , we had higher payroll and other administrative costs as we had additional employees . also , in 2010 we continued the build-up of our inventory , which increased by $ 1,354,000 during the year . during 2011 , we did not make any significant inventory purchases due to the decision to sell our reconstructive and spine divisions . during 2010 , we had net cash provided by financing activities of $ 500,000 from the issuance of short- term promissory notes payable . net cash used in financing activities was $ 500,000 in 2011. this consisted of $ 1,224,000 in borrowings under the arthrex note , offset by the repayment of the arthrex note balances , as well as repayment of the $ 500,000 of notes payable issued during 2010 . 14 pursuant to the sales of the reconstructive and spine divisions during the quarter ended june 30 , 2011 , we had cash of $ 12,678,000 as of december 31 , 2011. as a result , we have adequate cash on hand to fund our operations and other activities for the next twelve months and beyond . therefore , the factors which had previously raised substantial doubt about our ability to continue as a going concern have been alleviated . our future operations will include the collection and management of our royalty income earned in connection with the asset purchase agreement with arthrex . story_separator_special_tag a valuation allowance related to a deferred income tax asset is recorded when it is more likely than not that some portion of the deferred income tax asset will not be realized . deferred income tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates on the date of enactment . the company recognizes all material tax positions , including all significant uncertain tax positions , in which it is more likely than not that the position will be sustained based on its technical merits and if challenged by the relevant taxing authorities . at each balance sheet date , unresolved uncertain tax positions are reassessed to determine whether subsequent developments require a change in the amount of recognized tax benefit . recent accounting pronouncements there are no recently issued accounting pronouncements or standards updates that we have yet to adopt that are expected to have a material effect on our financial position , results of operations , or cash flows . results of operations and financial condition for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 the following are the consolidated results of our operations for the year ended december 31 , 2011 compared to the year ended december 31 , 2010. as discussed above , our reconstructive division and spine division were discontinued during 2010. replace_table_token_2_th 13 revenues revenues from continuing operations amounted to $ 12,000 for the year ended december 31 , 2011 compared with $ 0 for 2010. revenues from continuing operations represented royalties received from arthrex in connection with the arthrex asset purchase agreement . in the future , we expect our primary source of revenue to be royalty payments under the arthrex asset purchase agreement . general and administrative expenses general and administrative expenses for the year ended december 31 , 2011 increased by $ 47,000 as compared to the year ended december 31 , 2010. general and administrative expenses represent our continuing operating expenses associated with remaining a public company , including business insurance expense and professional fees such as legal , accounting and audit services . the primary reason for the increase in 2011 relates to an increase in insurance expense of approximately $ 122,000 due to increased product liability insurance limits required in conjunction with the sale of the reconstructive and spine assets , as well as increased outside accounting fees of $ 59,000 relating to the closing of the arthrex and altus sales transactions . these increases were offset by a decrease in legal fees of $ 134,000 in 2011 as compared to 2010. our legal expenses were higher in 2010 due to increased corporate activity and administrative legal matters , as we had not discontinued our operations . in the future , we expect our legal and other professional fees to be at a reduced level . other income ( expense ) during the year ended december 31 , 2011 , we had interest expense of $ 25,000 , which was primarily the result of interest accrued on $ 500,000 of notes payable outstanding as of december 31 , 2010 which were repaid in 2011. this was offset by $ 11,000 of interest income earned during 2011. our interest income during 2010 amounted to approximately $ 11,000 , along with other income of $ 30,000 relating to the sale of certain instruments . these amounts were offset by interest expense of approximately $ 14,000 relating to short-term borrowings . going forward , we expect to generate interest incomefrom the cash we have on hand . liquidity and capital resources as discussed previously , during the quarter ended june 30 , 2011 , we sold substantially all of our assets relating to the spine and reconstructive divisions , which were discontinued during the fourth quarter of 2010. this resulted in net cash provided by investing activities for the year ended december 31 , 2011 of $ 16,138,000 , which included gross proceeds from the sale of the assets of $ 17,175,000 , less $ 900,000 of the funds placed in restricted cash escrow accounts , less purchases of equipment of $ 137,000. during 2010 , we had net cash used in investing activities of $ 1,069,000 for the purchase of property and equipment . net cash used in operating activities was $ 3,087,000 for the year ended december 31 , 2011 compared to $ 4,277,000 in 2010. our overall operating costs were lower in 2011 due to the announced discontinued operations during the fourth quarter of 2010. during 2010 , we had higher payroll and other administrative costs as we had additional employees . also , in 2010 we continued the build-up of our inventory , which increased by $ 1,354,000 during the year . during 2011 , we did not make any significant inventory purchases due to the decision to sell our reconstructive and spine divisions . during 2010 , we had net cash provided by financing activities of $ 500,000 from the issuance of short- term promissory notes payable . net cash used in financing activities was $ 500,000 in 2011. this consisted of $ 1,224,000 in borrowings under the arthrex note , offset by the repayment of the arthrex note balances , as well as repayment of the $ 500,000 of notes payable issued during 2010 . 14 pursuant to the sales of the reconstructive and spine divisions during the quarter ended june 30 , 2011 , we had cash of $ 12,678,000 as of december 31 , 2011. as a result , we have adequate cash on hand to fund our operations and other activities for the next twelve months and beyond . therefore , the factors which had previously raised substantial doubt about our ability to continue as a going concern have been alleviated . our future operations will include the collection and management of our royalty income earned in connection with the asset purchase agreement with arthrex .
| use of estimates financial statements prepared in accordance with united states generally accepted accounting principles ( `` u.s. gaap '' ) require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . among other things , management makes estimates relating to allowances for doubtful accounts , net realizable value of assets , share- based payment , and deferred income tax assets . actual results could differ from those estimates . discontinued operations on october 7 , 2010 , the company 's management and board of directors decided to put substantially all of its assets up for sale . the assets determined to be held for sale were inventories , intellectual properties , and property and equipment of its reconstructive products line ( the `` reconstructive division '' ) and spine products line ( the `` spine division '' ) . the company decided to put the assets of its reconstructive and spine divisions up for sale primarily because it did not have sufficient working capital , and was not able to procure such financial resources through equity or debt financing , in order to fully execute a profitable sales strategy . on january 24 , 2011 , the company entered into an asset purchase agreement with arthrex , inc. ( the `` arthrex asset purchase agreement '' ) , pursuant to which the company agreed to sell the assets of the reconstructive division to arthrex . the arthrex asset purchase agreement also provides for the company to receive royalty payments equal to 5 % of net sales of the company 's products made by arthrex on a quarterly basis for a term up to and including the 20th anniversary of the closing date . during the year ended december 31 , 2011 the company received total royalty payments of $ 12,000 and reflected this payment as revenue on the accompanying consolidated statements of operations . following the execution of the arthrex asset purchase agreement ,
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assessment and succession we provide actionable , research-backed insights that allow organizations to understand the true capabilities of their people so they can make decisions that ensure the right leaders are ready when and where they are needed in the future . executive search and recruitment we integrate scientific research with our practical experience and industry-specific expertise to recruit professionals of all levels and functions at organizations across every industry . leadership development we activate purpose , vision , and strategy through leaders at all levels and organizations . we combine expertise , science , and proven techniques with forward thinking and creativity to build leadership experiences that help entry to senior-level leaders grow and deliver superior results . during fiscal 2017 , we continued the implementation of our fiscal 2016 restructuring plan in order to rationalize our cost structure by eliminating redundant positions , general and administrative expenses and consolidation of office space that were created due to the acquisition of legacy hay in december 2015. in particular , the majority of our efforts in both fiscal 2017 and 2016 , were focused on activities associated with integration of our go-to-market activities , our intellectual property and content , our solution sets and service offerings , and our back office systems and business processes . as a result of these efforts , we recorded $ 34.6 million of restructuring charges with $ 16.0 million related to severance costs and $ 18.6 million related to the consolidation of office space during the fiscal 2017 while in fiscal 2016 we recorded $ 33.0 million of restructuring charges with $ 32.1 million related to severance costs and $ 0.9 million related to the consolidation/abandonment of premises . the company currently operates in three global business segments : executive search , hay group and futurestep . see note 11 business segments , in the notes to our consolidated financial statements in this annual report on form 10-k , for discussion of the company 's global business segments . the company evaluates performance and allocates resources based on the chief operating decision maker 's review of ( 1 ) fee revenue and 31 ( 2 ) adjusted earnings before interest , taxes , depreciation and amortization ( adjusted ebitda ) . to the extent that such charges occur , adjusted ebitda excludes restructuring charges , integration/acquisition costs , certain separation costs and certain non-cash charges ( goodwill , intangible asset and other than temporary impairment ) . for fiscal 2017 and fiscal 2016 , adjusted ebitda includes a deferred revenue adjustment related to the legacy hay acquisition , reflecting revenue that hay group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue . adjusted ebitda and ebitda are non-gaap financial measures . they have limitations as analytical tools , should not be viewed as a substitute for financial information determined in accordance with gaap , and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . in addition , such measures may not necessarily be comparable to non-gaap performance measures that may be presented by other companies . management believes the presentation of this non-gaap financial measure provides meaningful supplemental information regarding korn ferry 's performance by excluding certain charges , items of income and other items that may not be indicative of korn ferry 's ongoing operating results . the use of this non-gaap financial measure facilitates comparisons to korn ferry 's historical performance and identification of operating trends that may otherwise be distorted by certain charges and other items that may not be indicative of korn ferry 's ongoing operating results . korn ferry includes this non-gaap financial measure because management believes it is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of korn ferry 's ongoing operations and financial and operational decision-making . the accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in the accompanying consolidated financial statements , except that the above noted items are excluded from ebitda to arrive at adjusted ebitda . management further believes that ebitda is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures , effective tax rates and tax attributes and capitalized asset values , all of which can vary substantially from company to company . similarly , adjusted fee revenue is a non-gaap financial measure . adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of gaap . this is an adjustment for a short period of time that will provide better comparability in the current and prior periods . management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it allows investors to make more meaningful period-to-period comparisons of the company 's operating results , to better identify operating trends that may otherwise be distorted by write-offs required under business combination accounting and to perform related trend analysis , and provides a higher degree of transparency of information used by management in its evaluation of korn ferry 's ongoing operations and financial and operational decision-making . the deferred revenue adjustment is no longer included in the result of operation as of q2 of fiscal 2017 as the impact of purchase accounting no longer has an impact on actual results . fee revenue increased $ 273.4 million , or 21 % in fiscal 2017 to $ 1,565.5 million compared to $ 1,292.1 million in fiscal 2016 , with increases in fee revenue in hay group and futurestep segments , offset by a decrease in executive search . during fiscal 2017 , we recorded operating income of $ 114.4 story_separator_special_tag million with executive search , hay group , and futurestep segments contributing $ 124.3 million , $ 47.3 million , and $ 30.0 million , respectively , offset by corporate expenses of $ 87.1 million . net income attributable to korn ferry in fiscal 2017 was $ 84.2 million , an increase of $ 53.3 million from net income attributable to korn ferry of $ 30.9 million in fiscal 2016. adjusted ebitda was $ 235.0 million for fiscal 2017 with executive search , hay group and futurestep segments contributing $ 137.4 million , $ 128.2 million , and $ 32.8 million , respectively , offset by corporate expenses net of other income of $ 63.4 million . adjusted ebitda was $ 235.0 million in fiscal 2017 , an increase of $ 44.8 million from adjusted ebitda of $ 190.2 million during fiscal 2016. our cash , cash equivalents and marketable securities increased $ 116.1 million , or 28 % , to $ 530.8 million at april 30 , 2017 , compared to $ 414.7 million at april 30 , 2016. this increase is mainly due to the drawdown on june 15 , 2016 of $ 275.0 million on our then-new term loan of which $ 140.0 million of the proceeds were used to pay-off the term loan that was outstanding as of april 30 , 2016 and cash provided by operating activities , offset by bonuses earned in fiscal 2016 and paid in the first quarter of 2017 , $ 50.1 million in payments for the purchase of 32 fixed assets , $ 28.8 million in stock repurchases in the open market , and $ 23.3 million in dividends paid during the fiscal year 2017. as of april 30 , 2017 , we held marketable securities to settle obligations under our executive capital accumulation plan ( ecap ) with a cost value of $ 113.8 million and a fair value of $ 119.9 million . our vested obligations for which these assets were held in trust totaled $ 99.5 million as of april 30 , 2017 and our unvested obligations totaled $ 37.6 million . our working capital increased by $ 197.1 million to $ 385.1 million in fiscal 2017. we believe that cash on hand and funds from operations and other forms of liquidity will be sufficient to meet our anticipated working capital , capital expenditures , general corporate requirements , repayment of the debt obligations incurred in connection with the legacy hay acquisition , the retention pool obligations pursuant to the legacy hay acquisition and dividend payments under our dividend policy in the next twelve months . we had $ 259.5 million outstanding under our term facility as of april 30 , 2017 , of which $ 20.6 million will be due within a year . we had no outstanding borrowings under our revolving credit facility at april 30 , 2017 or 2016. as of april 30 , 2017 and 2016 , there was $ 3.0 million and $ 2.8 million of standby letters of credit issued under our long-term debt arrangements , respectively . we have a total of $ 8.1 million and $ 6.4 million of standby letters of credits with other financial institutions as of april 30 , 2017 and 2016 , respectively . the standby letters of credits were generally issued as a result of entering into office premise leases . critical accounting policies the following discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements . preparation of our periodic filings requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates and assumptions and changes in the estimates are reported in current operations as new information is learned or upon the amounts becoming fixed and determinable . in preparing our consolidated financial statements and accounting for the underlying transactions and balances , we apply our accounting policies as disclosed in the notes to our consolidated financial statements . we consider the policies discussed below as critical to an understanding of our consolidated financial statements because their application places the most significant demands on management 's judgment and estimates . specific risks for these critical accounting policies are described in the following paragraphs . senior management has discussed the development , selection and key assumptions of the critical accounting estimates with the audit committee of the board of directors . revenue recognition . management is required to establish policies and procedures to ensure that revenue is recorded over the performance period for valid engagements and related costs are matched against such revenue . substantially all fee revenue is derived from fees for professional services related to executive search performed on a retained basis , recruitment for non-executive professionals , recruitment process outsourcing , people and organizational advisory services and the sale of product services . fee revenue from executive search activities and recruitment for non-executive professionals is generally one-third of the estimated first year compensation of the placed executive or non-executive professional , as applicable , plus a percentage of the fee to cover indirect engagement related expenses . we generally recognize such revenue on a straight-line basis over a three-month period , commencing upon client acceptance , as this is the period over which the recruitment services are performed . fees earned in excess of the initial contract amount are recognized upon completion of the engagement , which reflect the difference between the final actual compensation of the placed executive and the estimate used for purposes of the previous billings . since the initial contract fees are typically not contingent upon placement of a candidate , our assumptions primarily relate to establishing the period over which such service is performed . these assumptions determine the timing of revenue recognition and profitability for the reported period .
| to fiscal 2016. the overall decrease in fee revenue was driven by a decline in the life sciences/healthcare , education/non-profit and financial services sectors as compared to the year-ago period , partially offset by an increase in the industrial sector . exchange rates did not impact fee revenue in fiscal 2017 when compared to the year-ago period . emea reported fee revenue of $ 146.5 million , an increase of $ 2.2 million , or 2 % , in fiscal 2017 compared to $ 144.3 million in fiscal 2016. the increase in fee revenue was due to a 6 % increase in the number of engagements billed and a 2 % increase in the weighted-average fees billed per engagement ( calculated using local currency ) during fiscal 2017 as compared to fiscal 2016. this was offset by unfavorable exchange rates which impacted fee revenue by $ 10.0 million , or 7 % , in fiscal 2017 compared to fiscal 2016. the performance in existing offices in germany , united arab emirates and denmark were the primary contributors to the increase in fee revenue in fiscal 2017 compared to fiscal 2016 , offset by a decrease in fee revenue in united kingdom , france and switzerland . in terms of business sectors , the technology and industrial sectors had the largest increase in fee revenue in fiscal 2017 as compared to fiscal 2016 , partially offset by a decrease in fee revenue in the financial services , consumer goods and life sciences/healthcare sectors . asia pacific reported fee revenue of $ 80.2 million in fiscal 2017 , essentially flat with the $ 80.5 million in fiscal 2016. exchange rates unfavorably impacted fee revenue by $ 0.5 million in fiscal 2017 when compared to the year-ago period . there were decreases in hong kong and australia which were offset by an increase in fee revenue in china and taiwan . fee revenue in the technology , financial services and education/non-profit sectors decreased in
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retail design center acquisitions - we account for the acquisition of retail design centers and related assets with the purchase method . accounting for these transactions as purchase business combinations requires the allocation of purchase price paid to the assets acquired and liabilities assumed based on their fair values as of the date of the acquisition . the amount paid in excess of the fair value of net assets acquired is accounted for as goodwill . impairment of long-lived assets and goodwill – goodwill and other indefinite-lived intangible assets are evaluated for impairment on an annual basis during the fourth quarter of each fiscal year , and between annual tests whenever events or circumstances indicate that the carrying value of the goodwill or other intangible asset may exceed its fair value . when testing goodwill for impairment , we may assess qualitative factors for some or all of our reporting units to determine whether it is more likely than not ( that is , a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount , including goodwill . alternatively , we may bypass this qualitative assessment for some or all of our reporting units and determine whether the carrying value exceeds the fair value using a quantitative assessment as described below . the recoverability of long-lived assets are evaluated for impairment by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset . in the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset , an impairment loss equal to the excess of the asset 's carrying value over its fair value is recorded . the long-term nature of these assets requires the estimation of cash inflows and outflows several years into the future and only takes into consideration technological advances known at the time of the impairment test . to evaluate goodwill using a quantitative assessment , the company determines the current fair value of the reporting units using a combination of “ market ” and “ income ” approaches . in the market approach , the “ guideline company ” method is used , which focuses on comparing the company 's risk profile and growth prospects to reasonably similar publicly traded companies . key assumptions used for the guideline company method are total invested capital ( “ tic ” ) multiples for revenues and operating cash flows , as well as consideration of control premiums . the tic multiples are determined based on public furniture companies within our peer group , and if appropriate , recent comparable transactions are considered . control premiums are determined using recent comparable transactions in the open market . under the income approach , a discounted cash flow method is used , which includes a terminal value , and is based on external analyst financial projection estimates , as well as internal financial projection estimates prepared by management . the long-term terminal growth rate assumptions reflect our current long-term view of the market in which we compete . discount rates use the weighted average cost of capital for companies within our peer group , adjusted for specific company risk premium factors . the fair value of our trade name , which is the company 's only indefinite-lived intangible asset other than goodwill , is valued using the relief-from-royalty method . significant factors used in trade name valuation are rates for royalties , future growth , and a discount factor . royalty rates are determined using an average of recent comparable values . future growth rates are based on the company 's perception of the long-term values in the market in which we compete , and the discount rate is determined using the weighted average cost of capital for companies within our peer group , adjusted for specific company risk premium factors . 22 i n the fourth quarter of fiscal years 2013 and 2012 , the company performed qualitative assessments of the fair value of the wholesale reporting unit and concluded that the fair value of its goodwill exceeded its carrying value . in fiscal year 2011 the company performed a quantitative assessment and determined the fair value of its wholesale reporting unit exceeded its carrying value by a substantial margin . the fair value of the trade name exceeded its carrying value by a substantial margin in fiscal years 2013 , 2012 and 2011. to calculate fair value of these assets , management relies on estimates and assumptions which by their nature have varying degrees of uncertainty . wherever possible , management therefore looks for third party transactions to provide the best possible support for the assumptions incorporated . management considers several factors to be significant when estimating fair value including expected financial outlook of the business , changes in the company 's stock price , the impact of changing market conditions on financial performance and expected future cash flows , and other factors . deterioration in any of these factors may result in a lower fair value assessment , which could lead to impairment of the long-lived assets and goodwill of the company . 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 carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . additional factors that we consider when making judgments about the deferred tax valuation include tax law changes , a recent history of cumulative losses , and variances in future projected profitability . story_separator_special_tag the company evaluates quarterly uncertain tax positions taken or expected to be taken on tax returns for recognition , measurement , presentation , and disclosure in its financial statements . if an income tax position exceeds a 50 % probability of success upon tax audit , based solely on the technical merits of the position , the company recognizes an income tax benefit in its financial statements . the tax benefits recognized are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . the liability associated with an unrecognized tax benefit is classified as a long-term liability except for the amount for which a cash payment is expected to be made or tax positions settled within one year . we recognize interest and penalties related to income tax matters as a component of income tax expense . business insurance reserves – we have insurance programs in place to cover workers ' compensation and property/casualty claims . the insurance programs , which are funded through self-insured retention , are subject to various stop-loss limitations . we accrue estimated losses using actuarial models and assumptions based on historical loss experience . although we believe that the insurance reserves are adequate , the reserve estimates are based on historical experience , which may not be indicative of current and future losses . in addition , the actuarial calculations used to estimate insurance reserves are based on numerous assumptions , some of which are subjective . we adjust insurance reserves , as needed , in the event that future loss experience differs from historical loss patterns . other loss reserves – we have a number of other potential loss exposures incurred in the ordinary course of business such as environmental claims , product liability , litigation , tax liabilities , restructuring charges , and the recoverability of deferred income tax benefits . establishing loss reserves for these matters requires the use of estimates and judgment with regard to maximum risk exposure and ultimate liability or realization . as a result , these estimates are often developed with our counsel , or other appropriate advisors , and are based on our current understanding of the underlying facts and circumstances . because of uncertainties related to the ultimate outcome of these issues or the possibilities of changes in the underlying facts and circumstances , additional charges related to these issues could be required in the future . 23 basis of presentation as of june 30 , 2013 , ethan allen interiors inc. has no material assets other than its ownership of the capital stock of ethan allen global , inc. and conducts all significant transactions through ethan allen global , inc. ; therefore , substantially all of the financial information presented herein is that of ethan allen global , inc. results of operations for the year ended june 30 , 2013 , our operating income increased 21.6 % over the prior fiscal year to $ 60.4 million , and net cash provided by operating activities increased 62.6 % over the prior fiscal year to $ 61.3 million . our retail division contributed $ 8.0 million in operating income , up $ 19.5 million from the loss of $ 11.5 million the prior year while the retail division net sales grew 3.4 % . our liquidity continued to be strong allowing us to buy back $ 24 million of our senior notes and pay $ 22 million in dividends , which were $ 14 million or 176 % greater than the prior year , while maintaining a total cash and securities balance at june 30 , 2013 about even with the prior year at $ 104 million . despite highly promotional and competitive conditions for our industry , both our wholesale and retail business segments continue to make substantial progress . our retail segment has now had 14 consecutive quarters of year over year sales growth , and on a consolidated basis , we have had 12 consecutive quarterly profits . despite 3.4 % growth in net sales this fiscal year by our retail division , o ur consolidated net sales of $ 729.1 million were essentially flat with the prior year . this was due to a decline the last two quarters of fiscal 2013 in our wholesale shipments to an international independent retailer . as we continue to take strong and decisive actions to grow the business , we continue to operate the business with cautious optimism while aggressively pursuing our business objectives . one such objective is to continuously reexamine our retail footprint to optimize our structure and “ do more with less. ” while the number of company operated design centers was 147 at june 30 of both 2013 and 2012 , we had approximately 1,900 associates in our retail division at fiscal year end , 11 % fewer than the prior year . despite the lower staffing , we grew our retail division net sales by 3.4 % and improved significantly our retail division operating profit . our culture of entrepreneurship and streamlined operating structure made this possible despite investments made this year to open international , foreign language design centers in canada and belgium . we also continue to make considerable investments to strengthen the level of service , professionalism , interior design competence , efficiency , and effectiveness of the retail network design center personnel . we believe that over time , we will continue to benefit from ( i ) continuous repositioning of our retail network , ( ii ) frequent new product introductions , ( iii ) new and innovative marketing promotions and effective use of targeted advertising media , and ( iv ) continued use of the latest technology coupled with personal service from our interior design professionals . we believe our network of professionally trained interior design professionals differentiates us significantly from others in our industry . our manufacturing and logistics operations are also more efficient . we strengthened our domestic operations with strategic equipment purchases and added capacity in mexico and honduras .
| the number of total design centers globally decreased to 295 at june 30 , 2013 from 298 at june 30 , 2012. the independently operated retail network decreased by three net design centers to 148 at june 30 , 2013 including a net decrease of 2 locations to 68 in china . while the count of ethan allen operated design centers was 147 at both june 30 of 2013 and 2012 , we opened seven design centers ( three of which were relocations ) , acquired two from independent retailers , closed four design centers , and sold two to an independent retailer . retail revenue from ethan allen operated design centers for the twelve months ended june 30 , 2013 increased by $ 18.9 million , or 3.4 % , to $ 578.3 million from $ 559.4 million for the twelve months ended june 30 , 2012. we believe the increase in retail sales by ethan allen operated design centers is due to ( i ) our new product introductions , promotional marketing campaigns , and the design solutions approach of our interior design professionals , ( ii ) continued use of both our national television and direct mail media campaigns , ( iii ) our digital communications to prospective clients , and ( iv ) the positive effects of continuously repositioning our retail network . these factors were partly offset by a decrease in clearance sale revenue by our us retail division . we ended both the current and prior fiscal years with 147 ethan allen operated design centers . year-over-year , written business of ethan allen operated design centers increased 1.1 % and comparable design centers written business increased 1.0 % . 25 gross profit for fiscal 2013 increased to $ 398.3 million from $ 390.3 million in fiscal 2012. the $ 8.1 million increase in gross profit was primarily attributable to ( i ) the increase in retail net sales of 3.4 % or $ 18.9 million ( ii ) a stronger sell through of retail inventory , releasing profit contained in the retail segment inventory , and ( iii ) the higher mix of retail net sales to consolidated net sales in the current year ( 79.3 % ) compared to the prior year period ( 76.7 % ) . these positive
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mountain segment revenue is seasonal , with the majority of revenue earned from our north american destination mountain resorts and regional ski areas ( collectively , our “ resorts ” ) occurring in our second and third fiscal quarters and the majority of revenue earned from our australian ski areas occurring in our first and fourth fiscal quarters . our north american resorts are typically open for business from mid-november through mid-april , which is the peak operating season for the mountain segment , and our australian ski areas are typically open for business from june to early october . our single largest source of mountain segment revenue is the sale of lift tickets ( including pass products ) , which represented approximately 53 % , 53 % and 51 % of mountain segment net revenue for fiscal 2020 , the fiscal year ended july 31 , 2019 ( “ fiscal 2019 ” ) and the fiscal year ended july 31 , 2018 ( “ fiscal 2018 ” ) , respectively . during fiscal 2020 and as a result of the impacts of the covid-19 pandemic , including the resort closures , we announced that we would offer credits to customers who had purchased 2019/2020 north american pass products towards the purchase of a 2020/2021 north american pass product if such purchase was made by september 17 , 2020 ( the “ credit offer ” ) . the credit offer discounts range from a minimum of 20 % to a maximum of 80 % for season pass holders , depending on the number of days the pass holder used their pass product during the 2019/2020 season and a credit , with no minimum , but up to 80 % for multi-day pass products , such as the epic day pass , based on total unused days . as a result of the credit offer to 2019/2020 pass product holders , we delayed the recognition of approximately $ 120.9 million of deferred season pass revenue , as well as approximately $ 2.9 million of related deferred costs , that would have been recognized in fiscal 2020 and are now expected to be recognized primarily in the second and third quarters of the fiscal year ending july 31 , 2021 ( “ fiscal 2021 ” ) . while we expect most of this revenue and deferred cost will be recognized during fiscal 2021 , in the event that a pass holder obtains a refund under epic coverage ( as discussed below ) for the 2020/2021 north american ski season and is eligible to utilize their credit toward the purchase of a pass product purchase for the 2021/2022 north american ski season , a portion of this deferred revenue and related deferred cost will be recognized in fiscal 2022 . 42 lift revenue is driven by volume and pricing . pricing is impacted by both absolute pricing , as well as the demographic mix of guests , which impacts the price points at which various products are purchased . the demographic mix of guests that visit our north american mountain resorts is divided into two primary categories : ( 1 ) out-of-state and international ( “ destination ” ) guests and ( 2 ) in-state and local ( “ local ” ) guests . for the 2019/2020 north american ski season , destination guests comprised approximately 58 % of our north american destination mountain resort skier visits ( excluding complimentary access ) , while local guests comprised approximately 42 % of our north american destination mountain resort skier visits ( excluding complimentary access ) , which compares to approximately 57 % and 43 % , respectively , for the 2018/2019 north american ski season and approximately 59 % and 41 % , respectively , for the 2017/2018 north american ski season . skier visitation at our regional ski areas is largely comprised of local guests . destination guests generally purchase our higher-priced lift tickets ( including pass products ) and utilize more ancillary services such as ski school , dining and retail/rental , as well as lodging at or around our mountain resorts . destination guest visitation is less likely to be impacted by changes in the weather during the current ski season , but may be more impacted by restrictions or preferences for travel due to the covid-19 pandemic , adverse economic conditions , the global geopolitical climate or weather conditions in the immediately preceding ski season . local guests tend to be more value-oriented and weather sensitive . we offer a variety of pass products for all of our resorts marketed towards both destination and local guests . our pass product offerings range from providing access to one or a combination of our resorts to our epic pass , which allows pass holders unlimited and unrestricted access to all of our resorts . the epic day pass , which we began offering for the 2019/2020 north american ski season , is a customizable one to seven day pass product valid at each of our resorts , purchased in advance of the season , for those skiers and riders who expect to ski a certain number of days during the season . for the upcoming 2020/2021 north american ski season , we introduced epic mountain rewards , a program which gives pass product holders a discount of 20 % off on-mountain food and beverage , lodging , group ski and ride school lessons , equipment rentals and more at the company 's north american owned and operated resorts . epic mountain rewards is available for everyone who purchases an epic pass , epic local pass , epic day pass , epic military pass and most of our other pass products , regardless of whether guests plan to ski one day or every day of the season . additionally , we introduced epic coverage for the 2020/2021 north american ski season , which is free for all pass holders , completely replacing the need for pass insurance , and providing expanded coverage over our historical pass insurance program . story_separator_special_tag epic coverage provides refunds in the event of certain resort closures ( e.g . for covid-19 ) , giving pass product holders a refund for any portion of the season that is lost due to qualifying circumstances . additionally , epic coverage provides a refund for personal circumstances that were historically covered by our pass insurance program , such as eligible injuries , job losses and many other personal events , as well as in the event that the pass holder can not reserve their preferred days . refunds for resort closure events could vary based on the duration of the closure , certain elections made by the pass product holder and the number of days skied by the pass product holder . we will estimate the amount of expected refunds under the epic coverage program and will reduce the amount of pass product revenue recognized by that expected amount . the expected refunds will be calculated utilizing estimates and assumptions , including historical data and current information . if we believe it is probable that upon resolution of the contingencies for which we would provide refunds that a significant amount of revenue may be reversed , we will not recognize those amounts as revenue until such time as the contingencies have been resolved . our pass program provides a compelling value proposition to our guests , which in turn assists us in developing a loyal base of customers who commit to ski at our resorts generally in advance of the ski season and typically ski more days each season at our resorts than those guests who do not buy pass products . additionally , we have entered into strategic long-term season pass alliance agreements with third-party mountain resorts including telluride ski resort in colorado , sun valley resort in idaho , snowbasin resort in utah , hakuba valley and rusutsu resort in japan , resorts of the canadian rockies in canada , les 3 vallées in france , 4 vallées in switzerland , skirama dolomiti in italy and ski arlberg in austria , which further increases the value proposition of our pass products . as such , our pass program drives strong customer loyalty , mitigates exposure to more weather sensitive guests , generates additional ancillary spending and provides cash flow in advance of winter season operations . in addition , our pass program attracts new guests to our resorts . all of our pass products , including the epic pass and epic day pass , are predominately sold prior to the start of the ski season . pass product revenue , although primarily collected prior to the ski season , is recognized in the consolidated statements of operations throughout the ski season primarily based on historical visitation ( see notes to consolidated financial statements ) . lift revenue consists of pass product lift revenue ( “ pass revenue ” ) and non-pass product lift revenue ( “ non-pass revenue ” ) . approximately 51 % , 47 % and 47 % of total lift revenue was derived from pass revenue for fiscal 2020 ( including the impact of the deferral of pass revenue as a result of the credit offer ) , fiscal 2019 and fiscal 2018 , respectively . the cost structure of our mountain resort operations has a significant fixed component with variable expenses including , but not limited to , land use permit or lease fees , credit card fees , retail/rental cost of sales and labor , ski school labor and expenses associated with dining operations . as such , profit margins can fluctuate greatly based on the level of revenues associated with visitation . 43 lodging segment operations within the lodging segment include ( i ) ownership/management of a group of luxury hotels through the rockresorts brand proximate to our colorado and utah mountain resorts ; ( ii ) ownership/management of non-rockresorts branded hotels and condominiums proximate to our north american resorts ; ( iii ) national park service ( “ nps ” ) concessionaire properties including grand teton lodge company ( “ gtlc ” ) ; ( iv ) a colorado resort ground transportation company ; and ( v ) mountain resort golf courses . the performance of our lodging properties ( including managed condominium units and our colorado resort ground transportation company ) proximate to our mountain resorts is closely aligned with the performance of the mountain segment and generally experiences similar seasonal trends , particularly with respect to visitation by destination guests . revenues from such properties represented approximately 73 % , 70 % and 68 % of lodging segment net revenue ( excluding lodging segment revenue associated with reimbursement of payroll costs ) for fiscal 2020 , fiscal 2019 and fiscal 2018 , respectively . management primarily focuses on lodging net revenue excluding payroll cost reimbursements and lodging operating expense excluding reimbursed payroll costs ( which are not measures of financial performance under gaap ) as the reimbursements are made based upon the costs incurred with no added margin ; as such , the revenue and corresponding expense have no effect on our lodging reported ebitda , which we use to evaluate lodging segment performance . revenue of the lodging segment during our first and fourth fiscal quarters is generated primarily by the operations of our nps concessionaire properties ( as their operating season generally occurs from june to the end of september ) ; mountain resort golf operations and seasonally lower volume from our other owned and managed properties and businesses . as discussed above , our north american lodging properties closed early in march for the remainder of the 2019/2020 ski season as a result of the covid-19 pandemic . our summer operations for the 2020 season were also limited or adjusted , including at gtlc with the closures of jackson lake lodge and jenny lake lodge , as well as not offering guided activities , in-restaurant dining and the temporary closure of many facilities , among others .
| fiscal 2020 compared to fiscal 2019 mountain reported ebitda decreased $ 178.5 million , or 26.3 % , primarily due to the impact of the delayed recognition of $ 120.9 million of pass product revenue during fiscal 2020 as a result of the credit offer to 2019/2020 north american pass product holders from the resort closures and the overall impacts of the covid-19 pandemic , which resulted in significantly reduced visitation and operations at our resorts and retail stores for the 2019/2020 north american ski season , the 2020 australian ski season and our 2020 north american summer operations . these decreases were partially offset by the incremental operations of peak resorts , falls creek and hotham . mountain segment results include $ 13.6 million and $ 16.4 million of acquisition and integration related expenses for fiscal 2020 and fiscal 2019 , respectively , which are recorded within mountain other operating expense . lift revenue decreased $ 120.1 million , or 11.6 % , primarily due to a 3.4 % decrease in pass product revenue and an 18.8 % decrease in non-pass revenue . pass product revenue decreased primarily as a result of the deferral of approximately $ 120.9 million of pass product revenue associated with the credit offer to 2019/2020 north american pass product holders , which would have been recognized during fiscal 2020 and which is now expected to be recognized primarily in the second and third quarters of fiscal 2021 , partially offset by a combination of an increase in pricing and units sold and increased pass sales to destination guests , as well as the introduction of the epic day pass . non-pass revenue decreased primarily due to significantly reduced skier visitation as a result of the resort closures , partially offset by an increase in non-pass etp ( excluding peak resorts , falls creek and hotham ) of 6.2 % and incremental revenue from peak resorts , falls creek and hotham of approximately $ 61.4 million . total non-pass etp , including the impact of peak resorts , falls creek and hotham decreased 7.3 % . ski school revenue , dining revenue and retail/rental revenue in fiscal 2020 all decreased compared to fiscal 2019 due to the resort closures . these decreases were partially offset by incremental revenue from our acquisitions of peak resorts , falls creek and hotham of $ 18.0 million of ski school revenue ,
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ovp® enables a color-shifting effect used by banknote issuers and security printers worldwide for anti-counterfeiting applications on banknotes and other high-value documents . our technologies are deployed on the banknotes of more than 100 countries today . osp also develops and delivers overt and covert anti-counterfeiting products that utilize its proprietary printing platform and are targeted primarily at the pharmaceutical and consumer-electronics markets . leveraging our expertise in spectral management and our unique high-precision coating capabilities , osp provides a range of products and technologies for the consumer and industrial market , including , for example , 3d sensing optical filters . osp value-added solutions meet the stringent requirements of commercial and government customers . our products are used in a variety of aerospace and defense applications , including optics for guidance systems , laser eye protection and night vision systems . these products , including coatings and optical filters , are optimized for each specific application . osp serves customers such as flir systems , kingston digital , l-3 communications , lockheed martin and sicpa . recently issued accounting pronouncements refer to “ note 2. recently issued accounting pronouncements ” regarding the effect of certain recent accounting pronouncements on our consolidated financial statements . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , net revenue and expenses , and the related disclosures . we base our estimates on historical experience , our knowledge of economic and market factors and various other assumptions that we believe to be reasonable under the circumstances . estimates and judgments used in the preparation of our financial statements are , by their nature , uncertain and unpredictable , and depend upon , among other things , many factors outside of our control , such as demand for our products and economic conditions . accordingly , our estimates and judgments may prove to be incorrect and actual results may differ from these estimates under different 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 : 27 revenue recognition we recognize revenue when it is realized or realizable and earned . we consider revenue realized or realizable and earned when there is persuasive evidence of an arrangement , delivery has occurred , the sales price is fixed or determinable , and collectability is reasonably assured . delivery does not occur until products have been shipped or services have been provided , risk of loss has transferred and in cases where formal acceptance is required , customer acceptance has been obtained or customer acceptance provisions have lapsed . in situations where a formal acceptance is required but the acceptance only relates to whether the product meets its published specifications , revenue is recognized upon delivery provided all other revenue recognition criteria are met . historical return rates are monitored on a product-by-product basis . in addition , some distributor agreements allow for partial return of products and or price protection under certain conditions within limited time periods . such return rights are generally limited to contractually defined , short-term stock rotation and defective or damaged product . we maintain reserves for sales returns and price adjustments based on historical experience and other qualitative factors . as new products or distributors are introduced , these historical rates are used to establish initial sales returns reserves and are adjusted as better information becomes available . we also have market development incentive programs for certain distributors whereby rebates are offered based upon exceeding volume goals . estimated rebates , sales returns and other such allowances are deducted from revenue . in addition to the aforementioned general policies , the following are the specific revenue recognition policies for multiple-element arrangements and for each major category of revenue . multiple-element arrangements when a sales arrangement contains multiple deliverables , such as sales of products that include services , the multiple deliverables are evaluated to determine whether there are one or more units of accounting . where there is more than one unit of accounting , then the entire fee from the arrangement is allocated to each unit of accounting based on the relative selling price . under this approach , the selling price of a unit of accounting is determined by using a selling price hierarchy which requires the use of vendor-specific objective evidence ( “ vsoe ” ) of fair value if available , third-party evidence ( “ tpe ” ) if vsoe is not available , or management 's best estimate of selling price ( “ besp ” ) if neither vsoe nor tpe is available . revenue is recognized when the revenue recognition criteria for each unit of accounting are met . we establish vsoe of selling price using the price charged for a deliverable when sold separately . tpe of selling price is established by evaluating similar and interchangeable competitor goods or services in sales to similarly situated customers . when vsoe or tpe are not available then we use besp . generally , we are not able to determine tpe because our product strategy differs from that of others in our markets , and the extent of customization varies among comparable products or services from our peers . we establish besp using historical selling price trends and considering multiple factors including , but not limited to geographies , market conditions , competitive landscape , internal costs , gross margin objectives , and pricing practices . the determination of besp is made through consultation with and approval by the pricing committee . we may modify or develop new pricing practices and strategies in the future . as these pricing strategies evolve , we may modify our pricing practices in the future , which may result in changes in besp . story_separator_special_tag the aforementioned factors may result in a different allocation of revenue to the deliverables in multiple element arrangements from the current fiscal year , which may change the pattern and timing of revenue recognition for these elements but will not change the total revenue recognized for the arrangement . to the extent a deliverable ( s ) in a multiple-element arrangement is subject to specific guidance ( for example , software that is subject to the authoritative guidance on software revenue recognition ) , we allocate the fair value of the units of accounting using relative selling price and that unit of accounting is accounted for in accordance with the specific guidance . some of our product offerings include hardware that are integrated with or sold with software that delivers the functionality of the equipment . we believe this equipment is not considered software-related and would therefore be excluded from the scope of the authoritative guidance on software revenue recognition . hardware revenue from hardware sales is typically recognized when the product meet delivery criteria . services revenue from services and system maintenance is recognized on a straight-line basis over the services term . revenue from professional service engagements is recognized once its delivery obligation is fulfilled . revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-line basis over the delivery period . we also generate service revenue from hardware repairs and calibration which is recognized as revenue upon completion of the service . 28 software the company 's software arrangements generally consist of a perpetual license fee , installation services and post-contract support ( “ pcs ” ) as well as other non-software deliverables . vsoe of fair value for pcs is established based on the renewal rate or the bell curve methodology . non-software and software-related arrangements are bifurcated based on a relative selling price using besp . the software related elements are bifurcated into separate units of accounting if vsoe of fair value has been established for the undelivered element ( s ) and the functionality of the delivered element ( s ) is not dependent on the undelivered element ( s ) . revenue from multiple-element software arrangements that include installation services , is deferred until installation service obligation for the software solution is fulfilled . if vsoe has been established for the undelivered elements , the software , installation services and non-software elements are recognized upon completion of delivery and the pcs is recognized ratably over the remaining support contract term . if vsoe has not been established for the undelivered element , the software related elements are recognized ratably over the remaining support period . investments our investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading securities and are recorded at fair value . the cost of securities sold is based on the specific identification method . unrealized gains and losses on available-for-sale investments , net of tax , are reported as a separate component within our consolidated statements of stockholders ' equity . unrealized gains or losses on trading securities resulting from changes in fair value are recognized in current earnings . our short-term investments , which are classified as current assets , include certain securities with stated maturities of longer than twelve months as they are highly liquid and available to support current operations . we periodically review our investments for impairment . if a debt security 's market value is below amortized cost and we either intend to sell the security or it is more likely than not that we will be required to sell the security before its anticipated recovery , we record an other-than-temporary impairment charge to investment income ( loss ) for the entire amount of the impairment . if a debt security 's market value is below amortized cost and we do not expect to recover the entire amortized cost of the security , we separate the other-than-temporary impairment into the portion of the loss related to credit factors , or the credit loss portion , and the portion of the loss that is not related to credit factors , or the non-credit loss portion . the credit loss portion is the difference between the amortized cost of the security and our best estimate of the present value of the cash flows expected to be collected from the debt security . the non-credit loss portion is the residual amount of the other-than-temporary impairment . the credit loss portion is recorded as a charge to income ( loss ) , and the non-credit loss portion is recorded as a separate component of other comprehensive income ( loss ) . inventory valuation we assess the value of our inventory on a quarterly basis and write down those inventories that are obsolete or in excess of our forecasted usage to their estimated realizable value . our estimates of realizable value are based upon our analysis and assumptions including , but not limited to , forecasted sales levels by product , expected product lifecycle , product development plans and future demand requirements . our product line management personnel play a key role in our excess review process by providing updated sales forecasts , managing product transitions and working with manufacturing to maximize recovery of excess inventory . if actual market conditions are less favorable than our forecasts or actual demand from our customers is lower than our estimates , we may be required to record additional inventory write-downs . if actual market conditions are more favorable than anticipated , inventory previously written down may be sold , resulting in lower cost of sales and higher income from operations than expected in that period . goodwill valuation we test goodwill for possible impairment on an annual basis in our fourth quarter and at any other time if events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable .
| the impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the offsetting foreign currency impact on operating costs and expenses . if currency exchange rates had been constant in fiscal 2017 and fiscal 2016 , our consolidated operating expenses in “ constant dollars ” would have increased by approximately $ 4 million , or 0.5 % of net revenue . fiscal 2016 and 2015 if currency exchange rates had been constant in fiscal 2016 and fiscal 2015 , our consolidated net revenue in “ constant dollars ” would have increased by approximately $ 22 million , or 2.5 % of net revenue , which primarily impacted our ne and se segments . the impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the offsetting foreign currency impact on operating costs and expenses . if currency exchange rates had been constant in fiscal 2016 and fiscal 2015 , our consolidated operating expenses in “ constant dollars ” would have increased by approximately $ 16 million , or 1.8 % of net revenue . the results of operations are presented in accordance with u.s. gaap and not using constant dollars . refer to item 7a . qualitative and quantitative disclosures about market risk of this annual report on form 10-k for further details on foreign currency instruments and our related risk management strategies . net revenue following the separation , revenue from our service offerings exceeds 10 % of our total consolidated net revenue and is presented separately in our consolidated statements of operations . service revenue primarily consists of maintenance and support , extended warranty , professional services and post-contract support in addition to other services such as calibration and repair services . when evaluating the performance of our segments , management focuses on total net revenue , gross profit and operating income and not the product or service categories . consequently , the following discussion of business segment performance focuses on total net revenue , gross profit , and operating income consistent with our approach for managing the
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the gross proceeds to the company were approximately $ 92.0 million , before deducting the underwriting discounts and commissions and estimated offering expenses payable by the company . on october 16 , 2017 , we announced a collaborative agreement between us and nine sanfilippo foundations to provide up to approximately $ 13.9 million of grants to us in installments for the advancement of our clinical stage gene therapies for mps iiia and mps iiib , subject to the achievement of certain milestones . as of december 31 , 2019 , we had received $ 5.7 million of such grants . since our inception , we have incurred negative cash flows from operations and have expended , and expect to continue to expend , substantial funds to complete our planned product development efforts . since inception , our expenses have significantly exceeded revenues , resulting in an accumulated deficit of $ 486.5 million as of december 31 , 2019. we have not been profitable since inception and to date have received limited revenues from the sale of products . we expect to incur losses for the next several years as we continue to invest in product research and development , preclinical studies , clinical trials and regulatory compliance and can not provide assurance that we will ever be able to generate sufficient product sales or royalty revenue to achieve profitability on a sustained basis , or at all . 66 if we raise additional funds by selling additional equity securities , the relative equity ownership of our existing investors will be diluted , and the new investors could obtain terms more favorable than previous investors . if we raise additional funds through collaborations , strategic alliances or licensing arrangements with third parties , 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 . if we are unable to raise additional funds through equity or debt financing when needed , we may be required to delay , limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves . we plan to expend substantial funds to conduct research and development programs , expand our manufacturing capabilities and conduct preclinical studies and clinical trials of potential products , including research and development with respect to our acquired and developed technology . our future capital requirements and adequacy of available funds depend on many factors , including : ● the successful development and commercialization of our gene and cell therapy and other product candidates ; ● the ability to establish and maintain collaborative arrangements with corporate partners for the research , development and commercialization of products ; ● continued scientific progress in our research and development programs ; ● the magnitude , scope and results of preclinical testing and clinical trials ; ● the costs involved in filing , prosecuting and enforcing patent claims ; ● the costs involved in conducting clinical trials ; ● competing technological developments ; ● the cost of manufacturing and scale-up ; ● the ability to establish and maintain effective commercialization arrangements and activities ; and ● successful regulatory filings . we have devoted substantially all of our efforts and resources to research and development conducted on our own behalf . the following table summarizes research and development spending by project category , which spending includes , but is not limited to , payroll and personnel expense , lab supplies , preclinical expense , development cost , clinical trial expense , outside manufacturing expense and consulting expense : replace_table_token_3_th ( 1 ) cumulative spending from inception of the company or project through december 31 , 2019 . ( 2 ) includes other projects that the company is no longer pursuing . due to uncertainties and certain of the risks described above , including those relating to our ability to successfully commercialize our product candidates , our ability to obtain applicable regulatory approval to market our product candidates , our ability to obtain necessary additional capital to fund operations in the future , our ability to successfully manufacture our products and our product candidates in clinical quantities or for commercial purposes , government regulation to which we are subject , the uncertainty associated with preclinical and clinical testing , intense competition that we face , market acceptance of our products , the potential necessity of licensing technology from third parties and protection of our intellectual property , it is not possible to reliably predict future spending or time to completion by project or product category or the period in which material net cash inflows from significant projects are expected to commence . if we are unable to timely complete a particular project , our research and development efforts could be delayed or reduced , our business could suffer depending on the significance of the project and we might need to raise additional capital to fund operations , as discussed in the risks above , including those relating to the uncertainty of the success of our research and development activities and our ability to obtain necessary additional capital to fund operations in the future . 67 we plan to continue our policy of investing available funds in certificates of deposit , money market funds , government securities and investment-grade interest-bearing securities . we do not invest in derivative financial instruments . off-balance sheet arrangements we did not have , during the periods presented , and we do not currently have , any off-balance sheet arrangements , as defined under applicable sec rules . story_separator_special_tag contractual obligations the following table summarizes our significant contractual obligations as of the payment due date by period at december 31 , 2019 : replace_table_token_4_th we enter into agreements in the normal course of business with clinical research organizations for clinical trials and clinical manufacturing organizations for supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes . these contractual obligations are cancelable at any time by us , generally upon prior written notice to the vendor , and are thus not included in the contractual obligations table . operating lease amounts represent future minimum lease payments under our non-cancelable operating lease agreements . the minimum lease payments above do not include any related common area maintenance charges or real estate taxes . under the terms of the license agreement with regenxbio , regenxbio has granted us an exclusive worldwide license ( subject to certain non-exclusive rights previously granted for mps iiia ) , with rights to sublicense , to regenxbio 's nav aav9 vector for the development and commercialization of gene therapies for the treatment of mps iiia , mps iiib , cln1 disease and cln3 disease . in return for these rights , regenxbio received a guaranteed $ 20 million upfront payment , $ 10 million of which was paid on signing of the agreement on november 4 , 2018 and $ 10 million of which was originally required under the agreement to be paid by november 4 , 2019. in addition , regenxbio will receive a total of $ 100 million in annual fees , payable upon the second through sixth anniversaries of the agreement , $ 20 million of which is guaranteed and payable on november 4 , 2020. regenxbio is also eligible to receive potential commercial milestone payments of up to $ 60 million as well as royalties payable in the low double digits to low teens on net sales of products incorporating the licensed intellectual property ; however , these amounts are not included since the payment is uncertain as of december 31 , 2019. on november 1 , 2019 , we entered into an amendment to the original license agreement , which replaced the $ 10 million payment due on november 4 , 2019 with a $ 3 million payment due on november 4 , 2019 and an additional $ 8 million payment ( which includes $ 1 million of interest ) due on april 1 , 2020. in addition , we are also party to other license agreements , which include contingent payments . however , contingent payments related to these license agreements are not disclosed as the satisfaction of these contingent payments is uncertain at december 31 , 2019 and , if satisfied , the timing of payment for these amounts was not reasonably estimable at december 31 , 2019. commitments related to the license agreements include contingent payments that will become payable if and when certain development , regulatory and commercial milestones are achieved . during the next 12 months , we do not expect to make milestone payments related to such license agreements . 68 critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the u.s. requires us to make estimates and assumptions that affect the 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 reported period . in applying our accounting principles , we must often make individual estimates and assumptions regarding expected outcomes or uncertainties . as you might expect , the actual results or outcomes are often different than the estimated or assumed amounts . these differences are usually minor and are included in our consolidated financial statements as soon as they are known . our estimates , judgments and assumptions are continually evaluated based on available information and experience . because of the use of estimates inherent in the financial reporting process , actual results could differ from those estimates . receivables receivables are reported in the balance sheets at the outstanding amount net of an allowance for doubtful accounts . we continually evaluate the creditworthiness of our customers and their financial condition and generally do not require collateral . the allowance for doubtful accounts is based upon reviews of specific customer balances , historic losses , and general economic conditions . as of december 31 , 2019 and 2018 , no allowance was recorded as all accounts were considered collectible . leases effective january 1,2019 , we adopted the provisions of asu 2016-02 , leases , as amended ( “ asc 842 ” ) using the cumulative-effect adjustment transition method , which applies the provisions of the standard as of the effective date without adjusting the comparative periods presented . asc 842 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under the previous guidance of asc 840 , leases . as a result of the adoption , we recorded operating lease right-of-use assets of $ 8.9 million and operating lease liabilities of $ 8.9 million . the adoption had an immaterial impact on our net assets as of january 1 , 2019. in addition , we elected the package of practical expedients permitted under the transition guidance within the new standard , which allowed us to carry forward the historical lease classification . we determine if an arrangement is a lease at inception . right-of-use lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease . the classification of our leases as operating or finance leases along with the initial measurement and recognition of the associated right-of-use assets and lease liabilities is performed at the lease commencement date . the measurement of lease liabilities is based on the present value of future lease payments over the lease term .
| our licensing revenue was $ 0 for each of the years ended december 31 , 2019 and 2018. in 2017 , we recognized licensing revenue over the period of the performance obligation under our licensing agreements under the guidance in asc 605. the adoption of asc 606 in 2018 resulted in recognition of licensing revenue at the point of sale to the licensee and no longer amortizing revenue over time . as a result , deferred licensing revenue on the date of adoption of asc 606 was recorded as an adjustment to accumulated deficit on january 1 , 2018. we did not record royalty revenue for mugard for the year ended december 31 , 2019 , as compared to $ 0.2 million for the same period of 2018. we licensed mugard to amag pharmaceuticals , inc. ( “ amag ” ) and norgine b.v. ( “ norgine ” ) and received quarterly royalties under our agreements . total research and development spending for the year ended december 31 , 2019 was $ 48.6 million , as compared to $ 38.7 million for the same period of 2018 , an increase of $ 9.9 million . the increase in expenses was primarily due to : ● increased clinical and development work for our gene and cell therapy product candidates ( $ 6.3 million ) ; and ● increased salary and related costs ( $ 4.3 million ) from the hiring of additional clinical , regulatory , manufacturing and quality staff ; partially offset by ● decreased other research and development costs ( $ 0.7 million ) . 64 total general and administrative expenses were $ 20.7 million for the year ended december 31 , 2019 , as compared to $ 20.1 million for the same period of 2018 , an increase of $ 0.6 million . the increase in expenses was due primarily to the following : ● increased office rent costs ( $ 1.5 million ) ; and ● increased other general and administrative expenses ( $ 0.5 million ) ; partially offset by ● decreased share-based compensation ( $ 1.1
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pursuant to the terms thereof , these loans are unsecured and bear interest at a rate of 6 % per annum . no payments are required until january 1 , 2017 , at which time all accrued interest becomes due and payable . principal and additional accrued interest will be payable in eight equal quarterly installments beginning on april 1 , 2017. at the election of the holder , at any time prior to payment or prepayment of the loans in full , all principal and accrued interest under the loans may be converted , in whole or in part , into our securities . upon such an election , the holder will receive one “ unit ” for each $ 0.75 converted , with each unit consisting of one ( 1 ) share of common stock and a five-year warrant to purchase ( 1 ) share of common stock at a price of $ 1.00 per share . during january and february 2016 , we borrowed an additional $ 12,750 from mr. binder and $ 380,000 from mr. koretsky to fund operations . these loans , each of which was memorialized in a convertible promissory note dated april 11 , 2016 , are unsecured and bear interest at a rate of 6 % per annum through february 29 , 2016 and 10 % per annum thereafter . accrued interest will become due on april 1 , 2017 , with principal being payable in eight equal quarterly installments , together with accrued interest , beginning on july 1 , 2017. at the holder 's election , at any time prior to payment or prepayment of the loans in full , all principal and accrued interest under the loans may be converted , in whole or in part , into the our securities . upon such an election , the holder will receive one “ unit ” for each $ 1.07 converted , with each unit consisting of one ( 1 ) share of common stock and a five-year warrant to purchase ( 1 ) share of common stock at a price of $ 1.07 per share . between march 2 , 2016 and july 5 , 2016 , we borrowed an additional $ 210,000 from mr. koretsky and $ 42,500 from mr. binder at an interest rate of 10 % per annum with the balance of the loan terms remaining unfinalized . of the funds loaned by mr. binder , $ 29,750 were included in the april 11 , 2016 convertible note referenced above , with the remaining $ 12,750 loaned by mr. binder and the $ 210,000 loaned by mr. koretsky memorialized on july 20 , 2016 in convertible notes upon the same terms as the april 11 , 2016 convertible notes . on march 18 , 2016 , we entered into a securities purchase agreement with old main , whereby old main agreed to purchase an aggregate of up to $ 500,000 in subscription amount corresponding to an aggregate of up to $ 555,555 in principal amount of 10 % original issue discount convertible promissory notes due , subject to the terms therein , as set forth below . pursuant to the terms of the securities purchase agreement , the purchase will occur , at our option , in up to five tranches . the first tranche of $ 200,000 was purchased on march 18 , 2016 ; the second tranche of $ 50,000 was purchased on the first friday that was a trading day after the filing date of a registration statement by the company covering the securities underlying the securities being purchased by old main ; the third tranche of $ 50,000 was purchased on the first friday that was a trading day at least three ( 3 ) trading days after we received initial comments from the sec on the registration statement ; the fourth tranche of $ 100,000 will be purchased on the first friday which is a trading day that is at least three trading days after the date the registration statement is declared effective ; and the fifth tranche of $ 100,000 will be purchased on the first friday which is a trading day after the thirty-day anniversary of the date the registration statement is declared effective by the sec . 22 the 10 % notes bear interest at the rate of 10 % per annum . at the earlier of september 18 , 2016 or two ( 2 ) trading days after this registration statement is declared effective , we must begin to redeem 1/24th of the face amount of the 10 % notes and any accrued but unpaid interest on a bi-weekly basis . such amortization payment may be made , at our option , in cash or , subject to certain conditions , in common stock pursuant to a conversion rate equal to the lower of ( a ) $ 0.80 ( the “ fixed conversion price ” ) or ( b ) 75 % of the lowest daily volume weighted average price of our common stock ( the “ vwap ” ) in the 20 consecutive trading days immediately prior to the applicable conversion date . the holder may , at its option , convert all or a portion of the 10 % notes into shares of common stock at a conversion price equal to the fixed conversion price . on march 18 , 2016 , we also issued old main an 8 % note in the principal amount of $ 200,000 for old main 's commitment to enter into an equity line transaction with us and prepare all of the related transaction documents . the 8 % note bears interest at the rate of 8 % per annum . at the earlier of september 18 , 2016 or two ( 2 ) trading days after the registration statement becomes effective , we must begin to redeem 1/6th of the face amount of the 8 % note and any accrued but unpaid interest on a monthly basis . story_separator_special_tag such amortization payment may be made , at our option , in cash or , subject to certain conditions , in common stock pursuant to a conversion rate equal to the lower of ( a ) $ 1.07 ( the “ 8 % note fixed conversion price ” ) or ( b ) 75 % of the lowest vwap in the twenty ( 20 ) consecutive trading days ending on the trading day that is immediately prior to the applicable conversion date . the terms of the equity purchase agreement required us to issue the 8 % note as a commitment fee for the equity line . this commitment fee was earned in full when old main delivered and executed the equity purchase agreement on april 18 , 2016. on april 18 , 2016 , we entered into an equity purchase agreement with old main providing that , upon the terms and subject to the conditions thereof , old main is committed to purchase , on an unconditional basis , shares of common stock at an aggregate price of up to $ 4,000,000 over the course of its 24-month term ( the “ equity line ” ) . old main 's obligation to purchase all $ 4,000,000 of shares is referred to as the “ total commitment. ” from time to time over the 24-month term of the equity purchase agreement , we may , in our sole discretion , provide old main with a put notice , to purchase a specified number of shares . the actual amount of proceeds we receive pursuant to each put notice will be determined by multiplying the put amount requested by the applicable purchase price . the purchase price of each share to be purchased equals 80 % of the market price during the five ( 5 ) consecutive trading days immediately following the clearing date associated with the applicable put notice . over the next twelve months we will require significant additional capital to cover our projected cash flow deficits due to the colorado arrangement and related agreements , the repayment of the april 2015 note , payments on the 10 % notes and 8 % note , payments on the loans from jeffrey binder and frank koretsky , the implementation of our business plan , and the development of alternative revenue sources . additionally , we anticipate that we will devote resources to research and development related to the refinement of our patent pending proprietary methods and processes and development of new products . we estimate research and development costs of between $ 50,000 and $ 100,000 during the next 12 months . finally , during the next 18-24 months , we plan to construct and open two to three processing facilities for use either by a licensee or by us directly . we anticipate that the build out and opening of each processing facility will require between $ 1,000,000 and $ 3,000,000 in capital , with additional capital required for liquidity to cover personnel , equipment , and other operating expenses with respect to each opened facility . we currently have two employees , jeffrey binder , who serves as the chairman , president and chief executive officer of the company , and alan bonsett , who serves as the chief operating officer of the company . in an effort to assist us conserve cash , mr. binder deferred all of his salary through may 31 , 2016 , which deferred salary totaled $ 250,000 , and on july 20 , 2016 he accepted a convertible promissory note from us in lieu of such salary . during the year ended may 31 , 2016 , we issued to mr. bonsett a one-time signing bonus of 250,000 ( post reverse split ) shares of restricted common stock of the company , which became fully vested one year from the effective date of his employment agreement . we valued the shares at $ 327,500. during the year ended may 31 , 2016 we recognized $ 327,500 in share-based compensation . we do not currently have the capital necessary to meet our liquidity needs , fund our capital requirements or implement our business plan . we intend to fund our cash flow and capital requirements during the next year from the proceeds of the unissued 10 % notes and the equity line , the sale of our debt and equity securities , by obtaining additional loans and with cash generated through operations in connection with the colorado arrangement . there can be no assurance that we will be able to meet our needs , however , as we have not yet received any commitments for the purchase of our equity securities or for additional loans . further , although we anticipate that we will begin receiving payments pursuant to the licensing agreement and equipment lease during the first quarter of 2017 , the colorado arrangement has not generated revenue to date and , as described above , there can be no assurance that it will ever generate sufficient cash to repay the $ 500,000 loan from cls labs colorado or to meet prh 's obligations under the licensing agreement or equipment lease . we anticipate that we will incur operating losses during the next twelve months . 23 consulting agreements we have also utilized the services of outside investor relations consultants . pursuant to a consulting agreement , we agreed to pay a consultant a monthly fee of $ 6,000 at the beginning of each month and agreed to issue the consultant 120,000 shares of restricted common stock vesting at a rate of 10,000 shares per month . during the three months ended may 31 , 2015 , we paid $ 12,000 to the consultant and 10,000 ( post reverse split ) shares vested .
| on april 17 , 2015 , cls labs took its first step toward commercializing its proprietary methods and processes by entering into the colorado arrangement through its wholly owned subsidiary , cls labs colorado , with certain colorado entities , including prh . cls labs had not otherwise commercialized its proprietary process prior to the merger and has not earned any revenues . we intend to generate revenue through ( i ) the licensing of our patent pending proprietary methods and processes to others , as in the colorado arrangement , ( ii ) the processing of cannabis for others , and ( iii ) the purchase of cannabis and the processing and sale of cannabis-related products . we plan to accomplish this through the creation of joint ventures , through licensing agreements , and through fee-for-service arrangements with growers and dispensaries of cannabis products . we believe that we can establish a position as one of the premier cannabinoid extraction and processing companies in the industry . assuming we do so , we then intend to explore the creation of our own brand of concentrates for consumer use , which we would sell wholesale to cannabis dispensaries . we believe that we can create a “ gold standard ” national brand by standardizing the testing , compliance and labeling of our products in an industry currently comprised of small , local businesses with erratic and unreliable product quality , testing practices and labeling . we also plan to offer consulting services through a consulting subsidiary , cls consulting , which will generate revenue by providing consulting services to cannabis-related businesses , including growers , dispensaries and laboratories , and driving business to our processing facilities . we had a net loss of $ 2,610,299 for the year ended may 31 , 2016 , resulting in an accumulated deficit as of may 31 , 2016 of $ 4,125,886. these conditions raise substantial doubt about our ability to continue as a going concern . results of operations for the years ended may 31 , 2016 and may 31 , 2015. revenues the company had
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the most sensitive and significant accounting estimates in the financial statements relate to customer rebates , valuation allowances for deferred income tax assets , obsolete and slow moving inventories , potentially uncollectible accounts receivable , pension liability and accruals for income taxes . although the company 's management has used available information to make judgments on the appropriate estimates to account for the above matters , there can be no assurance that future events will not significantly affect the estimated amounts related to these areas where estimates are required . however , historically , actual results have not been materially different than original estimates . revenue recognition . the company recognizes revenue from the sales of its products when ownership transfers to the customers , which occurs either at the time of shipment or upon delivery based upon contractual terms with the customer . the company recognizes customer program costs , including rebates , cooperative advertising , slotting fees and other sales related discounts , as a reduction to sales . allowance for doubtful accounts . the company provides an allowance for doubtful accounts based upon a review of outstanding accounts receivable , historical collection information and existing economic conditions . the allowance for doubtful accounts represents estimated uncollectible accounts receivables associated with potential customer defaults on contractual obligations , usually due to potential insolvencies . the allowance includes amounts for certain customers where a risk of default has been specifically identified . in addition , the allowance includes a provision for customer defaults based on historical experience . the company actively monitors its accounts receivable balances , and its historical experience of annual accounts receivable write offs has been negligible . customer rebates . customer rebates and incentives are a common practice in the office products industry . we incur customer rebate costs to obtain favorable product placement , to promote sell-through of products and to maintain competitive pricing . customer rebate costs and incentives , including volume rebates , promotional funds , catalog allowances and slotting fees , are accounted for as a reduction to gross sales . these costs are recorded at the time of sale and are based on individual customer contracts . management periodically reviews accruals for these rebates and allowances , and adjusts accruals when appropriate . obsolete and slow moving inventory . inventories are stated at the lower of cost , determined on the first-in , first-out method , or market . an allowance is established to adjust the cost of inventory to its net realizable value . inventory allowances are recorded for obsolete or slow moving inventory based on assumptions about future demand and marketability of products , the impact of new product introductions and specific identification of items , such as discontinued products . these estimates could vary significantly from actual requirements if future economic conditions , customer inventory levels or competitive conditions differ from expectations . income taxes . deferred income tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse . a valuation allowance is recorded to reduce deferred income tax assets to an amount that is more likely than not to be realized . intangible assets and goodwill . intangible assets with finite useful lives are recorded at cost upon acquisition and amortized over the term of the related contract , if any , or useful life , as applicable . intangible assets held by the company with finite useful lives include patents and trademarks . the weighted average amortization period for intangible assets at december 31 , 2014 was 14 years . the company periodically reviews the values recorded for intangible assets and goodwill to assess recoverability from future operations whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . at december 31 , 2014 and 2013 , the company assessed the recoverability of its long-lived assets and goodwill and believed that there were no events or circumstances present that would that would require a test of recoverability on those assets . as a result , there was no impairment of the carrying amounts of such assets and no reduction in their estimated useful lives . the net book value of the company 's intangible assets was $ 12,554,611 as of december 31 , 2014 compared to $ 4,071,897 as of december 31 , 2013 , and the net book value of the company 's goodwill was $ 1,375,000 at december 31 , 2014. the increase is primarily due to the acquisition of first aid only assets in june 2014 . 16 pension obligation . the pension benefit obligation is based on various assumptions used by third-party actuaries in calculating this amount . these assumptions include discount rates , expected return on plan assets , mortality rates and other factors . revisions in assumptions and actual results that differ from the assumptions affect future expenses , cash funding requirements and obligations . our funding policy is to fund the plan in accordance with applicable requirements of the internal revenue code and regulations . these assumptions are reviewed annually and updated as required . the company has a frozen defined benefit pension plan . two assumptions , the discount rate and the expected return on plan assets , are important elements of expense and liability measurement . we determine the discount rate used to measure plan liabilities as of the december 31 measurement date . the discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year . in estimating this rate , we look at rates of return on fixed-income investments of similar duration to the liabilities in the plan that receive high , investment grade ratings by recognized ratings agencies . story_separator_special_tag using these methodologies , we determined a discount rate of 3.23 % to be appropriate as of december 31 , 2014 , which is a decrease of .55 percentage points from the rate used as of december 31 , 2013. the expected long-term rate of return on assets considers the company 's historical results and projected returns for similar allocations among asset classes . in accordance with generally accepted accounting principles , actual results that differ from the company 's assumptions are accumulated and amortized over future periods and , therefore , affect expense and obligation in future periods . for the u.s. pension plan , our assumption for the expected return on plan assets was 6.0 % for 2014. for more information concerning these costs and obligations , see the discussion in note 6 – pension and profit sharing , in the notes to the company 's consolidated financial statements in this report . accounting for stock-based compensation . stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period . the company uses the black-scholes option - pricing model to determine fair value of the awards , which involves certain subjective assumptions . these assumptions include estimating the length of time employees will retain their vested stock options before exercising them ( “ expected term ” ) , the estimated volatility of the company 's common stock price over the expected term ( “ volatility ” ) and the number of options for which vesting requirements will not be completed ( “ forfeitures ” ) . changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation , and the related amount recognized on the consolidated statements of operations . refer to note 11 - stock option plans - in the notes to consolidated financial statements in this report for a more detailed discussion . story_separator_special_tag higher tax rate than the countries in which our subsidiaries operate compared to 2013 . 18 off-balance sheet transactions the company did not engage in any off-balance sheet transactions during 2014. liquidity and capital resources during 2014 , working capital decreased by approximately $ 5.0 million compared to december 31 , 2013. cash declined by approximately $ 9.4 million as a result of the acquisition of first aid only assets for cash . inventory increased by approximately $ 5.5 million . the company purchased approximately $ 1.7 million of inventory as part of the acquisition of first aid only and purchased an additional $ 3.8 million of inventory in anticipation of new business in 2015. inventory turnover , calculated using a twelve month average inventory balance , increased to 2.2 from 1.9 at december 31 , 2013. receivables increased by approximately $ 3.8 million . the increase in receivables is directly related to the increase in sales . the average number of days sales outstanding in accounts receivable was 63 days in 2014 compared to 64 days in 2013. accounts payable increased by approximately $ 3.0 million primarily as a result of inventory purchases . the company 's working capital , current ratio and long-term debt to equity ratio follow : replace_table_token_3_th at december 31 , 2014 , total debt outstanding under the company 's revolving credit facility ( referred to below ) increased by approximately $ 1.2 million compared to total debt at december 31 , 2013. the change in debt was primarily due to the $ 13.8 million acquisition of first aid only assets funded primarily by the revolving credit facility , which was partially offset by $ 11.8 million of repatriations from foreign subsidiaries . as of december 31 , 2014 , $ 24,146,841 was outstanding and $ 15,853,159 was available for borrowing under the company 's revolving credit facility . on april 25 , 2013 , the company amended its loan agreement with hsbc bank , n.a . dated april 5 , 2012. the amendment increased the borrowing limit to $ 40 million from $ 30 million . the interest rate remains the same at libor plus 1.75 % . all principal amounts outstanding under the agreement are required to be repaid in a single amount on april 5 , 2017 , the date the agreement expires ; interest is payable monthly . funds borrowed under the agreement may be used for working capital , general operating expenses , share repurchases , acquisitions and certain other purposes . during the fourth quarter of 2013 , the company and hsbc agreed to make certain technical amendments to a covenant of the amended loan agreement to accommodate the purchase of the rocky mount facility . under the amended loan agreement , the company continues to be required to to maintain specific amounts of tangible net worth , a debt/net worth ratio , and a fixed charge coverage ratio . at december 31 , 2014 the company was in compliance with the covenants then in effect under the amended loan agreement . capital expenditures during 2014 and 2013 were $ 2,042,212 and $ 4,591,929 , respectively , which were , in part , financed with borrowings under the company 's revolving credit facility . as noted above , on august 30 , 2013 , the company purchased a manufacturing and distribution center in rocky mount , north carolina for $ 2.8 million and paid approximately $ .9 million towards upgrading the building . in 2014 , the company invested an additional $ .9 million to upgrade the building and equipment . the company believes that cash generated from operating activities , together with funds available under its revolving credit facility , are expected , under current conditions , to be sufficient to finance the company 's planned operations for at least the next twelve months . 19 recently issued accounting standards in february 2013 , the financial accounting standards board ( “ fasb ” ) issued an accounting standards update on the reporting of
| 17 net sales in 2014 , sales increased by $ 17,645,000 or 20 % to $ 107,222,000 compared to $ 89,577,000 in 2013. excluding sales resulting from the acquisition on june 2 , 2014 of the assets of first aid only , inc. , comparable sales increased 8 % ( 9 % in constant currency ) . the u.s. segment sales increased by $ 17,690,000 or 24 % in 2014 compared to 2013. sales in canada increased by $ 749,000 or 9 % in u.s. dollars and 17 % in local currency in 2014 compared to 2013. european sales decreased by $ 794,000 or 10 % in both u.s. dollars and local currency in 2014 compared to 2013. the increase in net sales for the twelve months ended december 31 , 2014 in the u.s. segment was primarily due to increased sales of first aid products , including the additional sales from the acquisition of first aid only , inc. , the introduction of new lawn and garden products , and growth in sales of camillus knives and ipoint pencil sharpeners . the increase in net sales in canada for the twelve months ended december 31 , 2014 was primarily due to strong back to school sales , higher sales of camillus knives and the introduction of new lawn and garden products . the decrease in sales in europe in 2014 was primarily due to lower promotional sales to mass market customers . gross profit gross profit was 35.6 % of net sales in 2014 compared to 35.5 % in 2013. selling , general and administrative selling , general and administrative expenses were $ 30,791,000 in 2014 compared with $ 25,945,000 in 2013 , an increase of $ 4,846,000 or 19 % . sg & a expenses were 29 % of net sales in 2014 and 2013 , respectively . the increase in sg & a expenses was primarily the result of incremental expenses resulting from the addition of first aid only ( $ 2.1 million ) , higher delivery costs and sales commissions as a result of higher sales ( $ 1.3
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we also farm certain herbs used in tcm but have not made sales in the year ended march 31 , 2020. critical accounting policies and estimates in preparing our audited consolidated financial statements in accordance with accounting principles generally accepted in the united states of america , we are required to make judgments , estimates and assumptions that affect : ( i ) the reported amounts of our assets and liabilities ; ( ii ) the disclosure of our contingent assets and liabilities at the end of each reporting period ; and ( iii ) the reported amounts of revenue and expenses during each reporting period . we continually evaluate these estimates based on our own historical experience , knowledge and assessment of current business and other conditions , our expectations regarding the future based on available information and reasonable assumptions , which together form our basis for making judgments about matters that are not readily apparent from other sources . since the use of estimates is an integral component of the financial reporting process , our actual results could differ materially from those estimates . we believe that any reasonable deviation from those judgments and estimates would not have a material impact on our financial condition or results of operations . to the extent that the estimates used differ from actual results , however , adjustments to the statement of operations and corresponding balance sheet accounts would be necessary . these adjustments would be made in future financial statements . when reading our financial statements , you should consider : ( i ) our critical accounting policies ; ( ii ) the judgment and other uncertainties affecting the application of such policies ; and ( iii ) the sensitivity of reported results to changes in conditions and assumptions . the critical accounting policies and related judgments and estimates used to prepare our financial statements are identified in note 2 to our audited consolidated financial statements accompanying in this report . 36 revenue recognition in may 2014 , the fasb issued asu no . 2014-09 , which creates topic 606 , revenue from contracts with customers . the new guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers . the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services . additionally , the guidance requires improved disclosure to help users of financial statements better understand the nature , amount , timing , and uncertainty of revenue that is recognized . the new guidance supersedes most current revenue recognition guidance , including industry-specific guidance . the standard is effective for annual reporting periods beginning after december 15 , 2017 , including interim periods within that reporting period , and permits early adoption on a limited basis . the update permits the use of either the retrospective or cumulative effect transition method . on april 1 , 2018 , we adopted the guidance in asc 606 and all the related amendments and applied the new revenue standard to all contracts using the modified retrospective method . based on the new standard our revenue recognition policies related to membership rewards programs has changed . membership rewards , usually membership points , are accumulated by customers based on their historical spending levels . the company has determined that there is an additional performance obligation to those customers at the time of the initial transaction . the customers can then redeem these points against the prices of merchandises they purchase in the future . at the end of each period , unredeemed membership rewards are reflected as a contract liability . the adoption of the new revenue standard was not material and is not expected to be material to our net income on an ongoing basis . impairment of definite-lived intangible assets the company evaluates the recoverability of definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . these long-lived assets are grouped and evaluated for impairment at the lowest level at which individual cash flows can be identified . when evaluating these long-lived assets for potential impairment , the company first compares the carrying amount of the asset group to the asset group 's estimated future cash flows ( undiscounted and without interest charges ) . if the estimated future cash flows are less than that carrying amount of the asset group , an impairment loss calculation is prepared . the impairment loss calculation compares the carrying amount of the asset group to the asset group 's estimated future cash flows ( discounted and with interest charges ) . if required , an impairment loss is recorded for the portion of the asset group 's carrying value that exceeds the asset group 's estimated future cash flows ( discounted and with interest charges ) . the long-lived asset impairment loss calculation contains uncertainty since management must use judgment to estimate each asset group 's future sales , profitability and cash flows . when preparing these estimates , the company considers historical results and current operating trends and consolidated sales , profitability and cash flow results and forecasts . these estimates can be affected by a number of factors including , but not limited to , general economic and regulatory conditions , efforts of third party organizations to reduce their prescription drug costs and or increased member co-payments , the continued efforts of competitors to gain market share and consumer spending patterns . in the year ended march 31 , 2020 , we evaluated the licenses of insurance applicable drugstores acquired in the past based on their discounted positive cash value . due to the stricter government insurance policy in fiscal year 2021 , the value of these licenses has declined . story_separator_special_tag as a result , we recorded an impairment of $ 628,192 as of march 31 , 2020. story_separator_special_tag ended march 31 , 2013. a ginkgo tree may have a growth period of up to twenty years before it is mature enough for harvest . usually , the longer it grows the more valuable it becomes . we plan to continue cultivating the trees in order to maximize their market value in the future . 38 gross profit gross profit increased by $ 418,387 or 1.7 % period over period primarily as a result of an increase in gross profit provided by both wholesale business and online sale , which increased significantly in the year ended march 31 , 2020. at the same time , gross margin decreased from 23.3 % to 21.8 % due to lower online and offline retail profit margins . the average gross margins for each of our four business segments are as follows : replace_table_token_3_th retail gross margins decreased primarily because of price restriction from local government on sale of drugs reimbursed by the national public health insurance program and rising proportion of sales dtp ( “ direct-to-patient ” ) medicine with low profit margin . in order to control increasing budget on medical insurance spending , government has drafted and executed a series of policies to reduce the price of drugs reimbursed by its insurance program . for example , the government has invited bidders , usually manufacturers , for the drugs used in large quantity every year . in exchange for large quantity , manufacturers have to surrender a low price . these drugs are usually prescription drugs primarily used at hospitals . however , our drugstores also sell some of these drugs . as a result , our profit margin decreased . additionally , as we described above , dtp drug sales have taken a larger proportion of our sales at stores . dtp drugs have extremely low profit margins . hence , our retail profit margin decreased . gross margin of online pharmacy sales decreased primarily due to intense market competition . we conduct our business either through certain e-commerce platforms such as tmall and jd.com or via our own official online pharmacy website , www.dada360.com . the online prices of healthcare products are transparent as customers can easily compare prices from websites . in order to promote our sales through e-commerce platforms , we have to lower our prices leading to lower profit margin . as a way to retain new customers from insurance companies , we also kept low prices on our official online pharmacy websites . as a result , our profit margin for online sales decreased . wholesale gross margin decreased primarily due to various products with different profit margins we carried and sold to certain pharmaceutical vendors . in the year ended march 31 , 2020 , certain prescription drugs we sold are at low profit margin . as a result , the overall profit margin is lower as compared to the same period last year . although we have attempted to market our products to major local hospitals and other pharmacies , we have not been able to make significant progress . until we are able to obtain status as a provincial or national exclusive sale agent for certain popular drugs or have sales access to large local hospitals , we may have to maintain low profit margins in order to drive sales on our wholesale business . selling and marketing expenses sales and marketing expenses decreased by $ 471,581 or 1.9 % year over year , primarily due to decrease in rent . as we closed several stores , rent expense went down . additionally , we have closely monitored our marketing expense such as small gifts . as a result , our sale and marketing expense declined slightly . 39 general and administrative expenses general and administrative expenses increased by $ 6,389,388 or 371.7 % period over period . such expenses as a percentage of revenue increased to 6.9 % from 1.6 % for the same period a year ago . in the year ended march 31 , 2020 , we recorded bad debt expense of $ 455,159 as compared to a reduction in the allowance for bad debts of $ 3,346,886 in fy2019 . additionally , we incurred additional labor cost of approximately $ 1.5 million as we have expanded certain business . for example , we have been operating two linjia clinics and hired more doctors . in addition , in order to obtain business from commercial health insurance providers , we formed a marketing team . although these business have not contributed significantly to our revenue , they incurred labor costs . excluding such an effect , general and administrative expenses increased by approximately $ 1.1 million , which reflects the increase in management cost as a result of our business expansion . impairment of long-lived assets we recorded an impairment of long-lived assets of $ 628,192 and $ 0 for the year ended march 31 , 2020 and 2019. in the year ended march 31 , 2020 , we evaluated the licenses of insurance applicable drugstores acquired in the past based on their discounted positive cash value . due to the stricter government insurance policy in fiscal year 2021 , the value of these licenses has declined . as a result , we recorded an impairment of $ 628,192 as of march 31 , 2020. loss from operations as a result of the above , we had loss from operations of $ 7,003,742 , as compared to loss from operations of $ 876,130 a year ago . our operating margin for the year ended march 31 , 2020 and 2019 was ( 6.0 ) % and ( 0.8 ) % , respectively .
| dtp drugs are usually new medicines with low profit margins . as part of such medical reform package , local governments require the revenue percentage from drug sales at public hospitals to decline year by year . in order to achieve lower drug sales percentage out of their total revenue , the public hospitals chose to abandon sales of low profit margin dtp products first . as a result , the dtp drug manufacturers or vendors switched to local drugstores to explore the market . as a large drugstore network in hangzhou city , quite a few of our stores are located adjacent to local hospitals . additionally , we have actively approached local vendors of certain dtp products , which we have not sold at our stores in the past . by opening special counters at some stores and selling more dtp products , sales in our drugstores increased . furthermore , since fiscal year 2018 , we have accelerated our expansion of new stores , which is expected to generate more retail drugstore revenues . eighteen stores have become qualified for municipal government insurance reimbursement after about two years ' operation . sales reimbursed from municipal government insurance program usually account for more than 50 % of our total sales at maturing stores . as these stores gained such qualifications , their sales increased quickly as compared to the previous year . our store count is 121 at march , 2019 and 117 at march 31 , 2020. our online pharmacy sales increased by approximately $ 4,756,756 , or 54.1 % for the year ended march 31 , 2020 , as compared to the year ended march 31 , 2019. the increase was caused by both an increase in sales via e-commerce platforms such as tmall and an increase in sales via our official site . popular products at reasonable prices are key to success in online business . in order to promote our sales , we focused on the selection of medical equipment suitable to local customers . for example , sales of
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financial results include the results for cvs ferrari , srl ( our italian subsidiary ) from the date the company was formed in june 2010. on july 1 , 2010 , cvs ferrari , srl entered into an agreement to rent on an exclusive basis certain assets of cvs spa , while cvs spa proceeds through the italian bankruptcy process ( concordato preventivo ) . cvs ferrari , srl commenced operations in the third quarter of 2010 utilizing the rented assets to manufacture reach stackers and associated lifting equipment for the global container handling market . the assets that were being rented from the predecessor company were purchased on july 1 , 2011 and the rental agreement was terminated . equipment distribution segment the company 's crane & machinery division ( crane ) located in bridgeview , illinois , is a crane dealer that distributes terex rough terrain and truck cranes , fuchs material handlers , and manitex boom trucks and sky cranes . we treat these operations as a separate reporting segment entitled equipment distribution. our equipment distribution segment also supplies repair parts for a wide variety of medium to heavy duty construction equipment sold both domestically and internationally . our crane products are used primarily for infrastructure development and commercial construction . applications include road and bridge construction , general contracting , roofing , scrap handling and sign construction and maintenance . in the second quarter of 2010 , we expanded our equipment distribution segment by creating a new division , north american equipment exchange , ( naee ) to market previously-owned construction and heavy equipment , domestic and internationally . this division provides a wide range of used lifting and construction equipment of various ages and condition , and the company has the capability to refurbish the equipment to the customers ' specification . summary of recent acquisitions on july 10 , 2009 , the company completed the acquisition of the outstanding capital stock of badger pursuant to a stock purchase agreement ( the purchase agreement ) with avis industrial corporation , an indiana corporation ( the seller ) . the aggregate purchase price for the capital stock of badger , as set forth in the purchase agreement , consisted of : ( 1 ) a promissory note of the company in favor of seller in the principal 28 amount of $ 2.75 million , ( 2 ) 300,000 shares of the company 's common stock and ( 3 ) $ 0.04 million in cash . see note 19 to the company 's consolidated financial statements for additional information regarding the valuation of the consideration paid . on december 31 , 2009 , our subsidiary , manitex load king , inc. , acquired the operating assets of load king trailers pursuant to a purchase agreement ( the load king purchase agreement ) with genie industries , inc. ( genie ) , a subsidiary of terex corporation . the acquired assets consisted of substantially all of genie 's elk point , south dakota , operating assets and business operations , including the manufacturing facilities and offices located in elk point , south dakota , and certain liabilities relating to its load king specialized low-bed , heavy-haul , bottom-dump and platform trailer manufacturing business . the consideration for the purchase of the load king assets consisted of : $ 0.1 million of cash , and the company 's promissory note for $ 2.75 million . at the closing , the company also issued a $ 0.25 million promissory note to ensure the delivery to the seller of 130,890 shares of the company 's common stock , as partial consideration under the load king purchase agreement . on january 6 , 2010 , the company issued to terex 130,890 shares of its common stock in satisfaction of such promissory note . see note 19 to the company 's consolidated financial statements for additional information regarding the valuation of the consideration paid . on july 1 , 2011 , cvs ferrari , srl purchased the intangible assets and the machinery and equipment that cvs had previously rented from cvs spa in liquidation ( the seller ) pursuant to a purchase agreement ( purchase agreement ) with the seller dated june 29 , 2011. additionally on june 29 , 2011 , cvs entered into a second agreement which also closed on june 29 , 2011 with cabletronic , srl ( cabletronic agreement ) to acquire software and electronic know-how that is used in the products manufactured by cvs . finally , cvs ferrari assumed certain liabilities . the aggregate purchase price was $ 4.9 million which consisted of ( 1 ) a cash payment of $ 0.9 million , ( 2 ) promissory notes totaling $ 3.3 million and ( 3 ) assumption of liabilities of $ 0.7 million . see note 19 to the company 's consolidated financial statements for additional information regarding the valuation of the consideration paid . recent economic conditions beginning in september of 2008 , the united states and world financial markets came under unprecedented stress . the immediate impact was a dramatic decrease in liquidity and credit availability throughout the world . an incredibly rapid and significant deterioration in economic conditions , especially in the united states and europe followed . these events had an immediate significant adverse impact on the company . in response to the events that occurred in late 2008 and 2009 , it was determined that swift management action was necessary to ensure that operating activity was balanced with current demand levels . management actions included headcount reductions , reduction of overtime , suspension of additional hires and merit increases , reduction in executive and salaried pay , bonus and benefits and the introduction of shortened workweeks . these actions , although difficult , were required to enable the company to adjust to current conditions and position it to respond quickly when the market recovers . currently , the market for our products has stabilized and selective markets have grown , particularly the energy , and power distribution sectors domestically and in certain international markets . story_separator_special_tag our orders and revenues have shown marked improvement . we are cautiously optimistic about the future . however , there is still significant risk and uncertainty in the world markets , which could impact our future business . our total backlog has increased steadily since december 2009. in response , we have taken and will continue to take actions to selectively increase production capacity , including hiring additional manufacturing employees at certain of our facilities . factors affecting revenues and gross profit the company derives most of its revenue from purchase orders from dealers and distributors . the demand for the company 's products depends upon the general economic conditions of the markets in which the company 29 competes . the company 's sales depend in part upon its customers ' replacement or repair cycles . adverse economic conditions , including a decrease in commodity prices , may cause customers to forego or postpone new purchases in favor of repairing existing machinery . additionally , our manitex liftking subsidiary revenues are impacted by the timing of orders received for military forklifts and residential housing starts . cvs revenues are impacted in part by the timing of contract awards related to major port projects . gross profit varies from period to period . factors that affect gross profit include product mix , production levels and cost of raw materials . margins tend to increase when production is skewed towards larger capacity cranes , special mission oriented vehicles , specialized carriers and heavy material transporters . the following table sets forth certain financial data for the three years ended december 31 , 2011 , 2010 , and 2009 : story_separator_special_tag facility . ( 2 ) the average severance was considerably higher in 2011 , as the both employees that were laid off were long-term employees located in our canadian facility . canadian law requires that a minimum severance based on years of service be paid to terminated employees . selling , general and administrative expense selling , general and administrative expense for the year ended december 31 , 2011 was $ 19.8 million compared to $ 16.5 million for the comparable period in 2010. approximately 65 % of the increase is related to increased selling , general and administrative expenses at cvs and naee , attributed to the fact naee and cvs only began operating in june and july 2010 , respectively . as such these operations had essentially no selling , general and administrative expenses for six months ended june 30 , 2010 and cvs had only had limited expenses for the three months ended september 30 , 2010 , as cvs was still in a start-up mode during the third quarter of 2010. the majority of the remaining 35 % increase is attributed to an increase in selling expense and higher compensation expense related to additional provisions for performance based compensation , a restoration of prior salary reductions and selected increase in staffing . selling expense increased primarily as the company spent $ 0.5 million to attend the 2011 con expo trade show . the con expo show , which is held every three years , was held in las vegas in march of this year . this show is an international gathering place for the construction industries . it is estimated that 120,000 professionals from around the world attended the show . increased revenues also contributed to the increase in selling expenses . other less significant factors , including higher travel expenses , also contributed to the increase in selling , general and administrative expense . legal settlement ( at net present value ) the company has disclosed in its previous filings with the security and exchange commission that its insurance carriers had denied coverage for two product liability suits . the insurance companies subsequently filed a 32 declaratory judgment action in a u.s. district court , seeking a determination that there was no duty on the part of the liability insurance carriers to defend the company . the company indicated in its earlier filings that company believed that the insurance companies ' basis of denial of coverage was improper . the underlying suits are related to a liability for a product that was manufactured by a predecessor company of our manitex subsidiary . the product liability of this predecessor company was assumed by various acquiring companies and ultimately became the company 's liability when we acquired our manitex subsidiary . on november 16 , 2010 the united states district court for the western district of texas , austin division , ( the district court ) granted the company 's motion for summary judgment finding that the insurers did have a duty to defend the two product liability claims . the insurance companies were granted leave to appeal the decision to the fifth circuit court of appeals . the company has also disclosed in previous filing with the security and exchange commission that on may 5 , 2011 , that the company had entered into two ( 2 ) separate settlement agreements with the two ( 2 ) plaintiffs in the underlying product liability lawsuits . pursuant to these agreements , if the court 's decision in the declaratory judgment action were to be affirmed , the plaintiffs will have the opportunity to pursue their recovery solely and exclusively against either or both of the liability insurance carriers and the company itself shall have no liability to the plaintiffs . if , however , in the declaratory judgment action , it is ultimately determined that there was no duty on the part of the liability insurance carriers to defend the company the company will be liable to the plaintiffs in the total amount of $ 1.9 million , payable in equal annual installments over a period of twenty ( 20 ) years without interest , beginning at the conclusion of the declaratory judgment action . on february 21 , 2012 , the company was informed that the fifth circuit court of appeals reversed the district court 's decision and determined that the insurance companies did not have an obligation to defend these two product liability suits .
| the amount recorded , represents the net present value of twenty annual payments of ninety-five thousand dollars as provided for in a may 5 , 2011 contingent settlement for two product liability suits related to an accident that occurred in 2006. under the settlement agreement , the company only becomes liable when it is ultimately determined that there is no duty on the part of the liability insurance carriers to defend the company . this settlement is related to a liability for a product that was manufactured by a predecessor company of our manitex subsidiary . the product liability of this predecessor company was assumed by various acquiring companies and ultimately became the company 's liability when we acquired the company 's manitex subsidiary in 2006. this settlement is of an unusual nature and although it had a significant impact on our 2011 results , it is not related to on-going activities of the company . furthermore , the company is not aware of any other similar potential liabilities at the present time and has secured insurance coverage to explicitly cover such future instances , mitigating future business risks . for the year ended december 31 , 2010 , net income was $ 2.1 million , which consists of revenue of $ 95.9 million , cost of sales of $ 72.5 million , research and development costs of $ 1.2 million , sg & a costs of $ 16.5 million , restructuring expenses of $ 0.2 million , interest expense of $ 2.4 million , foreign currency transaction loss of $ 0.1 million and income tax expense of $ 1.0 million . net revenue and gross profit for the year ended december 31 , 2011 net revenue and gross profit were $ 142.3 million and $ 29.2 million , respectively . gross profit as a percent of sales was 20.6 % for the year ended december 31 , 2011. for the year ended december 31 , 2010 , net revenue and gross profit were $ 95.9 million and $ 23.3 million , respectively . gross profit as a percent of sales was 24.3 % for the year ended december 31 , 2010. approximately half of the increase in revenues is attributed to increased revenues at cvs and naee , two units that commenced operations mid-year 2010. the remaining increase in revenues is principally attributed to increased revenues for our boom trucks . the increase in
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in 2007 , we include in direct 48 operating expense the service costs associated with our athenaclinicals offering , which includes transaction handling related to lab requisitions , lab results entry , fax classification and other services . we also expect these costs to increase in absolute terms for the foreseeable future but to decline as a percentage of revenue . this decrease will be driven by increased levels of automation and by economies of scale . direct operating expense does not include allocated amounts for rent , depreciation and amortization . selling and marketing expense . selling and marketing expense consists primarily of marketing programs ( including trade shows , brand messaging and on-line initiatives ) and personnel related expense for sales and marketing employees ( including salaries , benefits , commissions , stock-based compensation , non-billable travel , lodging and other out-of-pocket employee-related expense ) . although we recognize substantially all of our revenue when services have been delivered , we recognize a large portion of our sales commission expense at the time of contract signature and at the time our services commence . accordingly , we incur a portion of our sales and marketing expense prior to the recognition of the corresponding revenue . we plan to continue to invest in sales and marketing by hiring additional direct sales personnel to add new clients and increase sales to our existing clients . we also plan to expand our marketing activities such as attending trade shows , expanding user groups and creating new printed materials . as a result , we expect that in the future , sales and marketing expense will increase in absolute terms but decline over time as a percentage of revenue . research and development expense . research and development expense consists primarily of personnel-related expenses for research and development employees ( including salaries , benefits , stock-based compensation , non-billable travel , lodging and other out-of-pocket employee-related expense ) and consulting fees for third-party developers . we expect that in the future , research and development expense will increase in absolute terms but not as a percentage of revenue as new services and more mature products require incrementally less new research and development investment . for our revenue cycle related application development , we expense nearly all of the development costs because we believe the development is substantially complete . for our clinical cycle related application development , we capitalized nearly all of our research and development costs during the years ended december 31 , 2007 and 2006 , which capitalized costs represented approximately 15 % of our total research and development expenditures in 2007 and approximately 16 % in 2006. these capitalized expenditures will begin to amortize during the first quarter of 2008 when we began to implement our services to clients who are not part of our beta-testing program . general and administrative expense . general and administrative expense consists primarily of personnel-related expense for administrative employees ( including salaries , benefits , stock-based compensation , non-billable travel , lodging and other out-of-pocket employee-related expense ) , occupancy and other indirect costs ( including building maintenance and utilities ) and insurance , as well as software license fees and outside professional fees for accountants , lawyers and consultants and temporary employees . we expect that general and administrative expense will increase in absolute terms for the foreseeable future as we invest in infrastructure to support our growth and incur additional expense related to being a publicly traded company . though expenses are expected to continue to rise in absolute terms , we expect general and administrative expense to decline as a percentage of overall revenues . depreciation and amortization expense . depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of capitalized software development costs , which we amortize over a two-year period from the time of release of related software code . because our core revenue cycle application is relatively mature , we expense those costs as incurred , and as a result in 2007 approximately 85 % of our software development expenditures were expensed rather than capitalized . in the year ended december 31 , 2006 , approximately 84 % were expensed rather than capitalized . as we grow we will continue to make capital investments in the infrastructure of the business and we will continue to develop software that we capitalize . at the same time , because we are spreading fixed costs over a larger client base , we expect related depreciation and amortization expense to decline as a percentage of revenues over time . other income ( expense ) . interest expense consists primarily of interest costs related to our working capital line of credit , our equipment-related term loans and our subordinated term loan , offset by interest income on investments . interest income represents earnings from our cash , cash equivalents and short-term 49 investments . the unrealized loss on warrant liability represents the change in the fair value of our warrants to purchase shares of our preferred stock at the end of each reporting period . this ongoing loss ceased upon the completion of our initial public offering at which time the associated liability converted to additional paid-in-capital . critical accounting policies we prepare our financial statements in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , expense and related disclosures . we base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies , among others , affect our more significant judgments and estimates used in the preparation of our financial statements . story_separator_special_tag revenue recognition we recognize revenue when all of the following conditions are satisfied : there is evidence of an arrangement ; the service has been provided to the client ; the collection of the fees is reasonably assured ; and the amount of fees to be paid by the client is fixed or determinable . our arrangements do not contain general rights of return . all revenue , other than implementation revenue , is recognized when the service is performed . as the implementation service is not separable from the ongoing business services , we record implementation fees as deferred revenue until the implementation service is complete , at which time we recognize revenue ratably on a monthly basis over the expected performance period . our clients typically purchase one-year contracts that renew automatically upon completion . in most cases , our clients may terminate their agreements with 90 days notice without cause . we typically retain the right to terminate client agreements in a similar timeframe . our clients are billed monthly , in arrears , based either upon a percentage of collections posted to athenanet , minimum fees , flat fees or per claim fees where applicable . invoices are generated within the first two weeks of the month and delivered to clients primarily by email . for most of our clients , fees are then deducted from a pre-defined bank account one week after invoice receipt via an auto-debit transaction . amounts that have been invoiced are recorded as revenue or deferred revenue , as appropriate , and are included in our accounts receivable balances . deposits received for future services ( such as implementation fees ) are recorded as deferred revenue and amortized over the term of the service agreement when ongoing services commence . capitalized software costs we account for software development costs under the provisions of american institute of certified public accountants statement of position ( sop ) 98-1 , accounting for the costs of computer software developed or obtained for internal use . under sop 98-1 , costs related to the preliminary project stage of subsequent versions of athenanet and or other technology are expensed as incurred . costs incurred in the application development stage are capitalized . such costs are amortized over the software 's estimated economic life of two years . in 2007 approximately 85 % of our software development expenditures were expensed rather than capitalized based upon the stage of development of the software . in the year ended december 31 , 2006 , approximately 84 % of our software development expenditures were expensed rather than capitalized . 50 stock-based compensation prior to january 1 , 2006 , we accounted for stock-based awards to employees using the intrinsic value method as prescribed by accounting principles board ( apb ) opinion no . 25 , accounting for stock issued to employees , and related interpretations . under the intrinsic value method , compensation expense is measured on the date of grant as the difference between the deemed fair value of our common stock and the option exercise price multiplied by the number of options granted . generally , we grant stock options with exercise prices equal to or above the estimated fair value of our common stock . the option exercise prices and fair value of our common stock is determined by our management and board of directors . accordingly , no compensation expense was recorded for options issued to employees prior to january 1 , 2006 in fixed amounts and with fixed exercise prices at least equal to the fair value of our common stock at the date of grant . on january 1 , 2006 , we adopted sfas no . 123 ( r ) , share-based payment , which requires companies to expense the fair value of employee stock options and other forms of share-based awards . sfas 123 ( r ) addresses accounting for share-based awards , including shares issued under employee stock purchase plans , stock options and share-based awards , with compensation expense measured using the fair value , for financial reporting purposes , and recorded over the requisite service period of the award . in accordance with sfas 123 ( r ) , we recognize compensation expense for awards granted and awards modified , repurchased or cancelled after the adoption date . under sfas 123 ( r ) , we estimate the fair value of stock options and share-based awards using the black-scholes option-pricing model . we have recorded stock-based compensation under sfas 123 ( r ) using the prospective transition method and accordingly , will continue to account for awards granted prior to the adoption date of sfas 123 ( r ) following the provisions of apb opinion no . 25. prior periods have not been restated . for awards granted after january 1 , 2006 , we have elected to recognize compensation expense for awards with service conditions on a straight line basis over the requisite service period . prior to the adoption of sfas 123 ( r ) , we used the straight-line method of recognition for all awards . for the twelve months ended december 31 , 2007 and 2006 we recorded $ 1.3 million and $ 0.4 million in stock-based compensation expense , respectively . as of december 31 , 2007 the future expense of non-vested options of approximately $ 4.4 million is to be recognized through 2011. there was no impact on the presentation in the consolidated statements of cash flows as no excess tax benefits have been realized in 2007. the fair value of our options issued during the year ended december 31 , 2007 and 2006 was determined using the black-scholes model with the following range of assumptions : replace_table_token_4_th since we completed our initial public offering in september 2007 , we have not had sufficient history as a publicly traded company to evaluate its volatility factor and expected term .
| in the year ended december 31 , 2007 , approximately 366 new accounts were implemented , an increase of 110 accounts , or 43 % , over 256 new accounts implemented in the year ended december 31 , 2006. the increase in implementation and other revenue is the result of the increase in the volume of our business . year ended december 31 , 2007 2006 change amount amount amount percent direct operating costs $ 46,135 $ 36,530 $ 9,605 26 % direct operating costs . direct operating costs for the year ended december 31 , 2007 was $ 46.1 million , an increase of $ 9.6 million , or 26 % , over costs of $ 36.5 million for the year ended december 31 , 2006. this increase was primarily due to an increase in the number of claims that we processed on behalf of our clients and the related expense of providing services , including transactions expense and salary and benefits expense . additionally , beginning in the year ended december 31 , 2007 we allocated costs to direct operating expense related to our launch of athenaclinicals which was previously included with research and development . the athenaclinicals expense allocated to direct operating costs totaled approximately $ 2.4 million in the year ended december 31 , 2007. the amount of collections processed for the year ended december 31 , 2007 was $ 2.7 billion , which was 35 % higher than the $ 2.0 billion of collection processed for the year ended december 31 , 2006. the increase in collections increased at a higher rate than the increase in the related direct operating costs as we benefited from economies of scale . replace_table_token_7_th selling and marketing expense . selling and marketing expense for the year ended december 31 , 2007 was $ 17.2 million , an increase of $ 1.6 million , or 10 % , over costs of $ 15.6 million for the year ended december 31 , 2006. this increase was primarily due to increases in sales commissions of $ 1.4 million and an increase in salaries
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during the second quarter of 2020 , we implemented a restructuring plan to improve operating margins , achieve operational efficiencies and reduce indirect support costs . the restructuring included workforce reductions , changes to management structure and facility consolidations and closures . we recorded $ 38.3 million of charges associated with this plan in the second quarter of 2020. in conjunction with our restructuring , we closed our canadian drilling operations . we recorded an impairment of $ 8.3 million associated with that closure . we completed the restructuring plan during the third quarter of 2020 and did not incur additional expenses related to the plan . the following table presents restructuring expenses by reportable segment f or the year ended december 31 , 2020 ( in thousands ) : replace_table_token_9_th we estimate that the restructuring plan implemented in 2020 will result in annual cost savings of approximately $ 94 million . of these estimated annual cost savings , approximately $ 14 million , $ 43 million , $ 7 million and $ 8 million are attributable to operating expense savings for contract drilling , pressure pumping , directional drilling and other operations , respectively . annual selling , general and administrative cost savings are estimated to be approximately $ 22 million . our revenues , profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas and upon our customers ' ability to access capital to fund their operating and capital expenditures . during periods of improved oil and natural gas prices , the capital spending budgets of oil and natural gas operators tend to expand , which generally results in increased demand for our services . conversely , in periods when oil and natural gas prices are relatively low or when our customers have a reduced ability to access capital , the demand for our services generally weakens , and we experience downward pressure on pricing for our services . we may also be impacted by delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies . the north american oil and natural gas services industry is cyclical and at times experiences downturns in demand . during these periods , there has been substantially more oil and natural gas service equipment available than necessary to meet demand . as a result , oil and natural gas service contractors have had difficulty sustaining profit margins and , at times , have incurred losses during the downturn periods . currently , there is an excess supply of drilling rigs , pressure pumping equipment and directional drilling equipment . we can not predict either the future level of demand for our oil and natural gas services or future conditions in the oil and natural gas service businesses . in addition to the dependence on oil and natural gas prices and demand for our services , w e are highly impacted by operational risks , competition , labor issues , weather , the availability , from time to time , of products used in our pressure pumping business , supplier delays and various other factors that could materially adversely affect our business , financial condition , cash flows and results of operations , including as a result of the covid-19 pandemic . see “ risk factors ” in item 1a of this report . for the three years ended december 31 , 2020 , our operating revenues consisted of the following ( dollars in thousands ) : replace_table_token_10_th 34 contract drilling contract drilling revenues accounted for 59.5 % of our consolidated 2020 revenues and decreased 48.9 % from 2019. we have addressed our customers ' needs for drilling horizontal wells in shale and other unconventional resource plays by improving the capabilities of our drilling fleet during the last several years . the u.s. land rig industry refers to certain high specification rigs as “ super-spec ” rigs . we consider a super-spec rig to be a 1,500 horsepower , ac powered rig that has at least a 750,000-pound hookload , a 7,500-psi circulating system , and is pad-capable . as of december 31 , 2020 , our rig fleet included 198 apex ® rigs , of which 150 were super-spec rigs . we maintain a backlog of commitments for contract drilling services under term contracts , which we define as contracts with a duration of six months or more . our contract drilling backlog as of december 31 , 2020 and 2019 was approximately $ 301 million and $ 605 million , respectively . approximately 21 % of the total contract drilling backlog at december 31 , 2020 is reasonably expected to remain after 2021. we generally calculate our backlog by multiplying the dayrate under our term drilling contracts by the number of days remaining under the contract . the calculation does not include any revenues related to fees for other services such as for mobilization , other than initial mobilization , demobilization and customer reimbursables , nor does it include potential reductions in rates for unscheduled standby or during periods in which the rig is moving or incurring maintenance and repair time in excess of what is permitted under the drilling contract . for contracts that contain variable dayrate pricing , our backlog calculation uses the dayrate in effect for periods where the dayrate is fixed , and , for periods that remain subject to variable pricing , uses the commodity price in effect at december 31 , 2020. in addition , our term drilling contracts are generally subject to termination by the customer on short notice and provide for an early termination payment to us in the event that the contract is terminated by the customer . for contracts on which we have received notice for the rig to be placed on standby , our backlog calculation uses the standby rate for the period over which we expect to receive the standby rate . story_separator_special_tag for contracts on which we have received an early termination notice , our backlog calculation includes the early termination rate , instead of the dayrate , for the period over which we expect to receive the lower rate . see “ item 1a . risk factors – our current backlog of contract drilling revenue may decline and may not ultimately be realized , as fixed-term contracts may in certain instances be terminated without an early termination payment. ” pressure pumping pressure pumping revenues accounted for 29.9 % of our consolidated 2020 revenues and decreased 61.3 % from 2019. as of december 31 , 2020 , we had approximately 1.4 million horsepower in our pressure pumping fleet . the pressure pumping market remains oversupplied . in response to oversupplied market conditions , we implemented changes during the second quarter of 2020 that are intended to further streamline our operations , improve our efficiencies , and reduce our overall cost structure , while maintaining our customer service levels . directional drilling directional drilling revenues accounted for 6.5 % of our consolidated 2020 revenues and decreased 61.1 % from 2019. we provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the united states . our directional drilling services include directional drilling , measurement-while-drilling and supply and rental of downhole performance motors and wireline steering tools . we also provide services that improve the statistical accuracy of horizontal wellbore placement . other operations other operations revenues accounted for 4.1 % of our consolidated 2020 revenues and decreased 56.5 % from 2019. our oilfield rentals business , with a fleet of premium oilfield rental tools , provides the largest revenue contribution to our other operations and provides specialized services for land-based oil and natural gas drilling , completion and workover activities . other operations also includes the results of our electrical controls and automation business , the results of our drilling equipment service business , and the results of our ownership , as a non-operating working interest owner , in oil and natural gas assets that are primarily located in texas and new mexico . capital expenditures cash capital expenditures for 2020 totaled $ 145 million . this was a reduction from the $ 348 million of cash capital expenditures for 2019 , due largely to lower activity levels . based on our current outlook for activity , we expect our capital expenditures for 2021 to be approximately $ 135 million . 35 for the three years ended december 31 , 2020 , our operating loss es consisted of the following ( dollars in thousands ) : replace_table_token_11_th lower demand for our contract drilling and pressure pumping services , an impairment of goodwill and an implementation of a restructuring plan in 2020 contributed to a consolidated net loss of $ 804 million for 2020 , compared to a consolidated net loss of $ 426 million for 2019 and consolidated net loss of $ 321 million for 2018. story_separator_special_tag style= '' text-align : justify ; margin-bottom:6pt ; margin-top:12pt ; text-indent:2.27 % ; color : # 000000 ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > selling , general and administrative expenses decreased primarily as a result of cost reduction efforts . the decrease in capital expenditures was primarily due to higher maintenance capital expenditures in 2019 when activity levels were higher and reduced capital expenditures in 2020 due to lower activity . replace_table_token_15_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , depletion , amortization and impairment and selling , general and administrative expenses . reduced demand for crude oil and refined products related to the covid-19 pandemic , combined with production increases from opec+ , led to a significant reduction in crude oil prices and demand for oilfield rental and other services . other operations revenue decreased by $ 59.2 million from 2019 primarily due to a decrease in the volume of services provided by our oilfield rentals business and a decline in the average price per barrel of crude oil received by our oil and natural gas assets . other operations direct operating costs decreased by $ 43.1 million from 2019 primarily due to a decrease in the volume of services provided by our oilfield rentals business . additionally , a portion of the decrease is attributed to the decision to transition away from our engineering and manufacturing efforts in calgary during 2019. charges associated with this decision totaled $ 12.4 million for direct operating costs in 2019 , which were primarily comprised of inventory write-offs . 38 restructuring expenses were recognized in 2020 and related to severance costs . see note 20 of notes to consolidated financial statements for additional information . selling , general and administrative expense decreased primarily as a result of cost reduction efforts in addition to the transition away from our engineering and manufacturing efforts in calgary during 2019. charges associated with that decision totaled $ 2.2 million in 2019. depreciation , depletion , amortization and impairment remained relatively consistent with the comparable prior year period . we recognized a $ 11.2 million impairment related to certain of our oil and natural gas assets recorded in 2020 , whereas $ 2.2 million of oil and natural gas property impairments were recorded in 2019. however , the increased oil and natural gas property impairments were partially offset by decreased 2020 depletion of our oil and natural gas assets primarily due to a decrease in production as well as certain equipment reaching the end of its depreciable life in our oilfield rentals business . there were no impairments of goodwill in 2020 as all of the goodwill associated with our oilfield rentals and electrical controls and automation businesses was impaired in 2019. the decrease in capital expenditures was primarily due to higher maintenance capital expenditures in 2019 when activity levels were higher and reduced capital expenditures in 2020 due to lower activity and commodity prices .
| 36 the increase in other operating expenses ( income ) , net is primarily due to an insurance reimbursement for damaged drilling equipment . depreciation , amortization and impairment expense decreased primarily due to a $ 173 million write-down in 2019 related to the retirement of 36 legacy non-apex® drilling rigs . in addition to the charge in 2019 , no depreciation expense was recorded for this equipment in 2020. additionally , in the second quarter of 2020 we recorded a $ 8.3 million write-down related to the closing of our canadian drilling operations . all of the goodwill associated with our contract drilling reporting unit was impaired in 2020. see note 7 of notes to consolidated financial statements for additional information . the decrease in capital expenditures was primarily due to higher maintenance capital expenditures in 2019 when activity levels were higher and reduced capital expenditures in 2020 due to lower activity . replace_table_token_13_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , amortization and impairment and selling , general and administrative expenses . average margin per total job is defined as margin divided by total jobs . margin as a percentage of revenues is defined as margin divided by revenues . reduced demand for crude oil and refined products related to the covid-19 pandemic , combined with production increases from opec+ , led to a significant reduction in crude oil prices and demand for pressure pumping services . generally , the revenues in our pressure pumping segment are most impacted by our number of fracturing jobs and the size ( including whether or not we provide proppant and other materials ) of those jobs , which is reflected in our average revenue per fracturing job . direct operating costs are also most impacted by these same factors . our average revenue per fracturing job is largely dependent on the pricing terms of our pressure pumping contracts . we completed
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our service revenue decreased $ 6.9 million , or 7.5 % , primarily due to the unfavorable impact of end market demand softness related to the covid-19 pandemic . also , foreign exchange rates had a positive impact on total sales of $ 0.7 million , decreasing the percent that our overall sales declined by approximately 0.2 percentage points , primarily due to the strengthening of the euro relative to the u.s. dollar . change in organizational structure and segment reporting historically , we operated in five verticals—3d manufacturing , construction building information modeling ( “ construction bim ” ) , public safety forensics , 3d design and photonics—and had three reporting segments—3d manufacturing , construction bim and emerging verticals . during the second half of 2019 , our chief executive officer ( “ ceo ” ) and faro 's management team formulated and began to implement a new comprehensive strategic plan for our business . our strategic planning process included extensive conversations with employees , customers , investors and suppliers to identify both where the company can provide sustained and differentiated customer value and where opportunities existed to improve operating efficiencies . we identified areas of our business that needed enhanced focus or change in order to improve our efficiency and cost structure . as part of our strategic plan , we reassessed and redefined our go-to-market strategy , refocused our marketing engagement with our customers , re-evaluated our hardware and software product portfolio and examined how key decisions are made throughout our global organization . additionally , we focused on other organizational optimization efforts , including the simplification of our overly complex management structure . 31 as part of our new strategic plan , and based on the recommendation of our ceo , who is also our chief operating decision maker ( “ codm ” ) , in the fourth quarter of 2019 , we eliminated our vertical structure in favor of a functional structure . our new executive leadership team is comprised of functional leaders in areas such as sales , marketing , operations , research and development and general and administrative , and resources are allocated to each function at a consolidated unit level . we no longer have separate business units , segment managers or vertical leaders who report to the codm with respect to operations , operating results or planning for levels or components below the total company level . instead , our codm now allocates resources and evaluates performance on a company-wide basis . based on these changes , commencing with the fourth quarter of 2019 , we report as one reporting segment that develops , manufactures , markets , supports and sells a suite of 3d imaging and software solutions . in addition to the reorganization of the company 's structure , we evaluated our hardware and software product portfolio and the operations of certain of our recent acquisitions . as a result of this evaluation , we simplified our hardware and software product portfolio and divested our photonics business and 3d design related assets obtained from our acquisition of opto-tech srl and its subsidiary open technologies srl ( collectively , “ open technologies ” ) in the second quarter of 2020. on february 14 , 2020 , our board of directors approved a global restructuring plan ( the “ restructuring plan ” ) , which supports our strategic plan in an effort to improve operating performance and ensure that we are appropriately structured and resourced to deliver sustainable value to our shareholders and customers . key activities under the restructuring plan , which targeted $ 40 million in annualized savings to be realized by the fourth quarter of 2020 , include decreasing total headcount by approximately 500 employees upon the completion of the restructuring plan . the elimination of our vertical structure allowed us to successfully complete our redefined go-to-market strategy which placed increased focus on our customers and enabled our sales employees , supported by our talented pool of field application engineers , to sell all product lines globally . our new marketing leadership team has focused its efforts on gaining an increased understanding of customer applications and workflows which enables value-based product positioning while optimizing our customer 's total cost of ownership . by strengthening our understanding of customer applications and workflows , we will continue to develop high-value solutions across our product and software platforms . also , our marketing leadership team has transformed our lead generation process and implemented technology to provide our sales organization with higher quality leads which optimizes the time and effort spent by our newly organized sales team . we continue to focus on organizational optimization and improved decision making throughout the company . prior to the execution of the restructuring plan , the company had strong geographic organizations with decentralized decision making . additionally , the previous vertical structure layered on top of the geographic organization led to an overly complex and costly management structure . the newly formed global functional organization has enabled centralized management and clear process ownership , eliminating redundant resources and increasing the company 's agility and ability to execute the new strategic plan during the covid-19 global pandemic . we made significant progress executing the restructuring plan during 2020. we recorded a pre-tax charge of approximately $ 15.8 million during the year ended december 31 , 2020 primarily consisting of severance and related benefits , professional fees and other related charges and costs including a non-cash expense of $ 0.4 million related to the disposal of our photonics business and 3d design related assets . the reduction of our global workforce and new cost structure allowed the company to maintain a strong capital structure despite depressed sales levels primarily as a result of the covid-19 pandemic . at this time , we are continuing to evaluate the future key activities by which these additional charges will originate . story_separator_special_tag we estimate additional pre-tax charges of $ 5 million to $ 15 million for fiscal year 2021. these activities are expected to be substantially completed by the end of 2021. acquisition of ats on august 21 , 2020 , we acquired all of the outstanding shares of advanced technical solutions in scandinavia ab ( “ ats ” ) , a swedish company focused on 3d digital twin solution technology for a purchase price of 5.1 million ( $ 6.0 million ) paid , net of cash acquired , subject to certain additional post-closing adjustments , and up to 1.0 million ( $ 1.2 million ) in contingent consideration that may be earned by the former owners if certain product development milestones are met in a three-year period . the u.s. dollar amounts have been converted from euros based on the foreign exchange rate in effect on the closing date of the acquisition . we believe this acquisition enables the company to provide high accuracy 3d digital twin simulations for industries such as automotive and aerospace . the results of ats 's operations as of and after the date of acquisition have been included in our consolidated financial statements as of december 31 , 2020 . 32 presentation of information and reclassifications amounts reported in millions within this annual report on form 10-k are computed based on the amounts in thousands . as a result , the sum of the components reported in millions may not equal the total amount reported in millions due to rounding . certain columns and rows within the tables that follow may not add due to the use of rounded numbers . percentages presented are calculated based on the respective amounts in thousands . depreciation and amortization expenses are being reported in our statements of operations to reflect departmental costs . previously , those expenses were reported as a separate line item under operating expenses . amounts related to depreciation and amortization expenses for the year ended december 31 , 2018 have been restated throughout this annual report on form 10-k to reflect this reclassification of depreciation and amortization expenses and to conform to the current period presentation . selling and marketing expenses and general and administrative expenses are now being reported in the accompanying statements of operations together in one line as selling , general and administrative . previously , those expenses were reported as two separate line items under operating expenses . amounts related to selling , general and administrative expenses for the year ended december 31 , 2018 have been restated throughout this annual report on form 10-k to reflect this reclassification of selling , general and administrative expenses and to conform to the current period presentation . software maintenance revenue is now being reported in the accompanying statements of operations as a component of product sales . previously , these revenues were reported in service sales . amounts related to software maintenance revenue for the year ended december 31 , 2018 have been restated throughout this annual report on form 10-k to reflect this reclassification of software maintenance revenue and to conform to the current period presentation . software maintenance cost of sales is now being reported in the accompanying statements of operations as a component of product cost of sales . previously , these cost of sales was reported in service cost of sales . amounts related to software maintenance cost of sales for the year ended december 31 , 2018 have been restated throughout this annual report on form 10-k to reflect this reclassification of software maintenance cost of sales and to conform to the current period presentation . 33 results of operations 2020 compared to 2019 replace_table_token_3_th consolidated results sales . total sales decreased by $ 78.0 million , or 20.4 % , to $ 303.8 million for the year ended december 31 , 2020 from $ 381.8 million for the year ended december 31 , 2019. total product sales decreased by $ 71.1 million , or 24.5 % , to $ 218.6 million for the year ended december 31 , 2020 from $ 289.7 million for the year ended december 31 , 2019. our product sales decreased due to the unfavorable impact of end market demand softness related to the covid-19 pandemic and other fluctuations in market conditions . service sales decreased by $ 6.9 million , or 7.5 % , to $ 85.2 million for the year ended december 31 , 2020 from $ 92.1 million for the year ended december 31 , 2019 , primarily due to the unfavorable impact of end market demand softness related to the covid-19 pandemic and other fluctuations in market conditions . foreign exchange rates had a positive impact on sales of $ 0.7 million , reducing our overall sales decline by approximately 0.2 percentage points , primarily due to the strengthening of the euro relative to the u.s. dollar . gross profit . gross profit decreased by $ 38.3 million , or 19.3 % , to $ 159.8 million for the year ended december 31 , 2020 from $ 198.1 million for the year ended december 31 , 2019. gross margin increased to 52.6 % for the year ended december 31 , 2019 from 51.9 % in the prior year period . gross margin from product revenue increased by 0.8 percentage points to 54.8 % for the year ended december 31 , 2020 from 54.0 % in the prior year period . this increase in gross margin from product revenue was primarily due to 2019 being burdened by a $ 12.8 million increase in our reserve for excess and obsolete inventory recorded in connection with our strategic decisions to simplify our hardware and software product portfolio and cease selling certain products . gross margin from service revenue increased by 1.8 percentage points to 47.1 % for the year ended december 31 , 2020 from 45.3 % for the prior year period , primarily due to a reduction in departmental costs as a result of the restructuring plan . 34 selling , general and administrative expenses .
| this decrease in gross margin from product revenue was primarily due to the $ 12.8 million increase in our reserve for excess and obsolete inventory recorded in the fourth quarter of 2019 in connection with our strategic decisions to simplify our hardware and software product portfolio and cease selling certain products , compared to a $ 4.7 million increase in our reserve for excess and obsolete inventory recorded in 2018. gross margin from service revenue increased by 7.0 percentage points to 45.3 % for the year ended december 31 , 2019 from 38.3 % for the prior year period , primarily due to the leveraging effect of higher warranty and customer service revenue as well as improved efficiencies in our customer service repair process . 36 selling , general and administrative expenses . selling , general and administrative ( “ sg & a ” ) expenses increased by $ 7.7 million , or 4.5 % , to $ 177.4 million , for the year ended december 31 , 2019 from $ 169.7 million for the year ended december 31 , 2018. this increase was driven primarily by executive team transition costs , including the acceleration of stock-based compensation expense related to the accelerated vesting of stock options and restricted stock units granted to our prior executive officers and severance costs , professional fees incurred related to the gsa matter , and an increase in compensation expenses related to our increased selling headcount , partially offset by lower commission expense due to the decrease in product sales . sg & a expenses as a percentage of sales increased to 46.5 % for the year ended december 31 , 2019 from 42.0 % for the year ended december 31 , 2018. research and development expenses . research and development expenses decreased $ 1.9 million , or 4.1 % , to $ 44.2 million for the year ended december 31 , 2019 from $ 46.1 million for the year ended december 31 , 2018. this decrease in research and development expenses was mainly due to a decrease in materials and consulting costs , as well as favorable changes in foreign currencies as the u.s. dollar strengthened
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cost of revenues includes material , labor and manufacturing overhead costs , obsolescence charges , packaging costs , warranty costs , shipping costs and royalties . our cost of revenues may vary over time based on the mix of products sold . we sell products that we manufacture and products that we purchase from third parties . the products that we purchase from third parties typically have a higher cost of revenues as a percent of revenues because the profit is effectively shared with the original manufacturer . we anticipate that our manufactured products will continue to have a lower cost of revenues as a percentage of revenues as compared with the cost of non-manufactured products for the foreseeable future . additionally , our cost of revenues as a percent of revenues will vary based on mix of direct to end user sales and distributor sales , mix by product line and mix by geography . sales and marketing expenses . sales and marketing expense consists primarily of salaries and related expenses for personnel in sales , marketing and customer support functions . we also incur costs for travel , trade shows , demonstration equipment , public relations and marketing materials , consisting primarily of the printing and distribution of our catalogs , supplements and the maintenance of our websites . we may from time to time expand our marketing efforts by employing additional technical marketing specialists in an effort to increase sales of selected categories of products . we may also from time to time expand our direct sales organizations in an effort to concentrate on key accounts or promote certain product lines . general and administrative expenses . general and administrative expense consists primarily of salaries and other related costs for personnel in executive , finance , accounting , information technology and human resource functions . other costs include professional fees for legal and accounting services , facility costs , investor relations , insurance and provision for doubtful accounts . research and development expenses . research and development expense consists primarily of salaries and related expenses for personnel and spending to develop and enhance our products . other research and development expense includes fees for consultants and outside service providers , and material costs for prototype and test units . we expense research and development costs as incurred . from time to time , we receive grants from governmental entities in relation to research projects . such grants received are accounted for as a reduction in research and development expense over the period of the project . we believe that investment in product development is a competitive necessity and plan to continue to make these investments in order to realize the potential of new technologies that we develop , license or acquire for existing markets . restructuring charges . restructuring charges consist of severance , other personnel-related charges and exit costs related to plans to create organizational efficiencies and reduce operating expenses . amortization of intangibles . amortization of intangibles expense consists of the expensing of the costs of the finite lived intangible assets over the useful life of the assets . stock-based compensation expenses . stock-based compensation expense for the years ended december 31 , 2017 , 2016 and 2015 was $ 3.5 million , $ 3.5 million and $ 2.8 million , respectively . the stock-based compensation expense related to stock options , restricted stock units , restricted stock units with a market condition and the employee stock purchase plan and was recorded as a component of cost of revenues , sales and marketing expenses , general and administrative expenses , research and development expenses and discontinued operations . currently , we intend to retain all of our earnings to pay down debt , finance the expansion and development of our business and do not anticipate paying any cash dividends to holders of our common stock in the near future . as a result , capital appreciation , if any , of our common stock will be a stockholder 's sole source of gain for the near future . 26 story_separator_special_tag margin : 0pt 0 '' > impairment charges during the third quarter of 2016 , we initiated plans to sell the operations of ahn . as a result of initiating the plan to sell the operations of ahn , we evaluated the long-lived assets for impairment , pursuant to asc 360-10. based on the resulting impairment analysis , we recognized an impairment charge of $ 0.7 million for the year ended december 31 , 2016. loss on sale of ahn the loss on sale of ahn was $ 1.2 million for the year ended december 31 , 2016. during the fourth quarter of 2016 , we concluded the sale of ahn . upon the closing of the transaction , we recorded a loss on sale of $ 1.2 million for the year ended december 31 , 2016. other expense , net other expense , net , was $ 2.0 million and $ 0.1 million for the years ended december 31 , 2017 and 2016 , respectively . included in other expense , net for the year ended december 31 , 2017 was $ 0.7 million of interest expense and $ 0.7 million of transaction related costs , including due diligence and deal investigative activities . for the year ended december 31 , 2016 , other expense , net included $ 0.6 million of interest expense . the increase in other expense , net was primarily due to the increase in transaction related costs and currency exchange rate fluctuations . currency exchange rate fluctuations included as a component of net loss resulted in approximately $ 0.5 million in currency losses during the year ended december 31 , 2017 , compared to $ 0.7 million in currency gains during the year ended december 31 , 2016. income taxes income tax was a benefit of approximately $ 1.2 million and an expense of $ 1.2 million for the years ended december 31 , 2017 and 2016 , respectively . story_separator_special_tag the decrease in income tax expense year over year was primarily attributable to a reduction in the valuation allowance recorded against us net deferred tax assets in 2017 , partially offset by tax expense associated with the remeasurement of net federal deferred tax assets . these events result directly from recent u.s. tax reform legislation which is discussed below . on december 22 , 2017 , tax reform legislation known as the tax cuts and jobs act ( the tax act ) was signed into law . the tax act makes broad and complex changes to the u.s. internal revenue code , including the reduction of the corporate income tax rate from 35 % to 21 % and the implementation of a modified territorial tax system ; the latter includes a one-time transition tax on previously unremitted earnings of foreign subsidiaries . the company has recorded provisional estimates related to repatriation tax impact and changes in the revaluation of net deferred tax assets in the consolidated financial statements . other provisions of the tax act will not impact the company until the tax year ended december 31 , 2018. year ended december 31 , 2016 compared to year ended december 31 , 2015 revenues revenues decreased 3.8 % , or $ 4.2 million , to $ 104.5 million for the year ended december 31 , 2016 , compared to revenues of $ 108.7 million for the year ended december 31 , 2015. excluding the effects of currency translation , primarily from the weakening of the british pound against the u.s. dollar , our revenues decreased 1.8 % or $ 2.0 million , from the previous year . the remainder of the decline in revenues was primarily the result of softness in the european funding environment and slower than expected nih budget funding , as well as less revenues from ahn in 2016 compared to 2015 , following its sale in october 2016 , due to two fewer months of revenue which amounted to approximately $ 0.5 million . 28 reconciliation of changes in revenues compared to the same period of the prior year for the year ended december 31 , 2016 organic and ahn change -1.8 % foreign exchange effect -2.0 % total revenue change -3.8 % each reporting period , we face currency exposure that arises from translating the results of our worldwide operations to the united states dollar at exchange rates that fluctuate from the beginning of such period . we evaluate our results of operations on both a reported and a foreign currency-neutral basis , which excludes the impact of fluctuations in foreign currency exchange rates . we believe that disclosing this non-gaap financial information provides investors with an enhanced understanding of the underlying operations of the business . this non-gaap financial information approximates information used by our management to internally evaluate our operating results . the non-gaap financial information provided in the table above should be considered in addition to , not as a substitute for , the financial information provided and presented in accordance with accounting principles generally accepted in the united states , or gaap . cost of revenues cost of revenues were $ 56.1 million for the year ended december 31 , 2016 , a decrease of $ 3.8 million , or 6.4 % , compared with $ 59.9 million for the year ended december 31 , 2015. gross profit margin as a percentage of revenues increased to 46.3 % for the year ended december 31 , 2016 compared with 44.8 % for 2015. the increase in gross profit margin was due primarily due to the savings associated with the relocation and consolidation of certain facilities in 2015. sales and marketing expenses sales and marketing expenses decreased $ 0.1 million , or 0.4 % , to $ 20.5 million for the year ended december 31 , 2016 compared with $ 20.6 million for the year ended december 31 , 2015. the decrease was primarily due to favorable currency translation and the impact of our restructuring activities . general and administrative expenses general and administrative expenses were $ 21.0 million for the year ended december 31 , 2016 , an increase of $ 1.2 million , or 5.6 % , compared with $ 19.8 million for the year ended december 31 , 2015. the increase was primarily due to audit and forensic investigation costs , higher stock compensation expense , partially offset by favorable currency translation , and the impact of our restructuring activities . research and development expenses research and development expenses were $ 5.4 million for the year ended december 31 , 2016 , a decrease of $ 1.0 million , or 16.0 % , compared with $ 6.4 million for the year ended december 31 , 2015. the decrease was primarily due to the impact of our restructuring activities , favorable currency translation , and an increase in the amount of research grants earned . research grants earned are accounted for as a reduction in research and development expense . restructuring restructuring charges were immaterial for the year ended december 31 , 2016 compared with $ 0.8 million for the year ended december 31 , 2015. there were no restructuring activities during the year ended december 31 , 2016. restructuring charges recorded during the year ended december 31 , 2015 included additional charges related to the restructuring plan we implemented during the year ended december 31 , 2014 , as well as charges related to restructuring plans commenced during the year ended december 31 , 2015. the 2015 restructuring plans included actions to move the coulbourn instruments ' operations to holliston , ma and the heka canada operations to heka germany , as well as eliminating certain positions made redundant as a result of our site consolidations and a realignment of our commercial sales team .
| cost of revenues cost of revenues were $ 54.3 million for the year ended december 31 , 2017 , a decrease of $ 1.8 million , or 3.2 % , compared with $ 56.1 million for the year ended december 31 , 2016. the decrease in cost of revenues was primarily due to the decrease in sales , including the effect of cost of revenues from the sale of ahn of approximately $ 1.6 million . gross profit margin as a percentage of revenues increased slightly to 46.7 % for the year ended december 31 , 2017 compared with 46.3 % for 2016. sales and marketing expenses sales and marketing expenses increased $ 0.5 million , or 2.7 % , to $ 21.0 million for the year ended december 31 , 2017 compared with $ 20.5 million for the year ended december 31 , 2016. this increase was due to increases in employee costs and stock compensation offset by decreases in consulting and purchased services as well as the impact of the sale of ahn . general and administrative expenses general and administrative expenses were $ 18.6 million for the year ended december 31 , 2017 , a decrease of $ 2.4 million , or 11.3 % , compared with $ 21.0 million for the year ended december 31 , 2016. the decrease was primarily due to a decrease in audit costs , consulting and purchased services costs , as well as the impact of the sale of ahn . research and development expenses research and development expenses were $ 5.6 million for the year ended december 31 , 2017 , an increase of $ 0.2 million , or 4.7 % , compared with $ 5.4 million for the year ended december 31 , 2016. the increase was primarily due to an increase in employee , consulting and other purchased services due to investments in product development and compliance efforts . amortization of intangible assets amortization of intangible asset expenses was $ 2.4 million for the year ended december 31 , 2017 compared with $ 2.7 million for the year ended december
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since march 2020 , we have experienced substantial disruptions in our operations including , but not limited to , temporary restaurant closings , reopening of restaurants at limited capacity , suggested and mandated social distancing and stay-at-home orders , limited staffing and carry-out only service in our restaurants . while certain state and local governments have eased restrictions since that time , the company continues to be impacted by governmental orders that restrict capacity for the majority 33 of its restaurants . while optimism is growing with the increasing availability of vaccine solutions as well as current positive trends with respect to the prevalence of the virus , t here can be no assurance that other state or local authorities will allow dining rooms to remain open even at reduced capacity if there is an increase in cases of covid ‑19 or variants of such in those locations . each of these factors have limited our ability to generate net sales , which adversely impact ed results from operations and cash flows during fiscal year 2020 , and may continue to do so for an extended period of time depending on the length of the pandemic and how significantly it affects the economy . there is significant uncertainty concerning consumer behavior , including guests ' propensity to spend disposable income or changes in consumer habits due to fear of contracting the virus in public or as a result of unemployment or reduced income . governmental mandates required the company to keep its dining rooms closed for a significant portion of the second quarter with reopening dates varying by state or local municipality and varying capacity limitations during the balance of the year , including a return to carry-out only or limited outdoor tent operations in our chicago-area , michigan and kentucky locations during the fourth quarter of 2020 . further , most of our restaurants will operate on a limited-capacity basis for some portion of fiscal 2021 in response to orders issued by government officials in an effort to limit the spread of covid-19 , and capacity could be more limited if infections increase or if variants become more widespread . the company is also closely monitoring the impact of the pandemic on all aspects of its business , including on guests , employees , suppliers , vendors , landlords , distribution channels and other business partners . as a result of factors noted above , the company has taken steps to modify its operations , where necessary , including pivoting to a carry-out model as a means of generating net sales and cash flow and reopening dining rooms at a limited capacity in compliance with state and local government guidelines . we have made employee and guest health and safety our first priority as we serve our guests during these uncertain times . we have provided personal protective equipment , such as masks , gloves and hand sanitizer to our team members , and we are checking employee temperatures daily . we are also observing social distancing requirements and routinely sanitizing high-touch surface areas in our restaurants . we have sought to develop menus that are friendly to an off-premise model providing guests with appetizers , salads , entrées , sides , wine , cocktails , family meal kits that can be prepared at home and “ butcher shop ” style beef offerings at select restaurants . we have also implemented an online ordering platform to allow for ease of ordering and to increase off-premise sales . we have implemented contactless menus in all of our dining rooms as well as contactless payments at certain locations . we have also added pub and booth partitions in many locations in an effort to increase capacity while maintaining guest safety . restaurant and corporate management have evaluated , and continue to evaluate , ways to curtail spending including an ongoing review of operations to maximize efficiency , adjusting restaurant-level labor and reducing purchases of inventory to align with new levels of demand , limiting discretionary operating expenses including business travel , reducing non-essential capital expenditures , and negotiating the deferral of new restaurant capital expenditures with contractors in addition to certain rent , insurance , tax and debt payments where possible . we also eliminated certain positions at the company 's corporate office during the second quarter of 2020. during the first quarter of 2020 , we made the difficult decision to furlough restaurant employees that were not able to assist with the company 's carry-out program , but have brought the majority of these employees back to their restaurants during the reopening process at a volume warranted by the allowed dine-in capacity , as applicable , until normal staffing levels can resume . additionally , the company has held , and will continue to engage in , discussions with its lender to further enhance its liquidity including the full draw down on its available lines of credit in march 2020 as well as negotiating for modifications of its credit facility during the second quarter of 2020 in order to make additional funds available for operations . in october 2020 , the company was able to extend the maturity date of its credit facility as well as make certain other amendments to its debt agreements . see the discussion contained in “ liquidity and capital resources – credit facility ” below for additional information . similarly , we have been in discussions with many of our landlords and were able to secure certain covid‑19 rent concessions for varying lengths of time in order to defer or abate rent payments to conserve cash . the remainder of management 's discussion and analysis of financial condition and results of operations discusses a number of ways our business has been impacted by covid-19 . performance indicators we use the following key metrics in evaluating our performance : same store sales . we include a restaurant in the same store restaurant group starting in the first full accounting period following the 18 th month of operations . story_separator_special_tag our same store restaurant base consisted of 45 restaurants at january 3 , 2021. changes in same store restaurant sales reflect changes in sales for the same store group of restaurants over a specified period of time . this measure highlights the performance of existing restaurants , as the impact of new restaurant openings and closed locations is excluded . 34 measuring our same store sales allows us to evaluate the performance of our existing restaurant base . various factors impact same store sales including : covid-19-related capacity restrictions and other effects of the covid-19 pandemic ; consumer recognition of our concepts and our ability to respond to changing consumer preferences ; overall economic trends , particularly those related to consumer spending ; our ability to operate restaurants effectively and efficiently to meet guest expectations ; off-premise sales volume ; pricing ; guest traffic ; spending per guest and average check amounts ; local competition ; trade area dynamics ; and introduction of new menu items . average weekly sales . average weekly sales per restaurant is computed by dividing total restaurant sales for the period by the total number of days all restaurants were open for the period to obtain a daily sales average . the daily sales average is then multiplied by seven to arrive at average weekly sales per restaurant . days on which restaurants are closed for business for any reason other than scheduled closures on thanksgiving and christmas are excluded from this calculation . revenue associated with the reduction in liabilities for gift cards which are not redeemed , commonly referred to as gift card breakage , is not included in the calculation of average weekly sales per restaurant . average weekly same store sales . average weekly same store sales per restaurant is computed by dividing total restaurant same store sales for the period by the total number of days all same store restaurants were open for the period to obtain a daily sales average . the daily same store sales average is then multiplied by seven to arrive at average weekly same store sales per restaurant . days on which restaurants are closed for business for any reason other than scheduled closures on thanksgiving and christmas are excluded from this calculation . sales and sales days used in this calculation include only those for restaurants in operation at the end of the period which have been open for more than 18 months . gift card breakage is not included in the calculation of average weekly same store sales per restaurant . average check . average check is calculated by dividing total restaurant sales by guest counts for a given time period . total restaurant sales include food , alcohol and beverage sales . average check is influenced by menu prices and menu mix . management uses this indicator to analyze trends in guests ' preferences , the effectiveness of menu changes and price increases on per guest expenditures . average unit volume . average unit volume consists of the average sales of our restaurants over a certain period of time . this measure is calculated by multiplying average weekly sales by the relevant number of weeks for the period presented . this indicator assists management in measuring changes in guest traffic , guest spending patterns , pricing and development of our concepts . food and beverage costs . food and beverage costs is an important metric to management because it is the only truly variable component of cost relative to the sales volume while other components of cost can vary significantly due to the ability to leverage fixed costs at higher sales volumes . guest counts . guest counts are measured by the number of entrees sold either for in-restaurant dining or for off-premise dining over a given time period . for purposes of guest count calculations , family pack meals sales are counted as an average of three guests . our business is subject to seasonal fluctuations . historically , the percentage of our annual net sales earned during the first and fourth quarters has been higher due , in part , to increased gift card redemptions and increased private dining during the year-end holiday season . in addition , we operate on a 52- or 53-week fiscal year that ends on the sunday closest to december 31. each quarterly period has 13 weeks , except for a 53-week year when the fourth quarter has 14 weeks . fiscal 2020 represents a 53-week fiscal year . as many of our operating expenses have a fixed component , our operating income and operating income margins have historically varied from quarter to quarter . accordingly , results for any one quarter are not necessarily indicative of results to be expected for any other quarter , or for the full fiscal year . 35 key financial definitions net sales . net sales consist primarily of food and beverage sales at our restaurants , net of any discounts , such as management meals and employee meals , associated with each sale . net sales are directly influenced by the number of operating weeks in the relevant period , the number of restaurants we operate and same store sales growth . gift card breakage is also included in net sales . food and beverage costs . food and beverage costs is presented net of earned vendor rebates . food and beverage costs are generally influenced by the input cost of food and beverage items , distribution costs and menu mix . the components of food and beverage costs are variable in nature , increase with net sales , are subject to increases or decreases based on fluctuations in commodity costs , including beef prices , and depend in part on the controls we have in place to manage costs at our restaurants . restaurant labor and related costs .
| once reopened , our dining rooms continued to operate at limited capacities under governmental mandates throughout the year limiting net sales in fiscal 2020 compared to fiscal 2019. further , during the fourth quarter of 2020 , several jurisdictions in which the company operates again mandated closures of dining rooms for several weeks , some lasting into fiscal 2021. a small number of our restaurants are currently operating at full capacity where state and local authorities have fully lifted governmental mandates to limit dining room capacities . as of march 12 , 2021 , our restaurants are currently operating at an average of approximately 70 % capacity of available seats . as mentioned above , fiscal 2020 included 53 weeks compared to 52 weeks included in fiscal 2019. management 38 estimates that the inclusion of the 53rd week in fiscal 2020 contributed approximately $ 4,300 and $ 770 to net sales and income from continuing operations before income taxes , respectively , in fiscal year 2020 . average weekly same store sales at j. alexander 's / grill restaurants for 2020 decreased by 26.9 % to $ 83,200 , compared to $ 113,800 in 2019. average weekly same store sales at stoney river restaurants decreased by 28.3 % in 2020 to $ 57,200 compared to $ 79,800 in fiscal 2019. these decreases reflect the impact of dining room closures as discussed above . stoney river experienced the effects of covid-19 on sales earlier than the j. alexander 's / grill restaurants as cancellations related to private dining and business travel and functions began prior to the dining room closures in march 2020. off-premise sales represented a significant portion of the company 's total net sales during fiscal 2020 as our restaurants pivoted to a carry-out only model during the period of time when dining rooms were required to be closed . in the months of april , may and june 2020 , off-premise sales represented approximately 99 % , 56 % and 22 % , respectively , of total net sales recorded by the company . off-premise sales during the third quarter of 2020 averaged 15 % –20 % of total sales on a weekly basis , which represents approximately $ 625 on average in off-premise sales weekly . as a result of certain locations reverting back to a carry-out only model due to dining
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oral insulin : we are seeking to revolutionize the treatment of diabetes through our proprietary flagship product , ormd-0801 , an orally ingestible insulin capsule . we completed a phase iib clinical trial in patients with type 2 diabetes under an ind with the fda , following which we conducted a phase iia , dose finding clinical trial to better define the optimal dosing of ormd-0801 moving forward . we also completed phase iia clinical trials in patients with both type 1 and type 2 diabetes . during a call with the fda regarding ormd-0801 , we were advised that the regulatory pathway for submission of ormd-0801 would be a bla , and we plan to initiate a three-month trial in patients with type 2 diabetes to evaluate the effect of ormd-0801 on hba1c , the main fda registrational endpoint . glp-1 analog : our second pipeline product , ormd-0901 , is an orally ingestible exenatide ( glp-1 analog ) capsule , which aids in the balance of blood-sugar levels and decreases appetite . in january 2013 , we began a clinical trial for our oral exenatide capsule on healthy volunteers and type 2 diabetic patients . based on this study , we decided to make slight adjustments in the manufacturing of these capsules and have begun pre-clinical studies on the new capsules . in september 2013 , we submitted a pre-ind package to the fda for ormd-0901 , our oral exenatide capsule . we completed during the second quarter of calendar year 2016 a phase ib trial outside of the united states , which began in august 2015. we also completed a pre-clinical toxicology study in march 2017 , anticipate receiving the final report during the fourth quarter of calendar year 2017 and expect to file an ind and move directly into a pharmacokinetics study followed by a large phase ii trial in the united states under an fda ind . combination of oral insulin and glp-1 analog : our third pipeline product is a combination of our two primary products , oral insulin and oral exenatide . in the near term , we are focusing our efforts on the development of the company 's flagship products , oral insulin and oral exenatide . once these two products have progressed further in clinical trials , we intend on running further studies with the oral combination therapy . story_separator_special_tag funded plans , including revenues from licensed ancillary services . royalties are generally payable up to a maximum amount equaling 100 % of the grants received ( dollar linked ) with the addition of interest at an annual rate based on the libor rate . the r & d law generally requires that a product developed under a program be manufactured in israel . however , when applying for a grant , the applicant may declare that part of the manufacturing will be performed outside of israel or by non-israeli residents and if the iia is convinced that performing some of the manufacturing abroad is essential for the execution of the program , it may still approve the grant . this declaration will be a significant factor in the determination of the iia as to whether to approve a program and the amount and other terms of the benefits to be granted . if a company wants to increase the volume of manufacturing outside of israel after the grant has been approved , it may transfer up to 10 % of the company 's approved israeli manufacturing volume , measured on an aggregate basis , outside of israel after first notifying the iia thereof ( provided that the iia does not object to such transfer within 30 days ) . in addition , upon the approval of the iia , a portion greater than 10 % of the manufacturing volume may be performed outside of israel . in any case of transfer of manufacturing out of israel , the grant recipient is required to pay royalties at an increased rate , which may be substantial , and the aggregate repayment amount is increased up to 120 % , 150 % or 300 % of the grant , depending on the portion of the total manufacturing volume that is performed outside of israel . the approval we received from the iia for the license agreement was subject to payment of increased royalties and an increased ceiling , all in accordance with the provisions of the r & d law . the r & d law further permits the iia , among other things , to approve the transfer of manufacturing rights outside of israel in exchange for the import of different manufacturing into israel as a substitute , in lieu of the increased royalties . 29 the r & d law also provides that know-how developed under an approved research and development program may not be transferred or licensed to third parties in israel without the approval of the research committee . such approval is not required for the sale or export of any products resulting from such research or development . the r & d law further provides that the know-how developed under an approved research and development program may not be transferred or licensed to any third parties outside israel absent iia approval which may be granted in certain circumstances as follows : ( a ) the grant recipient pays to the iia a portion of the sale or license price paid in consideration for the purchase or license of such iia-funded know-how or the price paid in consideration for the sale of the grant recipient itself , as the case may be , in accordance with certain formulas included in the r & d law ; ( b ) the grant recipient receives know-how from a third party story_separator_special_tag in exchange for its iia-funded know-how ; or ( c ) such transfer of iia-funded know-how is made in the context of iia approved research and development cooperation projects or consortia . the r & d law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient . the r & d law requires the grant recipient to notify the iia of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-israeli entity becoming an interested party in the recipient , and requires the new non-israeli interested party to undertake to the iia to comply with the r & d law . in addition , the rules of the iia may require the provision of additional information or representations in respect of certain such events . for this purpose , “ control ” is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company . a person is presumed to have control if such person holds 50 % or more of the means of control of a company . “ means of control ” refers to voting rights or the right to appoint directors or the chief executive officer . an “ interested party ” of a company includes a holder of 5 % or more of its outstanding share capital or voting rights , its chief executive officer and directors , someone who has the right to appoint its chief executive officer or at least one director , and a company with respect to which any of the foregoing interested parties holds 25 % or more of the outstanding share capital or voting rights or has the right to appoint 25 % or more of the directors . failure to meet the r & d law 's requirements may subject us to mandatory repayment of grants received by us ( together with interest and penalties ) , as well as expose us to criminal proceedings . in addition , the israeli government may from time to time audit sales of products which it claims incorporate technology funded through iia programs which may lead to additional royalties being payable on additional products . grants from bio-jerusalem the bio-jerusalem fund was founded by the jerusalem development authority in order to support the biomed industry in jerusalem . we are committed to pay royalties to the bio-jerusalem fund on proceeds from future sales at a rate of 4 % and up to 100 % of the amount of the grants received by the company ( israeli cpi linked ) in the total aggregate amount of $ 65,000. we received no grants from the bio-jerusalem fund since the fiscal year ended august 31 , 2013. as of august 31 , 2017 , we incurred a liability to pay royalties to the bio-jerusalem fund of $ 47,000. general and administrative expenses general and administrative expenses include the salaries and related expenses of our management , consulting costs , legal and professional fees , traveling , business development costs , insurance expenses and other general costs . general and administrative expenses increased by 12.5 % from $ 2,452,000 for fiscal 2016 to $ 2,759,000 for fiscal 2017. the increase in costs incurred related to general and administrative activities during fiscal 2017 , reflects an increase in stock-based compensation costs and salaries and consulting expenses . during fiscal 2017 , as part of our general and administrative expenses , we incurred $ 440,000 related to stock-based compensation costs , as compared to $ 329,000 during fiscal 2016. general and administrative expenses decreased by 5.8 % from $ 2,602,000 for fiscal 2015 to $ 2,452,000 for fiscal 2016. the decrease in costs incurred related to general and administrative activities during fiscal 2016 , reflects a decrease in stock-based compensation costs that was partially offset by an increase in salaries and consulting expenses resulting from cash bonuses to employees and consultants paid in 2016. during fiscal 2016 , as part of our general and administrative expenses , we incurred $ 329,000 related to stock-based compensation costs , as compared to $ 731,000 during fiscal 2015 . 30 financial income , net net financial income was $ 691,000 for fiscal 2017 as compared to net financial income of $ 381,000 for fiscal 2016. the increase is mainly due to an increase in income from bank deposits and held to maturity bonds as a result of the proceeds related to the license agreement and due to an increase in yield rates on investments . net financial income was $ 381,000 for fiscal 2016 as compared to net financial income of $ 150,000 for fiscal 2015. the increase is mainly due to an increase in income from bank deposits and held to maturity bonds as a result of the increase in cash and investment balances . taxes on income / tax benefit we had taxes on income of $ 400,000 for fiscal 2017 as compared to $ 1,335,000 for fiscal 2016. the decrease is due to a decrease in withholding tax deducted from proceeds received related to the license agreement , that resulted from a decrease in such proceeds . the company estimates that withholding tax will not be utilized in the next five years , and therefore was deducted .
| we elected to recognize compensation cost for awards to employees and directors that have a graded vesting schedule using the accelerated method based on the multiple-option award approach . when stock options are granted as consideration for services provided by consultants and other non-employees , the transaction is accounted for based on the fair value of the consideration received or the fair value of the stock options issued , whichever is more reliably measurable . the fair value of the options granted is measured on each reporting date , and the gains ( losses ) are recorded to earnings over the related service period using the straight-line method . revenue recognition : revenue is recognized when delivery has occurred , evidence of an arrangement exists , title and risks and rewards for the products are transferred to the customer and collection is reasonably assured . given our continuing involvement through the expected product submission ( june 2023 ) , revenue from the license agreement is recognized over the periods from which the company is entitled to the respective payments ( including milestones ) , and through the expected product submission date . comparison of fiscal 2017 to fiscal 2016 and fiscal 2016 to fiscal 2015 the following table summarizes certain statements of operations data for us for the twelve month periods ended august 31 , 2017 , 2016 and 2015 : replace_table_token_4_th revenues revenues consist of proceeds related to the license agreement that are recognized over the term of the license agreement through june 2023. revenues for fiscal 2017 increased by 283 % to $ 2,456,000 from $ 641,000 for fiscal 2016. the increase is attributed to additional milestone payments received in connection with the license agreement . no revenues were recorded for fiscal 2015. cost of revenues cost of revenues consists of royalties related to the license agreement with htit that will be paid over the term of the license agreement in accordance with the revenue
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this was partially offset by the reduction of $ 0.3 million in legal and other costs related to closing of acquisitions and bank loans in 2017. as a percentage of total revenue , general and administrative expenses increased to 22 % for the year ended december 31 , 2018 from 21 % for the year ended december 31 , 2017. the increase in general and administrative expenses as a percentage of revenue is primarily due to the aforementioned higher costs . product development product development expenses consist primarily of labor-related costs . product development expenses increased 104 % , or $ 2.1 million , to $ 4.1 million for the year ended december 31 , 2018 from $ 2.0 million for the year ended december 31 , 2017. the increase is primarily related to $ 1.5 million in additional costs from the acquired companies and additional product development hours costing $ 0.6 million by existing staff , as we utilize the larger technical staff for development work to build and enhance our product offerings . as a percentage of total revenue , product development expenses increased to 14 % for the year ended december 31 , 2018 from 7 % for the year ended december 31 , 2017. the increase in product development expenses as a percentage of revenue is primarily due to the aforementioned higher costs . depreciation depreciation expense consists of depreciation of long-lived property and equipment . depreciation expenses decreased 52 % , or $ 0.1 million , to $ 0.1 million for the year ended december 31 , 2018 from $ 0.2 million for the year ended december 31 , 2017. the decrease of expense was due to older assets becoming fully depreciated in the prior year . as a percentage of revenue , depreciation expense decreased to less than 1 % for the year ended december 31 , 2018 from 1 % for the year ended december 31 , 2017 . 24 amortization amortization expense consists of amortization of identifiable intangibles related to our acquisitions of evolving systems labs , evolving systems nc , evol bls , and the lumata entities . amortization expense increased 13 % , or $ 0.1 million , to $ 1.0 million for the year ended december 31 , 2018 from $ 0.9 million for the year ended december 31 , 2017. the increase in amortization expense was due to the having a full year in 2018 of amortization expense of the intangible assets relating to the acquisition of evol bls on july 3 , 2017 and the lumata entities on september 4 , 2017. this was partially offset by a reduction in amortization expense related to intangibles acquired in the formation of evolving systems nc reaching the end of life of those assets during 2018. as a percentage of revenue , amortization expense remained 3 % for the year ended december 31 , 2018 and 2017. restructuring restructuring expense includes the costs associated with a reduction in workforce due to the consolidation of duplicative functions and alignment of staff with ongoing business activity as a result of the acquisition of evol bls and the lumata entities in third quarter of 2017. restructuring decreased 100 % , or $ 0.3 million , to $ 0.0 million for the year ended december 31 , 2018 from $ 0.3 million for the year ended december 31 , 2017. as a percentage of revenue , restructuring expense decreased to 0 % for the year ended december 31 , 2018 from 1 % for the year ended december 31 , 2017. the decrease of restructuring expense as a percentage of total revenue is related to their being no restructuring in 2018. goodwill impairment loss during the quarter ended december 31 , 2018 , our market capitalization declined to a level that was less than the net book value of our stockholders ' equity . we performed a goodwill impairment analysis as of december 31 , 2018. as a result of the decline in the market capitalization ( triggering event ) and the associated impairment analysis , the company recorded an impairment loss on goodwill of $ 17.8 million . we had no goodwill impairment loss for the year ended december 31 , 2017. interest expense interest expense includes the amortization of debt issuance costs and interest expense from our term loans . interest expense for the year ended december 31 , 2018 increased 31 % , or $ 0.1 million , to $ 0.5 million as compared to $ 0.4 million for the year ended december 31 , 2017. the increase is related to having a full year of the term loan borrowings used to acquire the lumata entities . other income ( expense ) for the year ended december 31 , 2018 , we had $ 0.8 million in other income , net , which consisted of : ( 1 ) when we acquired telespree on october 24 , 2013 , we agreed to make a final cash payment on october 24 , 2014 of $ 0.5 million . this payment was subject to reduction for certain claims and we notified the seller 's representative that we were asserting claims against the final cash payment and the contractually agreed time period has lapsed . accordingly , we eliminated the liability as of june 30 , 2018 and recognized $ 0.5 million gain in other income ; ( 2 ) at the end of the second quarter we agreed to a mutual release and settlement agreement and a contribution agreement ( the ssm agreements ) with certain parties related to our september 30 , 2015 acquisition of ssm . story_separator_special_tag the ssm agreements settled a dispute with a former ssm contractor , of which $ 0.1 million was on the company 's behalf and recorded as other expense ; ( 3 ) when we acquired evol bls on july 3 , 2017 , we agreed to make up to three annual cash payments equal to 50 % of the evol bls revenue in excess of $ 4.8 million for the 12-month periods ending july 3 , 2018 , 2019 and 2020. the company also agreed to guarantee the evol bls obligations under the purchase agreement . as of june 30 , 2018 , evol bls has exceeded their projected revenues and we estimated the total annual cash payments for the three 12-month periods to be $ 0.8 million , which is a $ 0.4 million increase . we recognized $ 0.4 million in interest expense as a result of our increased obligation , and ( 4 ) $ 0.4 million in other income from eliminating certain allowances , unearned revenue and accrued liabilities that primarily came from the bls and lumata entities at the time of our acquisition . foreign currency exchange income resulted from transactions denominated in a currency other than the functional currency of the respective subsidiary increased 171 % , or $ 1.9 million , to a $ 0.8 million gain for the year ended december 31 , 2018 compared to a $ 1.1 million loss for the year ended december 31 , 2017. the income was generated primarily through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our foreign subsidiaries . for the year ended december 31 , 2017 , we had $ 1.5 million in other expense , net . 25 income tax expense we recorded a net income tax benefit of $ 0.4 million for the year ended december 31 , 2018 and net income tax expense of $ 1.4 million for the year ended december 31 , 2017. the net expense for the year ended december 31 , 2018 consisted of current income tax expense of $ 0.5 million and a deferred tax benefit of $ 0.9 million . the current tax expense consists of income tax primarily from our u.s. and u.k. based operations . the deferred tax benefit primarily consists of benefits from establishing deferred tax assets of $ 0.5 million for our foreign tax credit ( ftc ) carryforwards , $ 0.2 million for net operating losses from certain u.k. subsidiaries that are expected to be used by another u.k. subsidiary and $ 0.2 million decrease in net deferred tax liabilities . the net expense during the year ended december 31 , 2017 consisted of current income tax expense of $ 1.9 million and a deferred tax benefit of $ 0.5 million . the current tax expense consists of income tax from our u.s. , u.k. , france and india based operations and unrecoverable foreign withholding taxes in the u.k. the deferred tax benefit was related primarily to the increase of certain net deferred tax assets and amortization of stock options and the intangible assets related to the acquisition of evolving systems nc , inc. in september 2015. refer to note 6 , income taxes , of our consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding the foreign tax credit . we use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return . for those benefits to be recognized , a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities . as of december 31 , 2018 , and 2017 , we had no liability for unrecognized tax benefits . we do not believe there will be any material changes to our unrecognized tax positions over the next twelve months . financial condition our working capital position decreased 10 % , or $ 0.9 million to $ 8.1 million at december 31 , 2018 from $ 9.0 million at december 31 , 2017. the decrease in working capital is related to decrease in cash , contract receivables , unbilled work in progress , prepaids and other assets along with an increase in current notes payable and partially offset by the decreases in accounts payable , accrued liabilities and unearned revenue along with the payment of a contingent earn-out and release of telespree liability . liquidity and capital resources we have historically financed operations through cash flows from operations as well as debt and equity transactions . at december 31 , 2018 , our principal sources of liquidity were $ 6.7 million in cash and cash equivalents and $ 7.8 million in contract receivables , net of allowances . our anticipated uses of cash in the future will be to fund the expansion of our business through both organic growth as well as possible acquisition activities , the expansion of our customer base internationally , and term loan payments . other uses of cash may include capital expenditures and technology expansion . during 2017 , in connection with the acquisition , evol holdings entered into a term loan facility agreement , a debenture and a subordination deed with east west bank as lender in the amount of $ 4.7 million . we used the full amount of the lumata facility to fund the acquisition . the lumata facility requires the company to make monthly principal payments of approximately $ 131,400 commencing july 31 , 2018 and interest at the greater of ( a ) 3.5 % or ( b ) the variable rate of interest that appears in the wall street journal on a monthly measurement date , plus in either case 1.5 % . the lumata facility is secured by substantially all of the assets of the company .
| costs of revenue includes product development expenses related to software features requested in advance of their scheduled availability which are funded by customers as part of a managed service offering . costs of revenue , excluding depreciation and amortization increased $ 1.7 million , or 19 % , to $ 10.4 million for the year ended december 31 , 2018 from $ 8.7 million for the year ended december 31 , 2017. the increase in costs of revenue is primarily attributable to higher service project hours from projects related to the acquired companies of $ 2.5 million partially offset by lower service project hours from existing client relationships . this has allowed for experienced resources to work on internal projects and product development . as a percentage of revenue , costs of revenue , excluding depreciation and amortization , increased to 34 % for the year december 31 , 2018 from 30 % for the year ended december 31 , 2017. the increase as a percentage of revenue is primarily due to the increased hours and resource costs from the acquired companies on projects generating lower margins . sales and marketing sales and marketing expenses primarily consist of compensation costs , including incentive compensation and commissions , travel expenses , advertising , marketing and facilities expenses . sales and marketing expenses increased 26 % , or $ 1.4 million , to $ 6.6 million for the year ended december 31 , 2018 from $ 5.2 million for the year ended december 31 , 2017. the increase in expenses is attributable to $ 1.3 million in costs from the acquired companies and $ 0.1 million in additional staff . as a percentage of total revenue , sales and marketing expenses for the year ended december 31 , 2018 increased to 22 % from 18 % for the year ended december 31 , 2017. the increase in sales and marketing expenses as a percentage of revenue is primarily due to the aforementioned higher
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the company 's 2007 , 2006 , and 2005 fiscal years ended on december 29 , 2007 , december 30 , 2006 , and december 31 , 2005 , respectively . story_separator_special_tag of $ 69.7 million for the year ended december 29 , 2007 and $ 70.0 million for the year ended december 30 , 2006 consists primarily of primarily of accretion of $ 40.7 million and $ 36.5 million on the 11 1/4 % notes , respectively , interest expense on the 9 3/4 % notes , term loan and revolving loans under the credit facility and amortization of deferred financing fees . the decrease in interest expense was due to lower overall borrowings on the term loan under the credit facility , offset by incremental accretion on the 11 1/4 % notes . the income tax provision for the year ended december 29 , 2007 reflects an effective income tax rate of 41.1 % compared to an effective income tax rate of 69.2 % for the same period in 2006. the decrease in the effective income tax rate in 2007 is primarily due to a reduction in state income taxes from the company 's ability to fully deduct the accretion on the 11 1/4 % notes as a result of its conversion to a limited liability company , an improved ability to utilize foreign tax credits to offset the taxes due on earnings from the company 's canadian subsidiary and a benefit from the settlement of uncertain tax positions during 2007. the company expects to have an effective tax rate in 2008 of approximately 39 % to 42 % . 25 net income was $ 15.8 million for the year ended december 29 , 2007 compared to net income of $ 8.0 million for the year ended december 30 , 2006. ebitda was $ 118.5 million for the fiscal year ended december 29 , 2007 compared to ebitda of $ 118.0 million for the fiscal year ended december 30 , 2006. for the fiscal year ended december 29 , 2007 , adjusted ebitda was $ 121.6 million compared to adjusted ebitda of $ 123.2 million for the 2006 fiscal year . adjusted ebitda for the 2007 fiscal year excludes separation costs of $ 0.7 million related to the resignation of the company 's former chief operating officer , $ 1.2 million of transaction costs relating to an unsuccessful bid for an acquisition target , $ 1.0 million of tax restructuring costs , $ 0.5 million of amortization related to prepaid management fees and foreign currency gains of $ 0.2 million . adjusted ebitda for the 2006 fiscal year excludes separation costs of $ 2.1 million related to the resignation of the company 's former chief executive officer , a $ 3.4 million impairment charge on certain long-lived assets , $ 0.5 million of amortization related to prepaid management fees , $ 0.7 million of foreign currency gains , non-cash stock compensation expense of less than $ 0.1 million , and a gain of $ 0.1 million associated with the sale of the company 's former manufacturing facility in freeport , texas . year ended december 30 , 2006 compared to year ended december 31 , 2005 net sales increased 6.5 % to $ 1,250.1 million for the year ended december 30 , 2006 compared to $ 1,173.6 million for the same period in 2005 driven primarily by the continued realization of selling price increases implemented in late 2005 and early 2006 , unit volume growth in the company 's vinyl window operations , as well as the benefit from a stronger canadian dollar . during the year ended december 30 , 2006 compared to the same period in 2005 , window unit volumes increased by 6 % , while vinyl siding unit volumes decreased by 6 % . the company 's u.s. vinyl siding unit volumes decreased 9 % , while canadian vinyl siding unit volumes increased 1 % compared to the prior year . beginning in mid-2006 and continuing throughout the second half of 2006 , the company experienced sales weakness in most of its markets , particularly the western region of the u.s. , which it believes is due in part to slowing in the new construction market , and the midwest region of the u.s. , which is due in part to weakness in that region 's overall economy . gross profit for the year ended december 30 , 2006 was $ 302.3 million , or 24.2 % of net sales , compared to gross profit of $ 267.3 million , or 22.8 % of net sales , for the same period in 2005. the increase in gross profit as a percentage of net sales was primarily a result of the realization of selling price increases . during the year ended december 30 , 2006 , compared to the same period in 2005 , the company 's manufacturing costs at the ennis vinyl siding facility improved ; however , manufacturing costs continued to be in excess of costs incurred prior to the consolidation of its freeport , texas vinyl siding facility with the ennis facility in early 2005. selling , general and administrative expense increased to $ 203.8 million , or 16.3 % of net sales , for the year ended december 30 , 2006 compared to $ 198.5 million , or 16.9 % of net sales , for the same period in 2005. selling , general and administrative expense for the fiscal year ended december 30 , 2006 includes $ 2.1 million of separation costs related to the resignation of the company 's former chief executive officer , amortization of prepaid management fees of $ 0.5 million and non-cash stock compensation expense of less than $ 0.1 million . selling , general and administrative expense in 2005 includes $ 4.0 million of amortization of prepaid management fees and non-cash stock compensation expense of $ 0.3 million . story_separator_special_tag excluding ceo separation costs , amortization of prepaid management fees , and non-cash stock compensation expense , selling , general and administrative expense for the fiscal year ended december 30 , 2006 increased $ 7.1 million compared to the same period in 2005. the increase in selling , general and administrative expense was due primarily to increased expenses in the company 's supply center network and the full year impact of expenses relating to new supply centers opened during 2005 , as well as increases in ebitda-based incentive compensation programs and the impact of a stronger canadian dollar , partially offset by the benefit of headcount reductions made in the prior year . during 2006 , the company recognized an impairment charge of $ 3.4 million . the company performed its impairment analysis in accordance with statement of financial accounting standards ( sfas ) no . 142 , goodwill and other intangible assets and sfas no . 144 , accounting for the impairment or disposal of long-lived assets . as the result of declining revenues for vinyl fence and rail products utilizing the ultraguard® trademark and the projected future revenues for these products , the ultraguard® trademark was concluded to be impaired as its carrying value exceeded its estimated fair value by approximately $ 1.0 million . as a result of the circumstances surrounding the fence and rail products , the company performed an impairment review of the long-lived assets used 26 to manufacture these products . the company recorded an impairment charge of approximately $ 0.2 million against patents and $ 1.4 million against machinery and equipment associated with its fence and rail products as their carrying values exceeded fair value . in estimating fair value , the company used the relief from royalty method in valuing the trademark and a discounted cash flow method in valuing the other long-lived assets . the company currently intends to continue to manufacture and sell vinyl fencing and railing products to support its existing customer base . in addition , due to changes in the company 's information technology and business strategies , $ 0.8 million of software and other equipment was considered impaired during 2006. interest expense of $ 70.0 million for the year ended december 30 , 2006 and $ 65.6 million for the year ended december 31 , 2005 consists primarily of primarily of accretion of $ 36.5 million and $ 32.6 million on the 11 1/4 % notes , respectively , interest expense on the 9 3/4 % notes , term loan and revolving loans under the credit facility and amortization of deferred financing fees . the increase in interest expense was due to incremental accretion on the 11 1/4 % notes , higher interest rates on floating rate debt and additional margin on borrowings under the credit facility subsequent to an amendment to the credit facility completed during the first quarter of 2006. these increases were partially offset by lower overall borrowings on both the term and revolving loans under the credit facility . the income tax provision for the year ended december 30 , 2006 reflects an effective income tax rate of 69.2 % , compared to an effective income tax rate of over 120 % for the same period in 2005. the 2006 and 2005 effective tax rates were impacted by a portion of the accretion on the 11 1/4 % notes , which is not deductible for income tax purposes . the 2006 and 2005 effective income tax rates were also affected by two changes in tax laws . under the american jobs creation act of 2004 , the company was entitled to a one-time reduction on the taxes imposed on the repatriation of earnings from its canadian subsidiary to the u.s. parent during 2005. in 2006 , as a result of the elimination of this one-time benefit , and the limitations on the company 's ability to take full advantage of foreign tax credits related to canadian earnings , additional provision was recorded . secondly , in june 2005 , the state of ohio enacted significant changes to its tax system including repealing the ohio corporate franchise/income tax , repealing the tangible personal property tax , and enacting a new commercial activity tax based on ohio gross receipts . the change in ohio tax law reduced the company 's net deferred tax liabilities associated with the state of ohio , resulting in a one-time benefit during 2005. net income was $ 8.0 million for the year ended december 30 , 2006 compared to net income of $ 0.3 million for the year ended december 31 , 2005. ebitda was $ 118.0 million for the fiscal year ended december 30 , 2006 compared to ebitda of $ 84.6 million for the fiscal year ended december 31 , 2005. for the fiscal year ended december 30 , 2006 , adjusted ebitda was $ 123.2 million compared to adjusted ebitda of $ 93.6 million for the 2005 fiscal year . adjusted ebitda for the 2006 fiscal year excludes separation costs of $ 2.1 million related to the resignation of the company 's former chief executive officer , a $ 3.4 million impairment charge on certain long-lived assets , $ 0.5 million of amortization related to prepaid management fees , $ 0.7 million of foreign currency gains , non-cash stock compensation expense of less than $ 0.1 million , and a gain of $ 0.1 million associated with the sale of the company 's former manufacturing facility in freeport , texas . adjusted ebitda for the 2005 fiscal year excludes $ 4.0 million of amortization related to prepaid management fees , $ 0.8 million of foreign currency losses , $ 0.3 million of non-cash stock compensation expense , and one-time costs of $ 4.0 million associated with the closure of the company 's former manufacturing facility in freeport , texas . 27 quarterly financial data because most of the company 's building products are intended for exterior use , sales and operating profits tend to be lower during periods of inclement weather .
| ( ii ) represents legal and accounting fees incurred in connection with an unsuccessful bid for an acquisition target . ( iii ) represents legal and accounting fees incurred in connection with a tax restructuring project to reduce amh ii 's consolidated income tax obligations . ( iv ) represents one-time costs associated with the closure of the freeport , texas manufacturing facility consisting primarily of asset impairments and equipment relocation expenses . total pre-tax expenses related to the freeport closing were $ 8.4 million . ( v ) for the fiscal year ended december 29 , 2007 , amount represents separation costs , including payroll taxes , related to the resignation of mr. deighton , former chief operating officer of the company . for the fiscal year ended december 30 , 2006 , amount represents separation costs , including payroll taxes and benefits , related to the resignation of mr. caporale , former chairman , president and chief executive officer of the company by mutual agreement with the board of directors . ( vi ) based on current and projected operating results for its vinyl fencing and railing product lines , the company concluded that certain machinery and equipment , trademarks , and patents used to manufacture these products were impaired during the fourth quarter of 2006 as their carrying values exceeded their fair value by $ 2.6 million . in addition , due to changes in the company 's information technology and business strategies , $ 0.8 million of software and other equipment was considered impaired . 24 year ended december 29 , 2007 compared to year ended december 30 , 2006 net sales decreased 3.7 % to $ 1,204.1 million for the year ended december 29 , 2007 compared to $ 1,250.1 million for the same period in 2006 primarily due to lower sales volumes in the company 's vinyl siding operations , partially offset by growth in third party manufactured product sales from expanded product offerings and the benefit from the stronger canadian dollar . compared to the 2006 fiscal year , vinyl window unit volumes were unchanged while vinyl siding unit volumes decreased by 13 % , which is comprised of
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the following agreements make up the operating segment cruise ships & other in the corporate and other reportable segment : · we operate 1 3 ship-based casinos through concession agreements with four cruise lines . in june 2016 , we began operating the ship-based casinos onboard the mein schiff 5 , a new 2,500 passenger cruise ship , and the tui discovery , a 2,067 passenger cruise ship . under an amended concession agreement with tui cruises , we also plan to operate the ship-based casino onboard mein schiff 6 , a new 2,500 passenger cruise ship scheduled to begin operations in the third quarter of 2017 . under a concession agreement with diamond , we began operating the ship-based casino onboard glory sea , a 1,200 passenger cruise ship , in july 2016. glory sea operates in the chinese cruise market with four-day trips between china , south korea and japan . in connection with the operation of the ship-based casino onboard glory sea , we also entered into a cooperation agreement with dynamic in july 2016. under this agreement , dynamic markets and promotes the casino to vip players along with facilitating our concession agreement with diamond , for which we pay dynamic a portion of the net profit from the casino onboard glory sea . in march 2015 , we mutually agreed with norwegian to terminate our concession agreements with oceania and regent , indirect subsidiaries of norwegian , effective june 1 , 2015. we transitioned operations of the eight ship-based casinos that we operated onboard oceania and regent vessels to norwegian in the second quarter of 2015 . 36 in march 2015 , we also entered into a two-year consulting agreement with norwegian , which became effective june 1 , 2015. under the consulting agreement , we are providing limited consulting services for the ship-based casinos of oceania and regent in exchange for receiving a consulting fee of $ 2.0 million , which is payable $ 250,000 per quarter through the second quarter of 2017 . · we have a management agreement to direct the operation of the casino at the hilton aruba caribbean resort & casino from which we receive a monthly management fee . the management agreement ends in december 2017 , and we do not anticipate renewing the agreement . we received management fees totaling $ 0.5 million related to this agreement for the year ended december 31 , 2016 . · through our subsidiary cce , we have a 7.5 % ownership interest in mce and we report our ownership interest using the cost method of accounting . mce has an exclusive concession agreement with ipjc to lease slot machines and provide related services to casino de mendoza , a casino located in mendoza , argentina , and owned by the province of mendoza . mce may also pursue other gaming opportunities . cce has appointed one director to mce 's board of directors and has a three-year option through october 2017 to purchase up to 50 % of the shares of mce . the option can be exercised by cce in tranches of shares , with each tranche representing not less than ten percent of the total outstanding shares of mce . the exercise price of the shares is based upon the value of mce at the time the option is exercised , which value is determined by a multiple of mce 's ebitda less certain debt . there are no conditions that limit cce 's ability to exercise this option . in addition , cce and mce have entered into a c onsulting s ervice a greement pursuant to which cce provides advice on casino matters and receives a service fee consisting of a fixed fee plus a percentage of mce 's ebitda . additional projects under development in september 2016 , we were selected by hra as the successful applicant to own , build and operate a horse racing facility in the edmonton market area , which we are planning to operate as century mile . century mile will be a one-mile horse racetrack and a multi-level rec . the proposed location is on edmonton international airport land and close to the city of leduc , south of edmonton . we estimate that this project will cost approximately cad 50.0 million ( $ 37.2 million based on the exchange rate in effect as of december 31 , 2016 ) and construction will take approximately 15 months to complete . commencement of construction of the century mile project is subject to , among other things , our obtaining financing and the receipt of further regulatory and governmental approvals , including but not limited to approval from the aglc . we are planning a restoration and expansion project at the historic palace hotel that we own in cripple creek , colorado , which would include adding 32 hotel rooms , an atrium , a coffee shop and a fitness room to the property . we estimate that this project will cost approximately $ 6.5 million and be completed in early 2018. completion of the palace hotel project is subject to our obtaining financing , which we are currently negotiating . presentation of foreign currency amounts - the average exchange rates to the u.s. dollar used to translate balances during each reported period are as follows : replace_table_token_12_th we recognize in our statement of earnings ( loss ) , foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than u.s. dollars . our casinos in canada and poland represent a significant portion of our business , and the revenue generated and expenses incurred by these operations are generally denominated in canadian dollars and polish zloty . a decrease in the value of these currencies in relation to the value of the u.s. dollar would decrease the earnings from our foreign operations when translated into u.s. dollars . story_separator_special_tag an increase in the value of these currencies in relation to the value of the u.s. dollar would increase the earnings from our foreign operations when translated into u.s. dollars . see note 2 , “ significant accounting policies - foreign currency translation ” to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this report . 37 story_separator_special_tag for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 . · canada increased by $ 1.3 million , or 11.2 % , and by $ 3.4 million , or 40.7 % . · united states increased by $ 0.9 million , or 22.5 % , and by $ 1.8 million , or 85.7 % . · poland increased by $ 1.2 million , or 29.8 % , and by $ 4.3 million , or 2641.5 % . · corporate other decreased by ( $ 3.1 ) million , or ( 75.2 % ) , and increased by $ 3.6 million , or 46.9 % . net earnings decreased by ( $ 2.3 ) million , or ( 20.0 % ) , and increased by $ 10.3 million , or 835.1 % , for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , respectively . items deducted from or added to earnings from operations to arrive at net earnings include interest income , interest expense , gains ( losses ) on foreign currency transactions and other , income tax expense and non-controlling interests . for a discussion of these items , see “ non-operating income ( expense ) ” and “ taxes ” below in this item 7 . 40 reportable segments the following discussion provides further detail of consolidated results by reportable segment . replace_table_token_14_th on october 1 , 2016 , our subsidiary , century casino st. albert inc. , completed the apex acquisition and began operating csa . with renovations at cra complete , the acquisition of csa and the continued quarter over quarter growth at cdr , we believe that the canada segment will continue its revenue growth in 2017. in addition , we are working to identify possible operating , marketing and staffing synergies that can be used to control costs throughout the properties in the canada segment . 41 years ended december 31 , 2016 and 2015 the following discussion highlights results for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . results in u.s. dollars were impacted by a 3.7 % exchange rate decrease in the average rate between the u.s. dollar and canadian dollar for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . revenue highlights in cad in u.s. dollars at cra , net operating revenue decreased by ( cad 0.8 ) million , or ( 2.7 % ) , due to lower gaming and food and beverage revenue . we conducted a casino remodel during the second and third quarters of 2016 , which contributed to the decrease in revenue . the remodel included expanding the gaming floor , relocating the poker room , enhancing the high limit gaming area and adding a new bar to the casino . the remodel was substantially completed in november 2016. in addition , increased competition from a new casino in the downtown edmonton area contributed to the decline in net operating revenue . at cra , net operating revenue decreased by ( $ 1.4 ) million , or ( 6.3 % ) . at csa , net operating revenue was cad 2.7 million . at csa , net operating revenue was $ 2.0 million . at cal , net operating revenue decreased by ( cad 0.1 ) million , or ( 0.8 % ) , due to lower gaming and food and beverage revenue . cal has been impacted the hardest by the weak alberta economy due to lower oil prices . in response to the decreased gaming and food and beverage revenue , we decreased the promotional allowances offered at this location . at cal , net operating revenue decreased by ( $ 0.4 ) million , or ( 4.7 % ) . at cdr , net operating revenue increased by cad 5.8 million , or 37.5 % , due to operating the casino for three additional months and the racetrack for approximately two additional months in 2016 compared to 2015 . at cdr , net operating revenue increased by $ 4.0 million , or 33.7 % . at cbs , net operating revenue increased by cad 1.1 million , or 39.1 % . at cbs , net operating revenue increased by $ 0.8 million , or 35.9 % . operating expense highlights in cad in u.s. dollars at cra , operating expenses increased by cad 0.6 million , or 2.9 % , primarily due to increased payroll costs of cad 0.4 million from higher minimum wages in alberta , canada and increased marketing expenses of cad 0.2 million . at cra , operating expenses decreased by ( $ 0.1 ) million , or ( 0.8 % ) . at csa , operating expenses were cad 2.0 million . at csa , operating expenses were $ 1.5 million . at cal , operating expenses increased by cad 0.2 million , or 2.1 % , primarily due to increased payroll costs of cad 0.2 million , resulting primarily from higher minimum wages in alberta , canada and increased administrative expenses of cad 0.1 million , offset by decreased marketing expenses of cad 0.1 million . at cal , operating expenses decreased by ( $ 0.1 ) million , or ( 1.5 % ) .
| · we recorded $ 3.4 million in net operating revenue and net earnings for the year ended december 31 , 2015 in the corporate and other segment , related to the $ 4.0 million consideration for the termination of the oceania and regent concession agreements net of $ 0.6 million of assets sold as part of the agreement . this is included in the corporate and other segment . · we began operating csa in october 2016 . csa contributed a total of $ 2.0 million in net operating revenue and $ 0.3 million in net earnings for the year ended december 31 , 2016. csa is reported in the canada reportable segment . net operating revenue increased by $ 5.5 million , or 4.1 % , and by $ 13.7 million , or 11.4 % , for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , respectively . following is a breakout of net operating revenue by segment for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 . · canada increased by $ 5.0 million , or 11.1 % , and by $ 10.6 million , or 30.6 % . · united states increased by $ 1.7 million , or 6.0 % , and by $ 1.7 million , or 6.5 % . · poland increased by $ 2.7 million , or 5.1 % , and by $ 1.0 million , or 2.0 % . · corporate other decreased by ( $ 3.9 ) million , or ( 49.6 % ) , and increased by $ 0.3 million , or 4.4 % . operating costs and expenses increased by $ 5.1 million , or 4.4 % , and by $ 0.5 million , or 0.5 % , for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and for the year ended
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certain of these leases provide for percentage and overage rents based upon the level of sales achieved 53 by the tenant . percentage and overage rents are recognized after a tenant 's reported sales have exceeded the applicable sales breakpoint set forth in the applicable lease . the leases also typically provide for tenant reimbursements of common area maintenance and other operating expenses and real estate taxes . accordingly , revenues associated with tenant reimbursements are recognized in the period in which the expenses are incurred based upon the tenant lease provision . management fees are recorded in the period earned . fee income derived from the company 's unconsolidated joint venture investments is recognized to the extent attributable to the unaffiliated ownership interest . ancillary and other property-related income , which includes the leasing of vacant space to temporary tenants , is recognized in the period earned . lease termination fees are included in other revenue and recognized and earned upon termination of a tenant 's lease and relinquishment of space in which the company has no further obligation to the tenant . the company makes estimates of the collectability of its accounts receivable related to base rents , including straight-line rentals , expense reimbursements and other revenue or income . the company analyzes accounts receivable , tenant credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts . in addition , with respect to tenants in bankruptcy , the company makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable . the time to resolve these claims may exceed one year . these estimates have a direct impact on the company 's earnings because a higher bad debt reserve and or a subsequent write-off in excess of an estimated reserve results in reduced earnings . notes receivable notes receivable include certain loans that are held for investment and are generally collateralized by real estate-related investments and may be subordinate to other senior loans . loan receivables are recorded at stated principal amounts or at initial investment plus accretable yield for loans purchased at a discount . the related discounts on mortgages and other loans purchased are accreted over the life of the related loan receivable . the company defers loan origination and commitment fees , net of origination costs , and amortizes them over the term of the related loan . the company evaluates the collectability of both principal and interest on each loan based on an assessment of the underlying collateral value to determine whether it is impaired , and not by the use of internal risk ratings . a loan is considered to be impaired when , based upon current information and events , it is probable that the company will be unable to collect all amounts due according to the existing contractual terms , and the amount of loss can be reasonably estimated . when a loan is considered to be impaired , the amount of loss is calculated by comparing the recorded investment to the value of the underlying collateral . as the underlying collateral for a majority of the notes receivable are real estate-related investments , the same valuation techniques are used to value the collateral as those used to determine the fair value of real estate investments for impairment purposes . given the small number of loans , the company does not provide for an additional allowance for loan losses based on the grouping of loans , as the company believes the characteristics of the loans are not sufficiently similar to allow an evaluation of these loans as a group . as such , all of the company 's loans are evaluated individually for this purpose . interest income on performing loans is accrued as earned . a loan is placed on non-accrual status when , based upon current information and events , it is probable that the company will not be able to collect all amounts due according to the existing contractual terms . interest income on non-performing loans is generally recognized on a cash basis . recognition of interest income on an accrual basis on non-performing loans is resumed when it is probable that the company will be able to collect amounts due according to the contractual terms . consolidation the company has a number of joint venture arrangements with varying structures . the company consolidates entities in which it owns less than a 100 % equity interest if it is determined that it is a variable interest entity ( vie ) and the company has a controlling financial interest in that vie , or is the controlling general partner . the analysis to identify whether the company is the primary beneficiary of a vie is based upon which party has ( a ) the power to direct activities of the vie that most significantly affect the vie 's economic 54 performance and ( b ) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the vie . in determining whether it has the power to direct the activities of the vie that most significantly affect the vie 's performance , the company is required to assess whether it has an implicit financial responsibility to ensure that a vie operates as designed . this qualitative assessment has a direct impact on the company 's financial statements , as the detailed activity of off-balance sheet joint ventures is not presented within the company 's consolidated financial statements . real estate and long-lived assets properties are depreciated using the straight-line method over the estimated useful lives of the assets . the company is required to make subjective assessments as to the useful lives of its properties to determine the amount of depreciation to reflect on an annual basis with respect to those properties . these assessments have a direct impact on the company 's net income . story_separator_special_tag if the company were to extend the expected useful life of a particular asset , it would be depreciated over more years and result in less depreciation expense and higher annual net income . on a periodic basis , management assesses whether there are any indicators that the value of real estate assets , including land held for development and construction in progress , and intangible assets may be impaired . a property 's value is impaired only if management 's estimate of the aggregate future cash flows ( undiscounted and without interest charges ) to be generated by the property are less than the carrying value of the property . the determination of undiscounted cash flows requires significant estimates by management . in management 's estimate of cash flows , it considers factors such as expected future operating income ( loss ) , trends and prospects , the effects of demand , competition and other factors . if the company is evaluating the potential sale of an asset or development alternatives , the undiscounted future cash flows analysis is probability-weighted based upon management 's best estimate of the likelihood of the alternative courses of action . subsequent changes in estimated undiscounted cash flows arising from changes in anticipated actions could affect the determination of whether an impairment exists and whether the effects could have a material impact on the company 's net income . to the extent an impairment has occurred , the loss will be measured as the excess of the carrying amount of the property over the fair value of the property . the company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties and other investments . these assessments have a direct impact on the company 's net income because recording an impairment charge results in an immediate negative adjustment to net income . the company allocates the purchase price to assets acquired and liabilities assumed at the date of acquisition . in estimating the fair value of the tangible and intangible assets and liabilities acquired , the company considers information obtained about each property as a result of its due diligence , marketing and leasing activities . it applies various valuation methods , such as estimated cash flow projections using appropriate discount and capitalization rates , estimates of replacement costs net of depreciation and available market information . if the company determines that an event has occurred after the initial allocation of the asset or liability that would change the estimated useful life of the asset , the company will reassess the depreciation and amortization of the asset . the company is required to make subjective estimates in connection with these valuations and allocations . off-balance sheet arrangements impairment assessment the company has a number of off-balance sheet joint ventures and other unconsolidated arrangements with varying structures . on a periodic basis , management assesses whether there are any indicators that the value of the company 's investments in unconsolidated joint ventures may be impaired . an investment 's value is impaired only if management 's estimate of the fair value of the investment is less than the carrying value of the investment and such loss is deemed to be other than temporary . to the extent an impairment has occurred , the loss is measured as the excess of the carrying amount of the investment over the estimated fair value of the investment . 55 measurement of fair value real estate and unconsolidated joint venture investments the company is required to assess the value of certain impaired consolidated and unconsolidated joint venture investments as well as the underlying collateral for certain financing notes receivable . the fair value of real estate investments used in the company 's impairment calculations is estimated based on the price that would be received to sell an asset in an orderly transaction between marketplace participants at the measurement date . investments without a public market are valued based on assumptions made and valuation techniques used by the company . the availability of observable transaction data and inputs can make it more difficult and or subjective to determine the fair value of such investments . as a result , amounts ultimately realized by the company from investments sold may differ from the fair values presented , and the differences could be material . the valuation of impaired real estate assets , investments and real estate collateral is determined using widely accepted valuation techniques including the income capitalization approach or discounted cash flow analysis on the expected cash flows of each asset considering prevailing market capitalization rates , analysis of recent comparable sales transactions , actual sales negotiations , bona fide purchase offers received from third parties and or consideration of the amount that currently would be required to replace the asset , as adjusted for obsolescence . in general , the company considers multiple valuation techniques when measuring fair value of an investment . however , in certain circumstances , a single valuation technique may be appropriate . for operational real estate assets , the significant assumptions include the capitalization rate used in the income capitalization valuation as well as the projected property net operating income and expected hold period . for projects under development , the significant assumptions include the discount rate , the timing for the construction completion and project stabilization and the exit capitalization rate . for investments in unconsolidated joint ventures , the company also considers the valuation of any underlying joint venture debt . valuation of real estate assets is calculated based on market conditions and assumptions made by management at the measurement date , which may differ materially from actual results if market conditions or the underlying assumptions change . real estate held for sale pursuant to the definition of a component of an entity , assuming no significant continuing involvement , the sale of a property is considered discontinued operations . in addition , the operations from properties classified as held for sale are considered discontinued operations .
| at december 31 , 2012 , the aggregate occupancy of the company 's operating shopping center portfolio in which the company has an economic interest was 91.5 % , as compared to 89.1 % at december 31 , 2011. the company owned 432 shopping centers ( including 177 shopping centers owned through unconsolidated joint ventures and two that were otherwise consolidated by the company ) and five office properties at december 31 , 2011. the average annualized base rent per occupied square foot was $ 13.66 at december 31 , 2012 , as compared to $ 13.81 at december 31 , 2011. current strategy the company has positioned itself for growth after considerable progress in recent years recycling capital , enhancing the quality of the portfolio and improving the balance sheet . the company issued more than $ 500 million of common shares in 2012 to selectively acquire prime assets ( i.e. , market-dominant shopping centers with high-quality tenants located in attractive markets with strong demographic profiles , which are referred to as prime portfolio or prime assets ) . the company seeks to be a net acquirer of prime assets that will continue to improve portfolio quality , credit quality of cash flows and property-level operating results . off-market acquisitions , lease-up and the active management of assets should contribute to growth in 2013. the following set of core competencies is expected to continue to benefit the company : strong tenant relationships with the nation 's leading retailers , maintained through a national tenant account program ; a retail partnership group to optimize portfolio management by enhancing communication between retailers , the leasing department and other areas of the company ; an internal anchor store redevelopment department solely dedicated to aggressively identifying opportunities to re-tenant vacant anchor space ; an investment group focused on selectively acquiring well-located , quality shopping centers that have leases at below-market rental rates or other cash flow growth or capital appreciation potential where the company 's financial strength , relationships with retailers and management capabilities can enhance value ; a focus on growth and value creation within the prime portfolio , from which approximately 89 % of the company 's net operating income ( defined as property-level revenues less property-level operating expenses ) is generated ; a redevelopment department focused on identifying viable projects with attractive returns ; a capital markets department with broad and diverse relationships with capital providers to facilitate access to secured and unsecured , public and private capital ; 49 an experienced funds management team dedicated to generating consistent returns and disclosure for institutional partners ; a focused asset transaction team dedicated to finding buyers for non-core assets and sourcing potential acquisition opportunities and a development department adhering to
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enzo life sciences manufactures , develops and markets products and tools to life sciences , drug development and clinical research customers world-wide and has amassed a large patent and technology portfolio . enzo life sciences , inc. is a recognized leader in labeling and detection technologies across research and diagnostic markets . our strong portfolio of proteins , antibodies , peptides , small molecules , labeling probes , dyes and kits provides life science researchers tools for target identification/validation , high content analysis , gene expression analysis , nucleic acid detection , protein biochemistry and detection , and cellular analysis . we are internationally recognized and acknowledged as a leader in manufacturing , in-licensing , and commercialization of over 7,500 of our own products and in addition distribute over 30,000 products made by over 40 other original manufacturers . our strategic focus is directed to innovative high quality research reagents and kits in the primary key research areas of genomics , cellular analysis , small molecule chemistry , protein homeostasis and epigenetics and immunoassays and assay development . the segment is an established source for a comprehensive panel of products to scientific experts in the fields of cancer , cardiovascular disease , neurological disorders , diabetes and obesity , endocrine disorders , infectious and autoimmune disease , hepatotoxicity and renal injury . enzo therapeutics is a biopharmaceutical company that has developed multiple novel approaches in the areas of gastrointestinal , infectious , ophthalmic and metabolic diseases , many of which are derived from the pioneering work of enzo life sciences . the company has focused its efforts on developing treatment regimens for diseases and conditions in which current treatment options are ineffective , costly , and or cause unwanted side effects . this focus has generated a clinical and preclinical pipeline , as well as more than 445 patents and patent applications . the following table summarizes the sources of revenues for the fiscal years ended july 31 , 2012 , 2011 and 2010 , ( in $ 000 's and percentages ) : replace_table_token_5_th 46 results of operations fiscal year ended july 31 , 2012 as compared to july 31 , 2011 comparative financial data for the fiscal year ended july 31 , replace_table_token_6_th consolidated results : the 2012 period and the 2011 period refer to the fiscal year ended july 31 , 2012 and 2011 , respectively . clinical laboratory services revenue during the 2012 period were $ 59.4 million compared to $ 52.8 million in the 2011 period . the 2012 period 's increase over the 2011 period was $ 6.6 million or 13 % due to organic growth . product revenues decreased by $ 4.1 million or 10 % in the 2012 period to $ 37.7 million as compared to $ 41.8 million in the 2011 period due to a decline in organic sales . during the 2012 period we experienced a decline attributed to certain distributed products for certain customer types and declines in resale products due to market softness in research reagent products . royalty and license fee income during the 2012 period was $ 6.0 million compared to $ 7.5 million in the 2011 period , a decrease of $ 1.5 million or 20 % . royalties were primarily earned from the reported sales of qiagen products subject to a license agreement . during the 2012 period the qiagen royalties decreased by $ 0.8 million as compared to the 2011 period , to $ 5.9 million as a result of lower reported sales from qiagen . the 2012 period decrease is also due to abbott 's notification in the 2011 period that they had made a final payment under a license agreement , which aggregated $ 0.5 million , since they were not aware of any non-expired patents covered under the license agreement . other royalties declined $ 0.1 million . there are no direct expenses relating to royalty and licensing income . 47 the cost of clinical laboratory services during the 2012 period was $ 36.3 million as compared to $ 31.7 million in the 2011 period , an increase of $ 4.6 million or 15 % . the company incurred increased costs in the 2012 period due to higher reagent costs and supplies of $ 1.7 million , higher laboratory personnel costs and related costs of $ 1.1 million , higher outside reference lab costs of $ 1.1 million and other lab costs of $ 0.7 million , all attributed to the increased service volume and higher employee benefit costs . in the 2012 period the gross profit margin decreased to 39 % from 40 % in the 2011 period due to the increased costs . the cost of product revenues during the 2012 period was $ 19.6 million compared to $ 22.1 million in the 2011 period , a decrease of $ 2.5 million or 11 % . the decrease is primarily due to lower revenues and decreases to manufacturing costs . research and development expenses were approximately $ 6.3 million during the 2012 period , compared to $ 7.8 million in the 2011 period , a decrease of $ 1.5 million or 19 % . the decrease was attributed to lower costs of $ 1.5 million at enzo life sciences principally due to lower payroll of $ 0.9 million , overhead costs of $ 0.4 million due to integration of facilities and lower patent related costs of $ 0.2 million . research and development for the clinical labs segment , which commenced in the 2012 period , was $ 0.3 million . the therapeutics segment expense decreased by $ 0.3 million as compared to the 2011 period primarily due the recognition of deferred revenue from a research grant . selling , general and administrative expenses were approximately $ 48.0 million during the 2012 period as compared to $ 45.2 million in the 2011 period , an increase of $ 2.7 million or 6 % . story_separator_special_tag the clinical lab segment 's selling general and administrative increased by $ 2.4 million primarily due to an increase in sales commissions of $ 0.5 million , an increase in other expenses of $ 1.9 million , including among others payroll and related benefits , severance costs , rent and repairs and maintenance for patient collection centers , phones , and billing support , all related to the increased revenue volume . the life sciences segment selling general and administrative increased by $ 0.4 million due to a $ 0.5 million increase in compensation costs for existing personnel and for new hires of senior level marketing personnel in the latter half of fiscal 2011 , and an increase in overhead costs of approximating $ 0.3 million , partially offset by a decrease of $ 0.4 million in compensation costs for administrative personnel due to headcount reduction . the other selling general and administrative decreased by $ 0.1 million , primarily due to decreases in compensation and related costs and other employee benefit costs of $ 0.5 million offset by increases in professional fees of $ 0.4 million . the provision for uncollectible accounts receivable , primarily relating to the clinical labs segment , was $ 5.1 million for the 2012 period as compared to $ 4.4 million in the 2011 period primarily due to the increase in service volume . as a percentage of revenues the provision for uncollectible accounts receivable for the clinical labs segment approximated 8.4 % in both periods . legal expense was $ 3.7 million during the 2012 and 2011 periods relating to general legal services , patent and litigation related matters . during the 2012 period , the company recorded pre-tax non-cash impairment charges of $ 24.5 million related to us and foreign goodwill and trademarks carried in the life sciences segment . the charges resulted in a deferred tax benefit of approximately $ 2.1 million , bringing the impact of the charges , net of the tax benefit , to $ 22.4 million ( see note 2 to the consolidated financial statements ) . during the 2012 period , the loss on foreign currency transactions was $ 0.5 million compared to income of $ 0.1 million in the 2011 period . the loss in the 2012 period was due to the weakening of foreign currencies relative to the us dollar and the impact that had principally on intercompany loans denominated in foreign currencies . 48 story_separator_special_tag $ 0.9 million attributed to an increase in patient service revenue . as a percentage of clinical lab revenues , bad debts approximated 8 % in both the 2011 and 2010 periods . legal expense was $ 3.7 million during the 2011 period compared to $ 1.7 million in the 2010 period , an increase of $ 2.0 million due to overall increases in legal services in the 2011 period for general , litigation and proxy related matters of $ 1.0 million and the impact of $ 0.5 million in insurance reimbursements and $ 0.5 million in negotiation and settlement adjustments in the 2010 period . during the 2010 period , in connection with the litigation settlement with mr. shahram k. rabbani to settle all of his claims against the company , and certain of its executive officers , the company agreed to pay a lump sum payment of $ 2.7 million . the company recorded a settlement expense of approximately $ 3.7 million , consisting of the lump sum payment of $ 2.7 million and approximately $ 1.0 million of legal expenses incurred in connection with the claims . 51 the 2011 period foreign exchange benefit was approximately $ 0.1 million compared to a loss of $ 0.2 million in the 2010 period . the foreign exchange benefit or loss is determined on two factors , an intercompany loan denominated in british pounds sterling and transactions denominated in foreign currencies other than the functional currency . segment results the clinical labs segment 's loss before taxes was $ 2.1 million for the 2011 period as compared to $ 7.5 million in the 2010 period an improvement of $ 5.4 million arising from revenue growth , process improvements and cost containment . the revenue from laboratory services increased in the 2011 period by $ 8.6 million due to organic growth of 11 % and the 8 % increase in revenue due to the new payer contract with empire blue cross of new york . the 2011 period gross profit of $ 21.1 million improved the gross profit margin from 33 % to 40 % over the 2010 period due to the previously discussed changes in service revenues and favorable impacts on costs from process improvements and benefits resulting from greater service volume on fixed costs coverage . selling , general and administrative expense decreased by approximately $ 0.1 million primarily due to decreases in benefits and other costs , partially offset by increases in sales commissions directly the result of increased service revenues . the provision for uncollectible accounts receivables increased by $ 1.0 million as compared to the 2010 period due to the increase in patient service volume . the life sciences segment 's income before taxes was $ 2.8 million for the 2011 period as compared to $ 2.9 million for the 2010 period with the positive impact of the on-going integration of our businesses and related operational improvements and cost reductions offset by a decline in revenues . product revenues decreased by $ 1.3 million or 3 % in the 2011 period primarily due to a decline of organic sales of 3.5 % partially attributed to the on-going strategy to increase direct sales and rationalize certain distribution business and softness in the japan market offset by a positive impact of foreign exchange of 0.5 % . further , royalty and license fee income decreased by $ 2.4 million in the 2011 period principally attributed to no royalty payments received under the abbott license agreement after the first quarter of the 2011 period .
| further , royalty and license fee income decreased by $ 1.5 million in the 2012 period attributed to a decrease in royalties of $ 0.8 million from the reported sales of qiagen products subject to a license agreement , as previously discussed , and in addition , no royalty payments were received under another license agreement after the first quarter of the 2011 period . the segment 's gross profit of $ 24.0 million in the 2012 period , as compared $ 27.1 million in the 2011 period , was negatively impacted by the previously discussed changes in revenues . the segment 's gross profit percentage was 55 % in the 2012 and 2011 periods . the segment 's other operating expenses , including selling , general and administrative , legal and research and development , decreased by approximately $ 1.2 million during the 2012 period primarily due to reduced research and development costs of $ 1.4 million and decreased legal cost of $ 0.2 million , offset by higher compensation of $ 0.1 million and higher overhead of $ 0.3 million . therapeutics the therapeutics segment 's loss before income taxes was approximately $ 1.7 million in the 2012 and $ 2.0 in 2011 period . the decline was due to the recognition of deferred revenue from a research grant of $ 0.4 million offset by other increases of $ 0.1 million . other the other loss before taxes for the 2012 period was approximately $ 11.7 million as compared to $ 11.5 million the 2011 period . in the 2012 period , legal expenses increased by $ 0.3 million , and general and administrative costs relating to compensation costs and other employee benefit costs decreased by $ 0.5 million offset by an increase in professional fees of $ 0.4 million . 49 results of operations comparative financial data for the fiscal years ended july 31 , ( in 000 's ) replace_table_token_7_th consolidated results : the 2011 period and the 2010 period refer to the fiscal year ended july 31 , 2011 and 2010 , respectively . clinical laboratory services revenue during the 2011 period were $ 52.8 million compared to $ 44.2 million in the 2010 period .
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these sites provide the means to test the inuvo technologies , while also delivering high quality consumers to clients through the interaction with proprietary content in the form of images , videos , slideshows and articles . 13 there are many barriers to entry associated with the inuvo business model , including a proficiency in large scale information processing , predictive software development , marketing data products , analytics , artificial intelligence , integration to the internet of things ( iot ) , and the relationships required to execute within the iot . inuvo 's intellectual property is protected by 18 issued and seven pending patents . mergers termination on june 20 , 2019 , inuvo entered into an agreement and plan of merger termination agreement ( the “ merger termination agreement ” ) with conversionpoint technologies inc. , a delaware corporation ( “ cpt ” ) , conversionpoint holdings , inc. , a delaware corporation ( “ parent ” ) , cpt merger sub , inc. , a delaware corporation , ( “ cpt merger sub ” ) , and cpt cigar merger sub , inc. , a nevada corporation ( “ inuvo merger sub ” ) , which , among other things , ( 1 ) terminated the agreement and plan of merger , dated november 2 , 2018 , by and among inuvo , cpt , parent , cpt merger sub , and inuvo merger sub , as amended ( the “ merger agreement ” ) , pursuant to which inuvo would have merged with and into inuvo merger sub and become a wholly-owned subsidiary of parent , and cpt would have merged with and into cpt merger sub and become a wholly-owned subsidiary of parent ( the “ mergers ” ) , and ( 2 ) terminated each of the support agreements that were entered into by certain officers and directors of inuvo and the parties to the merger agreement . the merger agreement was terminated as a result of parent 's inability to fulfill the closing condition of the mergers that parent raise $ 36,000,000 in gross proceeds from an equity , debt , or equity-linked offering of its securities which no longer obligated inuvo to consummate the mergers contemplated by the merger agreement . concurrently with the execution of the merger termination agreement , cpt investments , llc , a california limited liability company and an affiliate of cpt ( “ cpt investments ” ) , and inuvo entered into a certain inuvo note termination agreement ( the “ note termination agreement ” ) and agreed to ( 1 ) terminate and cancel the 10 % senior unsecured subordinated convertible promissory note , dated november 1 , 2018 , executed by inuvo in favor of cpt investments ( the “ cpti note ” ) , which as of june 20 , 2019 , had $ 1,063,288 in accrued principal and interest outstanding ( the “ outstanding indebtedness ” ) by july 20 , 2019 , ( 2 ) effective immediately , terminate all conversion rights under the cpti note to convert amounts outstanding into shares of inuvo 's common stock , ( 3 ) terminate the securities purchase agreement , dated november 1 , 2018 , by and between inuvo and cpt investments ( the “ securities purchase agreement ” ) , and ( 4 ) terminate the registration rights agreement , dated november 1 , 2018 , by and between inuvo and cpt investments . the merger termination agreement provided that the termination fee of $ 2,800,000 to be paid to inuvo ( the “ termination fee ” ) for failure to fulfill the financing condition would be satisfied as follows : ( 1 ) $ 1,063,288 of the termination fee was satisfied in consideration of the termination and cancellation of the outstanding indebtedness pursuant to the cpti note termination agreement that was approved by cpt 's senior lenders montage capital ii , l.p. and partners for growth iv , l.p. and cpt 's issuance of a replacement note to cpt investments that was entered into in july 2019 ; ( 2 ) $ 1,611,712 of the termination fee was satisfied by cpt transferring all of the assets related to cpt 's programmatic and rtb advertising solutions business conducted through managed services and a proprietary saas solution ( the “ retargeter business ” ) , free and clear of all liabilities , encumbrances , or liens , to inuvo ; and ( 3 ) cpt paid $ 125,000 to inuvo on september 15 , 2019 to be contributed to the settlement of ongoing litigation with respect to the mergers . on september 30 , 2019 , inuvo paid its obligation of $ 250,000 under a confidential settlement agreement that it entered into on june 20 , 2019 resolving certain outstanding litigation related to the mergers . under the merger termination agreement , cpt and inuvo agreed to mutually release all claims that each party had against the other , as well as certain affiliated entities of each . inuvo , however , will be able to pursue any claims against cpt and its affiliates for breaches of the merger termination agreement . an independent valuation of the retargeter business was completed as of september 30 , 2019. the enterprise valuation of the retargeter business was determined to be $ 2.57 million . hitachi credit agreement on march 12 , 2020 inuvo , inc. closed a loan and security agreement dated february 28 , 2020 by and between our company and our subsidiaries and hitachi . under the terms of the loan and security agreement hitachi has provided us with a $ 5,000,000 line of credit commitment . story_separator_special_tag we are permitted to borrow ( i ) 90 % of the aggregate eligible accounts receivable , plus 14 ( i ) the lesser of 75 % of the aggregate unbilled accounts receivable ( as those terms are defined in the loan and security agreement ) or 50 % of the amount available to borrow under ( i ) , up to the maximum credit commitment . on march 12 , 2020 we drew $ 5,000,000 under this agreement , using $ 2,959,573 of these proceeds to satisfy our obligations to western alliance bank under our credit agreement with it and the balance was used for working capital at the time . following the satisfaction of our obligations to western alliance bank , all agreements with that entity were terminated . we will pay hitachi monthly interest at the rate of 2 % in excess of the wall street journal prime rate , with a minimum rate of 6.75 % per annum , on outstanding amounts . the principal and all accrued but unpaid interest are due on demand . in the event of a default under the terms of the loan and security agreement , the interest rate increases to 6 % greater than the interest rate in effect from time to time prior to a default . the loan and security agreement contains certain affirmative and negative covenants to which we are also subject . we agreed to pay hitachi a commitment fee of $ 50,000 , with one half due upon the execution of the agreement and the balance due six months thereafter . thereafter , we are obligated to pay hitachi a commitment fee of $ 15,000 annually . we are also obligated to pay hitachi a quarterly service fee of 0.30 % on the monthly unused amount of the maximum credit line . in addition to a $ 2,000 document fee we have paid to hitachi , if we should exit the agreement before march 1 , 2022 , we are obligated to pay hitachi an exit fee of $ 50,000 . 2020 overview we entered 2020 with two product lines , validclick and intentkey , the latter having been launched through an integration with xandr at the end of 2018. for validclick , our objective was to keep the business steady while diversifying revenue within the product line . with the termination of the merger agreement with cpt in june 2019 , we began to reassess our strategy . the integration of the intentkey to xandr leading into 2019 provided a means to distribute our intentkey product . we had conducted an extensive evaluation of potential partners in late 2018 having ultimately selected xandr due to their scale and the immediate fit of their technology . this relationship allowed our proprietary data , which is manufactured by our patented artificial intelligence , to become available for sale by inuvo as a service to online advertisers , thousands of which use the xandr platform to execute their campaigns . this year , 2020 , has been an extraordinary year that could not have been predicted at the time it was forecasted . the covid-19 pandemic resulted in the implementation of significant governmental measures , including lockdowns , closures , quarantines and travel bans , intended to control the spread of the virus . beginning in late april 2020 , we experienced a significant reduction in demand ( marketing budgets ) within the validclick business and a modest decline in demand within the intentkey business , the combination of which has resulted in a significant reduction in our revenue run rate . generally , marketing budgets tend to decline in times of a recession . we curtailed expenses , including compensation and travel and we issued a work from home policy to protect our employees and their families from virus transmission between co-workers . we began to experience interruptions in our daily operations , as a result of these policies . the revenue impact on our industry could vary dramatically by vertical . for example , we experienced less advertising demand from the travel , leisure and hospitality verticals . we also maintain long-standing relationships with yahoo ! and google that provide access to hundreds of thousands of advertisers from which most of our validclick and digital publishing revenue originates . we continue to assess the impact of the covid-19 pandemic on our company . we reported lower revenue for the year ended december 31 , 2020 as compared to 2019 due predominately to the impact of the covid-19 pandemic on customer advertising budgets . gross margins improved significantly in 2020 compared to 2019. we reported gross margins of 81.4 % in 2020 compared to 63.1 % in the prior year due to reducing outsourced campaign management for the validclick platform as well as growing acceptance of the intentkey . impact of covid-19 pandemic first identified in late 2019 and known now as covid-19 , the outbreak has impacted millions of individuals and businesses worldwide . in response , many countries have implemented measures to combat the outbreak which has had an unprecedented economic consequence . we did not experience an impact from covid-19 through the end of fiscal year 2019 and had only minor impact from covid-19 in the first quarter of 2020. because we operate in the digital advertising industry , unlike a brick and mortar-based company , predicting the impact of the coronavirus pandemic on our company is difficult . beginning in late april 2020 , we experienced a significant reduction in marketing budgets and a decrease in monetization rates which impacted validclick more severely than the intentkey . this resulted in a significant reduction in our overall revenue run rates within the year with the low point having occurred in may .
| compensation expense was higher for the year ended december 31 , 2020 compared to the same time period in 2019 due primarily to higher employee salary expense , commissions , stock-based compensation and accrued incentive pay . our total employment , both full and part-time , was 75 at december 31 , 2020 compared to 65 at december 31 , 2019. the higher head count at the end of 2020 , as described above , was primarily the result of a decision to reduce the use of outside agencies for traffic acquisition and take the function in-house . selling , general and administrative costs were lower for the year ended december 31 , 2020 compared to the same time period in 2019 due primarily to approximately $ 1 million in legal and professional fees related to the terminated merger in 2019. interest expense , net interest expense , net , which represents interest expense on financed receivables , finance lease obligations and ppp loan , was approximately $ 254 thousand for the year ended december 31 , 2020. interest expense , net , was approximately $ 482 thousand for the year ended december 31 , 2019. the higher amounts were primarily due to increased borrowings from financed receivables . other income , net other income , net , of $ 997 thousand in 2020 was primarily due to the $ 1.1 million ppp loan being fully forgiven on november 2 , 2020. the ppp loan helped fund compensation expenses . partially offsetting the ppp loan was a $ 103 thousand other expense due to the change of the fair market value of the derivative liability associated with convertible promissory notes that were extinguished by may 2020. other income , net , of $ 3.4 million in 2019 is due primarily to the termination fee of $ 2.8 million and the excess fair value over assets received for retargeter of $ 967 thousand ( see mergers termination above ) , offset by approximately $ 191 thousand due to the change of the fair market value of the derivative liability associated with convertible promissory notes and to $ 255
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listing fees are based on audience reach , placement , number of listings , number of impressions , number of clicks , number of referrals , or percentage of the face value of vouchers sold . insertion orders are typically for periods between one month and twelve months and are not automatically renewed . merchant agreements for local deals and getaway advertisers are typically for twelve months and are not automatically renewed . we have three separate groups of our advertising products : travel , search and local . 33 our travel category of revenue includes the publishing revenue for negotiated high-quality deals from travel companies , such as hotels , airlines , cruises or car rentals and includes products such as top 20 , website , newsflash , travelzoo network as well as getaway vouchers . the revenues generated from these products are based upon a fee for number of e-mails delivered to our audience , a fee for clicks delivered to the advertisers , a fee for placement of the advertising on our website or a fee based on a percentage of the face value of vouchers sold or other items sold . we recognize revenue upon delivery of the e-mails , delivery of the clicks , over the period of placement of the advertising and upon the sale of the vouchers or other items sold . our search category of revenue includes comparison shopping tools for consumers to quickly and easily compare airfares , hotel and car rental prices and includes supersearch and fly.com products . the revenues generated from these products are based upon a fee for clicks delivered to the advertisers or a fee for clicks delivered to advertisers that resulted in revenue for advertisers ( i.e . successful clicks ) . we recognize revenue upon delivery of the clicks or successful clicks . our local category of revenue includes the publishing revenue for negotiated high-quality deals from local businesses , such as restaurants , spas , shows , and other activities and includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . the revenues generated from these products are based upon a percentage of the face value of vouchers or items sold or a fee for clicks delivered to the advertisers . we recognize revenue upon the sale of the vouchers , when we receive notification of the direct bookings or upon delivery of the clicks . the company earns a fee for acting as an agent in these transactions , which is recorded on a net basis and is included in revenue upon completion of the voucher sale . certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration , which we recognize as revenue after the expiration of the redemption period and after there are no further obligations to provide funds to merchants , members or others . trends in our business our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers , our ability to increase our audience reach and advertising rates and our ability to develop and launch new products . our current revenue model primarily depends on advertising fees paid primarily by travel , entertainment and local businesses . a number of factors can influence whether current and new advertisers decide to advertise their offers with us . we have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising , the relative condition of the economy , competition and the introduction of new methods of advertising . the introduction of competing services and changing search algorithms by search engines such as google , yahoo ! and microsoft which may reduce the level or quality of internet traffic to our services , in particular our search products , supersearch and fly.com , the competitive market pricing of voucher-based offerings may lead to us reducing our take rate ( i.e. , our commission ) in order to maintain or grow the number of quality deals and merchants we are seeking . for example , the consolidation of the airline industry reduced our revenues generated from this sector , the reduction of capacity in the airline industry reduced demand to advertise for excess capacity , the introduction of new voucher-based products offered by competitors impacted our ability to sell our existing advertising products . a number of factors will have impact on our revenue , such as the reduction in spending by travel intermediaries due to their focus on improving profitability , the trend towards mobile usage by consumers , the willingness of consumers to purchase the deals we advertise , and the willingness of certain competitors to grow their business unprofitably . in addition , we have been impacted and expect to continue to be impacted by internal factors such as introduction of new advertising products , hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire . in response to declining search product revenue , which includes supersearch and fly.com products , the company is reviewing the performance of these products , which may result in merging the products , discontinuing or replacing one or both of them . challenges in traffic acquisition from search engines and poor monetization on mobile devices have led to continued declines in search revenue . as we review these products and work on their improvement , revenue from our search products may continue to decline . existing advertisers may shift from one advertising service ( e.g . top 20 ) to another ( e.g . local deals and getaway ) . story_separator_special_tag these shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods depending on the amount purchased by the advertisers , and in particular , with local deals and getaway , depending on how many vouchers are purchased by members . in addition , we are anticipating a shift from our existing hotel revenue to commission-based revenue as we expand the use of our hotel booking platform , which may result in lower revenue depending on volume of hotel bookings . 34 local revenues have been and may continue to decline over time due to market conditions driven by competition and declines in consumer demand . since the introduction of local deals in 2010 and getaway in 2011 , we have seen a decline in the number of vouchers sold and a decrease in the average take rate earned by us from the merchants for the voucher sold . our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an attractive audience for our publications . we monitor our members and page views of our websites to assess our efforts to maintain and grow our audience reach . we obtain additional members and activity on our websites by acquiring traffic from internet search companies . the costs to grow our audience have had , and we expect to continue to have , a significant impact on our financial results and can vary from period to period . we may have to increase our expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition . we continue to see a shift in the audience to accessing our services through mobile devices and social media . we are addressing this growing channel of our audience through development of our mobile applications and through marketing on social media channels . however , we will need to keep pace with technological change and this trend to further address this shift in the audience behavior in order to offset any related declines in revenue . we believe that we can increase our advertising rates only if the reach of our publications increases . we do not know if we will be able to increase the reach of our publications . if we are able to increase the reach of our publications , we still may not be able to or want to increase rates given market conditions such as intense competition in our industry . we have not had any significant rate increase in recent years due to intense competition in our industry . even if we increase our rates , the increased price may reduce the amount of advertisers willing to advertise with us and , therefore , decrease our revenue . we may need to decrease our rates based on competitive market conditions and the performance of our audience in order to maintain or grow our revenue . we do not know what our cost of revenues as a percentage of revenues will be in future periods . our cost of revenues will increase if the number of searches performed on fly.com increases because we pay a fee based on the number of searches performed on fly.com . our cost of revenues may increase if the face value of vouchers that we sell for local deals and getaway increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold , due to customer service costs related to vouchers sold and due to member refunds on vouchers sold . our cost of revenues are expected to increase due to our effort to develop our hotel booking platform as well . we expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we do not know what our sales and marketing expenses as a percentage of revenue will be in future periods . increased competition in our industry may require us to increase advertising for our brand and for our products . in order to increase the reach of our publications , we have to acquire a significant number of new members in every quarter and continue to promote our brand . one significant factor that impacts our advertising expenses is the average cost per acquisition of a new member . increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a percentage of revenue . we believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys , our ability to manage our member acquisition efforts successfully , and the degree of competition in our industry . we may decide to accelerate our member acquisition for various strategic and tactical reasons and , as a result , increase our marketing expenses . we expect the average cost per acquisition to increase with our increased expectations for the quality of the members we acquire . we may see an unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses . in addition , there may be a significant number of members that cancel or we may cancel their subscription for various reasons , which may drive us to spend more on member acquisition in order to replace the lost members . further , we expect to continue our strategy over time to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing expenses and have a material adverse impact on our results of operations . due to the continued desire to grow our business both in the north america and europe we expect relatively high level of sales and marketing expenses in the foreseeable future .
| north america revenues increased $ 3.2 million in 2013 compared to 2012 . this increase was primarily due to an increase in travel revenues offset by a decrease in search and local revenues . the increase in travel revenue of $ 7.2 million was primarily due to an increase in revenues from getaways due to increased number of getaways vouchers sold and an increase in revenues from travel publications due to increased number of e-mails delivered . the decrease in search revenue of $ 2.4 million was primarily due to the decreased number of clicks that generate revenue as a result of decreased spending on traffic acquisition . the decrease in local revenues of $ 1.6 million was primarily due to the decreased number of local deals vouchers sold and a decrease in the average take rate earned on vouchers sold and a decrease in the average take rate earned by us from the merchants for the voucher sold . europe europe revenues increased $ 615,000 in 2014 compared to 2013 . this increase was primarily due to an increase in travel revenues offset by a decrease in local and search revenues . the increase in travel revenue of $ 2.7 million was primarily due to an increase in revenues from travel publications due to an increased number of e-mails delivered . the decrease in local revenues of $ 1.2 million was primarily due to the decreased number of local deals vouchers sold . the decrease in search revenue of $ 851,000 was primarily due to the decreased number of clicks that generate revenue as a result of decreased spending on traffic acquisition . 39 europe revenues increased $ 3.9 million in 2013 compared to 2012 . this increase was primarily due to an increase in travel revenues offset by a decrease in search revenue . the increase in travel revenue of $ 4.8 million was primarily due to an increase from getaway due to increased number of getaway vouchers
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the anthropologie group operates websites in north america and europe that capture the spirit of the brands by offering a similar yet broader selection of merchandise as found in our stores . anthropologie offers registry services through our website and mobile applications and in all of our stores throughout the united states . registry services allow our customers to create gift registries for any occasion and customers can select from any of the products offered by the brand . the anthropologie brand offers a catalog in north america and in europe that markets select merchandise , most of which is also available in our anthropologie stores . anthropologie tailors its merchandise to sophisticated and contemporary women aged 28 to 45. anthropologie 's product assortment includes women 's casual apparel and accessories , intimates , shoes , beauty , home furnishings and a diverse array of gifts and decorative items . bhldn offers a curated collection of heirloom quality wedding gowns , bridesmaid frocks , party dresses , assorted jewelry , headpieces , footwear , lingerie and decorations . we plan to open additional anthropologie stores over the next several years , some of which will include bhldn shop-within-shop locations . the anthropologie group 's north american and european retail segment net sales accounted for approximately 40.1 % and 1.5 % of consolidated net sales , respectively , for fiscal 2015 , compared to 40.3 % and 1.2 % , respectively , for fiscal 2014. as of january 31 , 2015 , we operated 102 free people stores , of which 98 were located in the united states and four were located in canada . during fiscal 2015 , we opened 12 new free people stores , of which 10 were located in the united states and two were located in canada . free people 25 operates websites in north america , europe and asia that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in our stores , as well as all of the free people wholesale offerings . free people also offers a catalog that markets select merchandise , most of which is also available in our free people stores . free people primarily offers private label branded merchandise targeted to young contemporary women aged 25 to 30. free people provides a unique merchandise mix of casual women 's apparel , intimates , shoes , activewear , accessories and gifts . we plan to open additional stores over the next several years , some of which may be outside the united states . free people 's retail segment net sales accounted for approximately 9.2 % of consolidated net sales for fiscal 2015 , compared to approximately 7.7 % for fiscal 2014. as of january 31 , 2015 , we operated two terrain garden centers and a website that offers customers a portion of the product assortment found at the terrain garden centers . terrain is designed to appeal to women and men interested in a creative , sophisticated outdoor living and gardening experience . terrain creates a compelling shopping environment through its large and freestanding sites . terrain 's product offering includes home furnishings and decorative items , garden products including live plants and flowers , outdoor living furnishings and entertainment products and a wide variety of gifts . both terrain locations offer a full-service restaurant and coffee bar . terrain also offers a variety of landscape and design services . terrain 's retail segment net sales accounted for less than 1.0 % of consolidated net sales for fiscal 2015 and 2014 , respectively . for all brands combined , we plan to open approximately 30 to 35 new stores during fiscal 2016 , including 4 urban outfitters stores , 13 anthropologie group stores and 15 free people stores . wholesale segment the free people wholesale division designs , develops and markets young women 's contemporary casual apparel . free people 's range of tops , bottoms , sweaters , dresses , intimate apparel and shoes are sold through approximately 1,600 better department and specialty stores worldwide , including in north america , europe and asia , and our own free people stores . free people 's wholesale segment net sales accounted for approximately 6.8 % of consolidated net sales for fiscal 2015 , compared to 5.8 % for fiscal 2014. critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states . these generally accepted accounting principles require 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 net sales and expenses during the reporting period . our senior management has reviewed the critical accounting policies and estimates with our audit committee . our significant accounting policies are described in note 2 , summary of significant accounting policies , in the notes to our consolidated financial statements . we believe that the following discussion addresses our critical accounting policies , which are those that are most important to the presentation of our financial condition and cash flows and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . if actual results were to differ significantly from estimates made , the reported results could be materially affected . we are not currently aware of any reasonably likely events or circumstances that would cause our actual results to be materially different from our estimates . 26 revenue recognition revenue is recognized by the retail segment at the point-of-sale for merchandise the customer takes possession of at the retail store or when merchandise is shipped to the customer , in each case , net of estimated customer returns . revenue is recognized by the wholesale segment when merchandise is shipped to the customer , net of estimated customer returns . story_separator_special_tag revenue is presented on a net basis and does not include any tax assessed by a governmental or municipal authority . payment for merchandise in our retail segment is tendered by cash , check , credit card , debit card or gift card . therefore , our need to collect outstanding accounts receivable for our retail segment is negligible and mainly results from returned checks or unauthorized credit card transactions . we maintain an allowance for doubtful accounts for the wholesale segment accounts receivable , which management reviews on a regular basis and believes is sufficient to cover potential credit losses and billing adjustments . we account for a gift card transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration from the customer . a liability is established and remains on our books until the card is redeemed by the customer , at which time we record the redemption of the card for merchandise as a sale , or when we determine the likelihood of redemption is remote . we determine the probability of the gift cards being redeemed to be remote based on historical redemption patterns . revenues attributable to the reduction of gift card liabilities for which the likelihood of redemption becomes remote are included in sales and are not material . our gift cards do not expire . sales return reserve we record a reserve for estimated product returns where the sale has occurred during the period reported , but the return is likely to occur subsequent to the period reported . the reserve for estimated product returns is based on our most recent historical return trends . if the actual return rate or experience is materially different than our estimate , sales returns would be adjusted in the future . as of january 31 , 2015 and 2014 , reserves for estimated sales returns totaled $ 19.8 million and $ 17.1 million , representing 3.5 % and 3.2 % of total liabilities , respectively . marketable securities all of our marketable securities as of january 31 , 2015 and january 31 , 2014 are classified as available-for-sale and are carried at fair value , which approximates amortized cost . interest on these securities , as well as the amortization of discounts and premiums , is included in interest income in the consolidated statements of income . unrealized gains and losses on these securities ( other than mutual funds , held in the rabbi trust for the urban outfitters , inc. non-qualified deferred compensation plan ( see note 3 , marketable securities , in the notes to our consolidated financial statements ) ) are considered temporary and therefore are excluded from earnings and are reported as a component of other comprehensive income in the consolidated statements of comprehensive income and in accumulated other comprehensive loss in shareholders ' equity until realized . mutual funds held in the rabbi trust have been accounted for under the fair value option , which results in all unrealized gains and losses being recorded in interest income in the consolidated statements of income . other than temporary impairment losses related to credit losses are considered to be realized losses . when available-for-sale securities are sold , the cost of the securities is specifically identified and is used to determine the realized gain or loss . securities classified as current assets have maturity dates of less than one year from the balance sheet date . 27 inventories we value our inventories , which consist primarily of general consumer merchandise held for sale , at the lower of cost or market . cost is determined on the first-in , first-out method and includes the cost of merchandise and import related costs , including freight , import taxes and agent commissions . a periodic review of inventory is performed in order to determine if inventory is properly stated at the lower of cost or market . factors related to current inventories such as future expected consumer demand and fashion trends , current aging , current and anticipated retail markdowns or wholesale discounts and class or type of inventory are analyzed to determine estimated net realizable value . criteria that we utilize to quantify aging trends includes factors such as average selling cycle and seasonality of merchandise , the historical rate at which merchandise has sold below cost during the average selling cycle and the value and nature of merchandise currently priced below original cost . a provision is recorded to reduce the cost of inventories to the estimated net realizable values , if appropriate . our estimates generally have been accurate and our reserve methods have been applied on a consistent basis . we expect the amount of our reserves and related inventories to increase over time as we increase our sales . the majority of inventory at january 31 , 2015 , and 2014 consisted of finished goods . raw materials and work-in-process were not material to the overall net inventory value . net inventories as of january 31 , 2015 and 2014 totaled $ 358.2 million and $ 311.2 million , representing 19.0 % and 14.0 % of total assets , respectively . any significant unanticipated changes in the factors noted above could have a significant impact on the value of our inventories and our reported operating results . long-lived assets our long-lived assets consist principally of store leasehold improvements , buildings and furniture and fixtures , and are included in the property and equipment , net line item in our consolidated balance sheets . store leasehold improvements are recorded at cost and are amortized using the straight-line method over the lesser of the applicable store lease term , including lease renewals which are reasonably assured , or the estimated useful life of the leasehold improvements . the typical initial lease term for our stores is ten years . buildings are recorded at cost and are amortized using the straight-line method over 39 years .
| the increase in net sales attributable to non-comparable and new stores was primarily the result of opening 31 76 new stores in fiscal 2015 and 2014 that were not in operation for the full comparable periods . thus far during the first quarter of fiscal 2016 , comparable retail segment net sales are mid single-digit positive . the increase in wholesale segment net sales during fiscal 2015 , as compared to fiscal 2014 , was due to increased sales at both department stores and specialty accounts . wholesale sales growth was driven by an increase in units that was partially offset by a decrease in average unit selling price . gross profit rate in fiscal 2015 decreased to 35.4 % of net sales , from 37.6 % of net sales in fiscal 2014. gross profit increased to $ 1.17 billion in fiscal 2015 compared to $ 1.16 billion in fiscal 2014. the deleverage occurred primarily due to lower initial merchandise markups , store occupancy deleverage due to negative store comparable net sales and higher markdowns , which were primarily driven by the underperformance at the urban outfitters brand . total inventories at january 31 , 2015 increased by $ 47.0 million , or 15.1 % , to $ 358.2 million from $ 311.2 million at january 31 , 2014. this increase was primarily related to the acquisition of inventories to stock new and non-comparable stores and comparable retail segment inventories . comparable retail segment inventories as of january 31 , 2015 increased 6.5 % at cost while decreasing 7.2 % in units . selling , general and administrative expenses as a percentage of net sales increased during fiscal 2015 to 24.4 % of net sales , compared to 23.8 % of net sales for fiscal 2014. the increase was primarily due to increased marketing and technology expenses that were used to drive higher direct-to-consumer traffic . selling , general and administrative expenses increased by $ 75.0 million , or 10.2 % , to $ 809.5 million , in fiscal 2015 ,
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cost of revenue cost of revenue for the years ended december 31 , 2019 and 2018 primarily consisted of hourly compensation for security personal and employees involved in the creation and development of licensing software . cost of revenue increased by $ 2,209,098 , or 37 % , for the year ended december 31 , 2019 , to $ 8,178,137 , as compared to $ 5,969,039 for the year ended december 31 , 2018. the increase primarily resulted from the acquisition of tan security and a substantial increase in the number of clients serviced by helix , which required the hiring of additional employees . operating expenses our operating expenses encompass selling , general and administrative expenses , salaries and wages , professional and legal fees and depreciation and amortization . selling , general and administrative expenses consist primarily of rent/moving expenses , advertising and travel expenses . salaries and wages is composed of non-revenue generating employees . professional services are principally comprised of outside legal , audit , information technology consulting , marketing and outsourcing services as well as the costs related to being a publicly traded company . our operating expenses during the year ended december 31 , 2019 and 2018 were $ 17,336,828 and $ 14,316,184 , respectively . the overall $ 3,020,644 increase in operating expenses was primarily attributable to the following increases ( decreases ) in operating expenses of : ● general and administrative expenses – $ 1,644,567 ● salaries and wages – $ ( 70,811 ) ● professional and legal fees – $ 419,414 ● depreciation and amortization – $ 1,691,803 the $ 1,644,567 increase in selling , general and administrative expenses is a result of increases in rent expense , advertising and travel expenses resulting from an expansion in our operations . the $ 70,811 decrease in salaries and wages resulted from a decrease in stock compensation expense . the $ 419,414 increase in professional and legal fees primarily resulted from an increase in legal fees and costs associated with fundraising . the $ 1,691,803 increase in depreciation and amortization was due to amortization of intangible assets acquired in the biotrackthc , engeni and gti acquisitions . 19 other income other income consisted of a gain on the change in fair value of warrant liability , gain on the change in the fair value of convertible notes , ( loss ) gain on the change in fair value of convertible notes – related party , loss on the change in fair value of contingent consideration , gain on reduction of obligation pursuant to acquisition , ( loss ) gain on issuance of warrants , and interest expense . other income , net during the years ended december 31 , 2019 and 2018 was $ 642,696 and $ 2,755,848 , respectively . the $ 2,113,152 decrease in other income , net was primarily attributable to a loss on the change in fair value of convertible notes – related party of $ 283,453 , loss on change in fair value of contingent consideration of $ 880,050 , loss on issuance of warrants of $ 825,098 and no gain on reduction of obligation pursuant to acquisition , partially offset by a gain on change in fair value of warrant liability of $ 3,812,977 for the year ended december 31 , 2019. net loss for the foregoing reasons , we had a net loss of $ 9,580,169 for the year ended december 31 , 2019 , or $ 0.12 net loss per common share – basic and diluted , compared to net loss of $ 7,965,802 for the year ended december 31 , 2018 , or $ 0.15 net loss per common share – basic and diluted . convertible preferred stock beneficial conversion feature accreted as a deemed dividend the convertible preferred stock beneficial conversion feature accreted as a deemed dividend resulted from the effective conversion price of the series b preferred shares at issuance being less than the fair value of the common stock into which the preferred shares are convertible . the result was a non-cash charge in the amount of $ 0 for the year ended december 31 , 2019 compared to $ 22,202,194 for the year ended december 31 , 2018. net loss attributable to common shareholders for the foregoing reasons , we had a net loss attributable to common shareholders of $ 9 , 678,061 for the year ended december 31 , 2019 , or $ 0.1 2 net loss per share attributable to common shareholders - basic and diluted , compared to net loss attributable to common shareholders of $ 30,150,005 for the year ended december 31 , 2018 , or $ 0.56 net loss per share attributable to common shareholders – basic and diluted . liquidity , capital resources and cash flows going concern management believes that we will continue to incur losses for the immediate future . therefore , we may either need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities , if ever . these conditions raise substantial doubt about our ability to continue as a going concern . our consolidated financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern . for the year ended december 31 , 2019 , we have generated revenue and are trying to achieve positive cash flows from operations . as of december 31 , 2019 , we had a cash balance of $ 652,524 , accounts receivable , net of $ 1,870,722 and $ 6,934,725 in current liabilities . at the current cash consumption rate , we may need to consider additional funding sources throughout fiscal 2020. we are taking proactive measures to reduce operating expenses , drive growth in revenue and expeditiously resolve any remaining legal matters . story_separator_special_tag the successful outcome of future activities can not be determined at this time and there is no assurance that , if achieved , we will have sufficient funds to execute our intended business plan or generate positive operating results . the consolidated financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern . 20 capital resources the following table summarizes total current assets , liabilities and working capital deficit for the periods indicated : replace_table_token_5_th as of december 31 , 2019 and 2018 , we had a cash balance of $ 652,524 and $ 285,761 , respectively . story_separator_special_tag and liabilities assumed constitute a business . each business combination is then accounted for by applying the acquisition method . if the assets acquired are not a business , the company accounts for the transaction or other event as an asset acquisition . under both methods , the company recognizes the identifiable assets acquired , the liabilities assumed , and any noncontrolling interest in the acquired entity . in addition , for transactions that are business combinations , the company evaluates the existence of goodwill or a gain from a bargain purchase . the company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately expense acquisition-related costs and fees associated with business combinations . 22 revenue recognition under fasb topic 606 , revenue from contacts with customers ( “ asc 606 ” ) , the company recognizes revenue when the customer obtains control of promised goods or services , in an amount that reflects the consideration which is expected to be received in exchange for those goods or services . the company recognizes revenue following the five-step model prescribed under asc 606 : ( i ) identify contract ( s ) with a customer ; ( ii ) identify the performance obligation ( s ) in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligation ( s ) in the contract ; and ( v ) recognize revenues when ( or as ) the company satisfies a performance obligation . the security services revenue is generated from performing armed and unarmed guarding which is contracted for on an hourly basis . revenues associated with these contracted services are recognized under time-based arrangements as services are provided . additionally , the company provides transportation security services , which are generally contracted for on a per-run basis and sometimes additional fees and surcharges are also billed to the client depending on the length of the run . revenues associated with these services are recognized as the transportation service is provided . the company also generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector ( government agencies ) businesses that are involved in cannabis related operations . the company also generates revenue from on-going training , support and software customization services . occasionally , the company will enter into systems installation arrangements . installation jobs are estimated based on the cost of equipment to be installed , the number of hours expected to be incurred to complete the job and other ancillary costs . revenue associated with these services are recognized over the arrangement period . lastly , the company generates monthly recurring revenues from cannalytics , its business intelligence and data tool for commercial customers . revenue is recognized over monthly . income taxes the company accounts for income taxes under the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements . under this method , deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . the company has incurred net operating loss for financial-reporting and tax-reporting purposes . accordingly , for federal and state income tax purposes , the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the years ended december 31 , 2019 and 2018. distinguishing liabilities from equity the company relies on the guidance provided by asc topic 480 , distinguishing liabilities from equity , to classify certain redeemable and or convertible instruments . the company first determines whether a financial instrument should be classified as a liability . the company will determine the liability classification if the financial instrument is mandatorily redeemable , or if the financial instrument , other than outstanding shares , embodies a conditional obligation that the company must or may settle by issuing a variable number of its equity shares . once the company determines that a financial instrument should not be classified as a liability , the company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet ( “ temporary equity ” ) . the company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the company ( i.e . at the option of the holder ) . otherwise , the company accounts for the financial instrument as permanent equity . 23 initial measurement the company records its financial instruments classified as liability , temporary equity or permanent equity at issuance at the fair value , or cash received .
| changes in accounts receivable , prepaid expenses and other current assets , deposits and other assets , accounts payable and accrued expenses , costs & earning in excess of billings , billings in excess of costs , due to related party and deferred rent of $ ( 40,762 ) . net cash ( used in ) provided by investing activities . net cash used in investing activities for the year ended december 31 , 2019 was $ 1,215,040 , which consisted of capital expenditures of $ 1,044,457 , purchase of domain names of $ 21,856 , and cash payments pursuant to business combinations of $ 148,727. net cash provided by investing activities for the year ended december 31 , 2018 was $ 240,018 , which consisted of capital expenditures of $ 155,559 , cash acquired pursuant to the biotrackthc and engeni acquisitions of $ 454,306 , and cash payments pursuant to the revolutionary asset acquisition $ 58,729 . 21 net cash provided by financing activities . net cash provided by financing activities for the year ended december 31 , 2019 was $ 5,212,596 , which resulted from proceeds of $ 580,000 from the issuance of promissory notes , proceeds from the issuance of convertible notes payable of $ 3,745,000 , proceeds from the issuance of common stock of $ 1,306,313 , promissory note receivable of $ 75,000 , payments pursuant to advances from related parties of $ 45,250 , payments pursuant to notes payable of $ 18,467 , and payments pursuant to a promissory note of $ 280,000. net cash provided by financing activities for the year ended december 31 , 2018 was $ 3,006,501 , which resulted from proceeds from the issuance of notes payable of $ 39,723 , proceeds of $ 250,000 from the issuance of promissory notes , proceeds from the issuance of common stock of $ 3,355,445 , payments pursuant to convertible notes payable – related party of $ 150,000 , payments pursuant to notes payable of $ 27,836 ,
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although our new business growth , as defined by number of policies added , has been strong , it has been insufficient to offset the decline in premiums that we experienced in 2020. our renewal business remained strong throughout 2020. we continually review and adjust to changes in our policyholders ' payrolls , economic conditions , and seasonality , as experience develops or new information becomes known . any such adjustments are included in our current operations . approximately 25 % of our current payroll exposure , including that associated with policies generated by our largest payroll partners , is considered to be “ pay as you go , ” where the associated premium collected from policyholder is adjusted in real-time based on changes in the underlying payroll . for all other policyholders , payroll adjustments are made periodically through mid-term endorsements and or premium audits . we reduced our final audit premium accruals by approximately $ 35.0 million , to zero , for the year ended december 31 , 2020 to reflect our estimate of the exposure adjustments on our in-force policies that we expect have resulted , and will result from the impact of economic contraction . we have been fully functional since we closed our buildings to employees and the general public in march 2020 , and it is expected that our business can remain fully functional while our employees work-from-home for an indefinite period of time . as a result of the effectiveness of our work-from-home transition , we have begun to reduce our real estate footprint by terminating or non-renewing certain operating leases . we are taking precautions to protect the safety and well-being of our employees while providing uninterrupted service to our policyholders and claimants . however , no assurance can be given that these actions will be sufficient , nor can we predict the level of disruption that will occur should the covid-19 pandemic and its related macro-economic risks continue for an extended period of time . additional information regarding risks and uncertainties related to the covid-19 pandemic to our business , financial condition , and results of operations are set forth in part i , item 1a of this report . we formally analyze the goodwill that we carry on our consolidated balance sheets for impairment in the fourth quarter of each year and , as of december 31 , 2020 , our formal analysis determined that no impairment was necessary in accordance with asc 350-20-35-23. during 2020 , our fair value , as measured by our market capitalization , decreased significantly as a result of investor concerns about potential adverse effects of the covid-19 pandemic on our business . a further decline in our fair value , as measured by our market capitalization or otherwise , and or any other relevant developments , could constitute a triggering event that could lead us to impair the valuation of all or a portion of our goodwill . as of december 31 , 2020 , the carrying value of our goodwill was $ 36.2 million . story_separator_special_tag allowance for expected credit losses . net realized and unrealized gains on investments in 2019 included $ 46.5 million of net realized and unrealized gains on equity securities , $ 3.9 million of net realized gains on fixed maturity securities , and $ 0.7 million of unrealized gains on other invested assets . the net investments gains on our equity securities were largely consistent with the performance of u.s. equity markets . the net investment gains on our fixed maturity securities were primarily related to sales associated with a reallocation of our investment portfolio . net realized and unrealized losses on investments in 2018 31 included $ 11.3 million of net realized and unrealized losses on equity securities and $ 1.8 million of net realized losses on fixed maturity securities . the net investment losses on our equity securities were primarily the result of volatility in equity markets . the net investment losses on our fixed maturity securities were primarily related to the sales associated with a reallocation of our investment portfolio , offset by $ 3.3 million in other-than-temporary impairments of certain fixed maturity securities due to our intent to sell the securities . additional information regarding our investments is set forth under `` –liquidity and capital resources–investments '' and note 5 in the notes to our consolidated financial statements . other income other income consists of net gains and losses on fixed assets , non-investment interest , installment fee revenue , and other miscellaneous income . losses and lae losses and lae represents our largest expense item and includes claim payments made , amortization of the deferred gain , lpt reserve adjustments , lpt contingent commission adjustments , estimates for future claim payments and changes in those estimates for current and prior periods , and costs associated with investigating , defending , and adjusting claims . the quality of our financial reporting depends in large part on accurately predicting our losses and lae , which are inherently uncertain as they are estimates of the ultimate cost of individual claims based on actuarial estimation techniques . our indemnity claims frequency ( the number of claims expressed as a percentage of payroll ) decreased year-over-year in 2020 and 2019 , while medical and indemnity costs per claim increased over the same period . however , we recognized the impacts of the covid-19 pandemic , including the potential for further expansions or permanent extensions of presumed compensability of covid-19 in certain jurisdictions . these trends and considerations are reflected in our current accident year loss estimate . total claims costs have also been reduced by cost savings associated with increased claims settlement activity that continued through 2020. we believe our current accident year loss estimate is adequate ; however , ultimate losses will not be known with any certainty for many years . we assume that increasing medical and indemnity cost trends will continue to impact our long-term claims costs , which may be offset by rate increases . story_separator_special_tag additional information regarding our reserves for losses and lae is set forth under `` –critical accounting policies –reserves for losses and lae . '' see also , `` –summary of financial results by segment –employers . '' commission expenses commission expenses include direct commissions to our agents and brokers , including our partnerships and alliances , for the premiums that they produce for us , as well as incentive payments , other marketing costs , and fees . see `` –summary of financial results by segment –employers . '' underwriting and general and administrative expenses underwriting expenses represent those costs that we incur to underwrite and maintain the insurance policies we issue , excluding commissions . direct underwriting expenses , such as premium taxes , policyholder dividends , and those expenses that vary directly with the production of new or renewal business , are recognized as the associated premiums are earned . indirect underwriting expenses , such as the operating expenses of each of the company 's subsidiaries , do not vary directly with the production of new or renewal business and are recognized as incurred . general and administrative expenses of the holding company are excluded in determining the underwriting expense ratios of our reportable segments . interest and financing expenses interest and financing expenses include credit facility fees , surplus notes interest , letter of credit fees , finance lease interest , and other financing fees . other expenses as a result of the effectiveness of our work-from-home transition , in 2020 we began to reduce our real estate footprint and closed and vacated various office locations . accordingly , during the year ended december 31 , 2020 , we recorded charges of $ 0.8 million related to the abandonment of certain operating leases . income tax expense on january 1 , 2000 , eicn assumed the assets , liabilities , and operations of the fund pursuant to legislation passed in the 1999 nevada legislature ( the privatization ) . prior to the privatization , the fund was part of the state of nevada and therefore was not subject to federal income tax . accordingly , our pre-privatization loss and lae reserve adjustments , lpt reserve adjustments and deferred gain amortization impact our net income but do not change our taxable income . 32 income tax expense was $ 27.9 million , $ 36.7 million , and $ 28.2 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively , representing effective tax rates of 18.9 % , 18.9 % , and 16.6 % for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . tax-advantaged investment income , lpt reserve adjustments , lpt contingent commission adjustments , deferred gain amortization and certain other adjustments reduced our income tax expense computed at a statutory rate of 21 % by $ 3.1 million , $ 4.0 million , and $ 7.4 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . for additional information regarding our income tax expense see note 8 in the notes to our consolidated financial statements . summary of financial results by segment employers the components of employers ' net income before income taxes are set forth in the following table : replace_table_token_10_th underwriting results gross premiums written gross premiums written were $ 579.8 million , $ 696.8 million , and $ 748.9 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . the decrease in 2020 was primarily driven by the impacts of the covid-19 pandemic , including higher levels of unemployment and declines in payrolls for many of our insureds , upon which our premiums are based , particularly in our restaurant and hospitality classes . we reduced our final audit accruals by approximately $ 35.0 million during the year , to zero , to reflect our estimate of the exposure adjustments on our in-force policies that we expect have resulted and will result from the impact of economic contraction . prior to the covid-19 pandemic we experienced strong new business opportunities , as evidenced by record levels of submissions , quotes , and binds . as a result of the abrupt and severe economic impacts attributable to the covid-19 pandemic , the number of new insurance submissions , quotes , and binds we received decreased significantly in the latter half of march 2020 and that trend largely continued through may 2020. since then , as many businesses began to reopen , we have experienced year-over-year increases in new business submissions and new policies bound in nearly all of the states in which we operate , with the notable exception of california . despite the increases in new non-california business policies that we experienced in 2020 , our new business premium has fallen , driven primarily by significant declines in policy size and declines in policies with annual premiums greater than $ 25,000. additionally , year-over-year decreases in average rates in many of the states in which we do business further impacted our gross premiums written during the year . the decrease in 2019 was primarily due to decreases in final audit premiums and average rates , as well as declines in 33 new business premiums written in california , partially offset by increases in renewal premiums written across all of our markets . net premiums written net premiums written were $ 574.6 million , $ 691.4 million , and $ 742.8 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively , which included $ 5.2 million , $ 5.4 million , and $ 6.1 million of reinsurance premiums ceded , respectively . net premiums earned net premiums earned were $ 615.1 million , $ 695.8 million , and $ 731.1 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively .
| net investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts on our fixed maturity securities , less bank service charges and custodial and portfolio management fees . we have established a high quality/short duration bias in our investment portfolio . net investment income was $ 76.3 million , $ 88.1 million , and $ 81.2 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . the decrease in 2020 was primarily due to lower bond yields and a sharp increase in the amortization of bond premiums associated with our residential mortgage-backed securities , which was caused by an acceleration of near-term mortgage loan prepayment speed assumptions during the year . the increase in 2019 was primarily due to an increase in the allocation and yield of bank loans and other invested assets . the average pre-tax ending book yield on our invested assets was 3.0 % , 3.3 % , and 3.4 % at december 31 , 2020 , 2019 , and 2018 , respectively . the average ending tax-equivalent yield on our invested assets ( which adjusts the book yield of our investments in tax-advantaged securities to an equivalent pre-tax book yield ) was 3.1 % at december 31 , 2020 and 3.5 % at both december 31 , 2019 and 2018. realized and certain unrealized gains and losses on our investments are reported separately from our net investment income . realized gains and losses on investments include the gain or loss on a security at the time of sale compared to its original or adjusted cost ( equity securities ) or amortized cost ( fixed maturity securities ) . realized losses are also recognized for changes in our expected credit loss allowance or when securities are written down as a result of an other-than-temporary impairment . changes in fair value of equity securities and other invested assets are also included in net realized and unrealized gains ( losses ) on investments on our consolidated statements of comprehensive income . net realized and unrealized gains ( losses ) on investments were $ 19.0 million , $ 51.1 million , and $
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sales and marketing expenses increased 2 % , or $ 0.1 million , to $ 5.8 million for the year ended december 31 , 2015 from $ 5.7 million for the year ended december 31 , 2014. the increase in costs is primarily related to partner fees and evolving systems nc sales and marketing costs , offset by lower travel expenses due to more regional sales representatives . as a percentage of total revenue , sales and marketing expenses for the year ended december 31 , 2015 increased to 23 % from 19 % for the year ended december 31 , 2014. the increase as a percentage of revenue is due to the aforementioned increased expenses and lower revenue . 21 general and administrative general and administrative expenses consist principally of employee related costs , professional fees and occupancy costs for the following departments : facilities , finance , legal , human resources and executive management . general and administrative expenses decreased 4 % , or $ 0.1 million , to $ 3.9 million for the year ended december 31 , 2016 from $ 4.0 million for the year ended december 31 , 2015. the decrease for the period was primarily due to a decline of professional fees related to merger and acquisition activities and lower travel expense , offset by increased general and administrative expenses related to evolving systems nc and an allowance placed on uncollectible accounts receivables . as a percentage of total revenue , general and administrative expenses remained at 16 % for the years ended december 31 , 2016 and 2015. general and administrative expenses increased 10 % , or $ 0.4 million , to $ 4.0 million for the year ended december 31 , 2015 from $ 3.6 million for the year ended december 31 , 2014. the increase for the year ended december 31 , 2015 was due primarily to higher professional fees and additional general and administrative costs relating to the acquisition of evolving systems nc offset by lower incentive compensation . as a percentage of total revenue , general and administrative expenses increased to 16 % for the year ended december 31 , 2015 from 12 % for the year ended december 31 , 2014. the increase in expenses as a percentage of revenue is related to the aforementioned increase of expenses and lower revenue during the period . product development product development expenses consist primarily of employee-related costs for product development . product development expenses decreased 22 % , or $ 0.8 million , to $ 3.0 million for the year ended december 31 , 2016 from $ 3.8 million for the year ended december 31 , 2015. the decrease in costs was related to reduced headcount partially offset by expenses from evolving systems nc product development department . as a percentage of total revenue , product development expenses decreased to 12 % for the year ended december 31 , 2016 from 15 % for the year ended december 31 , 2015. the decrease in expenses as a percentage of revenue is related to the aforementioned decrease of expenses during the period . product development expenses increased 6 % , or $ 0.2 million , to $ 3.8 million for the year ended december 31 , 2015 from $ 3.6 million for the year ended december 31 , 2014. the increase in costs was related to additional hours spent on research and development projects and evolving systems nc product development expenses offset by lower incentive compensation . as a percentage of total revenue , product development expenses increased to 15 % for the year ended december 31 , 2015 from 12 % for the year ended december 31 , 2014. the increase in expenses as a percentage of revenue is related to the aforementioned increase of expenses and lower revenue during the period . depreciation depreciation expense consists of depreciation of long-lived property and equipment . depreciation expenses decreased 18 % , or $ 0.1 million , to $ 0.2 million for the year ended december 31 , 2016 from $ 0.3 million for the year ended december 31 , 2015. the decrease of expense was due to lower capital purchases in the current period and older assets becoming fully depreciated . as a percentage of revenue , depreciation expense remained at 1 % for the years ended december 31 , 2016 and 2015. depreciation expenses increased 28 % , or $ 0.1 million , to $ 0.3 million for the year ended december 31 , 2015 from $ 0.2 million for the year ended december 31 , 2014. the increase of expense was due to capital improvements on internal systems in 2015. as a percentage of revenue , depreciation expense remained at 1 % for the years ended december 31 , 2015 and 2014. amortization amortization expense consists of amortization of identifiable intangibles related to our acquisitions of evolving systems u.k. , evolving systems labs and evolving systems nc . amortization expense increased 194 % , or $ 0.5 million to $ 0.8 million for the year ended december 31 , 2016 from $ 0.3 million for the year ended december 31 , 2015. the increase in amortization expense was due to the amortization expense of the intangible assets relating to the acquisition of evolving systems nc on september 30 , 2015. as a percentage of revenue , amortization expense increased to 3 % for the year ended december 31 , 2016 from 1 % for the year ended december 31 , 2015. the increase of amortization expense as a percentage of total revenue is due to the aforementioned increase of expense . amortization expense increased 180 % , to $ 0.3 million for the year ended december 31 , 2015 from $ 0.1 million for the year ended december 31 , 2014. the increase in amortization expense was due to the amortization expense of the intangible assets relating to the acquisition of evolving systems nc . story_separator_special_tag as a percentage of revenue , amortization expense increased to 1 % for the year ended december 31 , 2015 from less than 1 % for the year ended december 31 , 2014. the increase of amortization expense as a percentage of total revenue is due to the aforementioned increase of expense . 22 restructuring restructuring expense includes the costs associated with a reduction in workforce involving the termination of employees . restructuring increased 90 % , or $ 0.5 million , to $ 1.0 million for the year ended december 31 , 2016 from $ 0.5 million for the year ended december 31 , 2015. restructuring expense for the years ended december 31 , 2016 and 2015 related to the acquisition of evolving systems nc . as a percentage of revenue , restructuring expense increased to 4 % for the year ended december 31 , 2016 from 2 % for the year ended december 31 , 2015. the increase of restructuring expense as a percentage of total revenue is due to the aforementioned increase of expense and lower revenue . restructuring expense increased to $ 0.5 million for the year ended december 31 , 2015 from $ 0.2 million for the year ended december 31 , 2014. restructuring expense for the year ended december 31 , 2015 related to the acquisition of evolving systems nc and for the year ended december 31 , 2014 was a result of the acquisition of evolving systems , labs . as a percentage of revenue , restructuring expense increased to 2 % for the year ended december 31 , 2015 from 1 % for the year ended december 31 , 2014. the increase of restructuring expense as a percentage of total revenue is due to the aforementioned increase of expense and lower revenue . interest income interest income includes interest income earned on cash , cash equivalents and long-term investments . interest income decreased 67 % , or $ 12,000 , to $ 6,000 for the year ended december 31 , 2016 from $ 18,000 for the year ended december 31 , 2015. interest income decreased 5 % , or $ 1,000 , to $ 18,000 for the year ended december 31 , 2015 from $ 19,000 for the year ended december 31 , 2014. interest expense interest expense includes interest expense on our term loan , revolving line of credit and capital lease obligations as well as amortization of debt issuance costs . interest expense for the year ended december 31 , 2016 increased 181 % , or $ 0.2 million , to $ 0.3 million as compared to $ 0.1 million for the year ended december 31 , 2015. this increase in interest expense was due to a larger principal balance from our term loan and revolving line of credit related to the acquisition of evolving systems nc . refer to note 5 , long-term debt , of our consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding the term loan . interest expense for the year ended december 31 , 2015 increased 612 % , or $ 0.1 million , to $ 0.1 million as compared to $ 17,000 for the year ended december 31 , 2014. this increase was due to the interest expense from our revolving line of credit for the initial payment of the acquisition of evolving systems nc . loss on foreign exchange transactions loss on foreign exchange transactions consists of realized and unrealized foreign currency transaction gains and losses . foreign currency transaction gains and losses result from transactions denominated in a currency other than the functional currency of the respective subsidiary . the foreign currency transaction loss increased 9,100 % , or $ 0.6 million , to $ 0.6 million for the year ended december 31 , 2016 compared to a $ 6,000 loss for the year ended december 31 , 2015. the net loss was generated through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our evolving systems u.k. and india subsidiaries of which the loss was primarily related to evolving systems u.k. contract receivables . the foreign currency transaction loss of $ 6,000 for the year ended december 31 , 2015 compared to a $ 9,000 loss for the year ended december 31 , 2014 resulted in a year over year gain of 33 % or $ 3,000. the net loss was generated through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our evolving systems u.k. and india subsidiaries . income tax expense we recorded income tax expense of $ 1.5 million , $ 0.9 million and $ 2.8 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the net expense during year ended december 31 , 2016 consisted of current income tax expense of $ 1.5 million and a net deferred tax benefit of ( $ 24,000 ) . the current tax expense consists primarily of income tax from our u.k. and india based operations . the deferred tax benefit was related primarily to the reduction of deferred tax liabilities related to intangible assets incurred due to the acquisition of evolving systems nc . refer to note 6 , income taxes , of our consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding the foreign tax credit . the net expense during year ended december 31 , 2015 consisted of current income tax expense of $ 2.0 million and a net deferred tax benefit of ( $ 1.1 ) million . the current tax expense consists primarily of income tax from our u.s. , u.k. and india based operations and unrecoverable foreign withholding tax in the u.k. u.s. income taxes payable of $ 0.8 million were offset due to realization of net operating losses ( nol ) comprised of windfall tax benefits related to stock-based compensation .
| services services revenue decreased 2 % , or $ 0.5 million , to $ 21.9 million for the year ended december 31 , 2016 from $ 22.4 million for the year ended december 31 , 2015. the decrease in services revenue is due to a decline in fixed-price services from customization required of our software products offset by an increase of our customer support and managed services revenue due to evolving systems nc , which was acquired on september 30 , 2015. services revenue decreased 9 % , or $ 2.2 million , to $ 22.4 million for the year ended december 31 , 2015 from $ 24.6 million for the year ended december 31 , 2014. the decrease in services revenue is primarily due to a decline in our fixed-price services due to fewer customizations our software products and saas services . costs of revenue , excluding depreciation and amortization costs of revenue consist primarily of personnel costs , facilities costs , the costs of third-party software and all other direct costs associated with these personnel . costs of revenue , excluding depreciation and amortization were $ 5.3 million , $ 6.4 million and $ 7.6 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . costs of revenue decreased 18 % , or $ 1.1 million , to $ 5.3 million for the year ended december 31 , 2016 from $ 6.4 million for the year ended december 31 , 2015. the decrease in costs was primarily the result of lower embedded software expense , reduced headcount , and travel , due to lower revenue during the period partially offset by increased expenses related to the operations of evolving systems nc . as a percentage of revenue , costs of revenue , excluding depreciation and amortization , decreased to 21 % for the year ended december 31 , 2016 from 25 % for the year ended december 31 , 2015. the decrease in costs as a percentage of revenue is primarily related to the aforementioned reduction in costs of revenue which exceeded the decrease in revenue during the period . costs of revenue decreased 16 % , or $ 1.2 million , to $ 6.4 million for the year ended december 31 , 2015 from $ 7.6 million for the year ended december 31 , 2014. the decrease in costs was primarily the result of
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provision for credit losses as a percentage of sales decreased to 27.7 % for fiscal 2018 compared to 28.7 % for fiscal 2017. net charge-offs as a percentage of average finance receivables decreased to 28.8 % for fiscal 2018 compared to 30.5 % for the prior year . the decrease in net charge-offs for fiscal 2018 primarily resulted from a lower frequency of losses primarily due to improvements in collections processes . continuing macro-economic challenges and competitive conditions continue to put pressure on our customers and the resulting collections of our finance receivables . the company uses several operational initiatives ( including credit reporting and the use of gps units on vehicles ) to improve collections and continually pushes for improvements and better execution of its collection practices . the company believes that the proper execution of its business practices is the single most important determinant of credit loss experience and that the impact on credit losses in both the current and prior year periods resulting from negative macro-economic and competitive pressures has been somewhat mitigated by the improvements in oversight and accountability provided by the company 's investments in our corporate infrastructure within the collections area . interest expense for fiscal 2018 as a percentage of sales increased slightly to 1 % compared to 0.8 % for fiscal 2017 , due to higher average borrowings during the fiscal year 2018 ( $ 136.7 million compared to $ 118.2 million in the prior year ) and increased interest rates . 2017 compared to 2016 total revenues increased $ 19.8 million , or 3.5 % , in fiscal 2017 , as compared to revenue growth of 7.1 % in fiscal 2016 , principally as a result of ( i ) revenue growth from dealerships that operated a full twelve months in both fiscal years ( $ 19.2 million ) , and ( ii ) revenue growth from dealerships opened or closed during or after the year ended april 30 , 2016 ( $ 0.6 million ) . the increase in revenue for fiscal 2017 was attributable to ( i ) a 1.7 % increase in average retail sales price , and ( ii ) a 10.1 % increase in interest and other income . 24 cost of sales , as a percentage of sales , decreased to 58.6 % in fiscal 2017 from 60.2 % in fiscal 2016 , primarily due to a company-wide effort to decrease repair costs , partially offset by the higher average retail sales price . the average retail sales price for fiscal 2017 was $ 10,540 , a $ 179 increase over the prior fiscal year . finally , a decrease in losses on wholesales during fiscal 2017 compared to fiscal 2016 , also helped to reduce our cost of sales and positively affected our gross margin percentages . selling , general and administrative expenses , as a percentage of sales , decreased 0.5 % to 17.7 % in fiscal 2017 from 18.2 % in fiscal 2016. selling , general and administrative expenses are , for the most part , more fixed in nature . in dollar terms , overall selling , general and administrative expenses decreased $ 302,000 from fiscal 2016. provision for credit losses as a percentage of sales increased to 28.7 % for fiscal 2017 compared to 28.5 % for fiscal 2016. net charge-offs as a percentage of average finance receivables decreased to 30.5 % for fiscal 2017 compared to 31.3 % for the prior year . the decrease in net charge-offs for fiscal 2017 resulted from a lower frequency of losses partially offset by an increase in severity due largely to higher principal balances at charge-off and lower wholesale values at time of repossession . the fiscal 2016 provision included a $ 4.8 million increase in the provision as a result of the increase in the provision percentage applied to the grown in finance receivables during the second quarter of fiscal 2016. interest expense for fiscal 2017 as a percentage of sales increased slightly to 0.8 % compared to 0.7 % for fiscal 2016 , due to higher average borrowings during the fiscal year 2017 ( $ 118.2 million compared to $ 109.0 million in the prior year ) . financial condition the following table sets forth the major balance sheet accounts of the company at april 30 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_7_th 25 the following table shows receivables growth compared to revenue growth during each of the past three fiscal years . for fiscal year 2018 , growth in finance receivables of 7.4 % exceeded growth in revenue of 4.2 % . the company currently anticipates going forward that the growth in finance receivables will generally be slightly higher than overall revenue growth on an annual basis due to overall term length increases in our installment sales contracts , partially offset by improvements in underwriting and collection procedures in an effort to reduce credit losses . the average term for installment sales contracts at april 30 , 2018 and 2017 was 32.5. replace_table_token_8_th at fiscal year-end 2018 , inventory increased 11.6 % ( $ 3.4 million ) , compared to fiscal year-end 2017. the company strives to improve the quality of the inventory and improve turns while maintaining inventory levels to ensure adequate supply of vehicles , in volume and mix , and to meet sales demand . property and equipment , net , decreased by approximately $ 1.5 million as of april 30 , 2018 as compared to fiscal 2017. the decrease is attributable to $ 4.3 million in depreciation expense , partially offset by additions of $ 3.3 million . accounts payable and accrued liabilities increased approximately $ 4.5 million at april 30 , 2018 as compared to april 30 , 2017 due primarily to increased payables related to increased inventory levels and the timing and payment of employee compensation . story_separator_special_tag income taxes payable ( receivable ) , net , decreased approximately $ 2.3 million at april 30 , 2018 compared to april 30 , 2017 primarily due to the timing of income tax payments and refunds and the effect of the enactment of the tax cuts and jobs act ( “ tax act ” ) . deferred revenue increased $ 2.1 million at april 30 , 2018 over april 30 , 2017 , primarily resulting from the increase in sales of the payment protection plan and service contract products . deferred income tax liabilities , net , decreased approximately $ 6.4 million at april 30 , 2018 as compared to april 30 , 2017 due primarily to the revaluation of deferred tax assets and liabilities to the new federal statutory rate as required by the tax act . borrowings on the company 's revolving credit facilities fluctuate primarily based upon a number of factors including ( i ) net income , ( ii ) finance receivables changes , ( iii ) income taxes , ( iv ) capital expenditures and ( v ) common stock repurchases . historically , income from continuing operations , as well as borrowings on the revolving credit facilities , have funded the company 's finance receivables growth , capital asset purchases and common stock repurchases . in fiscal 2018 the company had a $ 34.4 million net increase in total debt used to contribute to the funding of finance receivables growth of $ 34.6 million , $ 3.5 million increase in inventory , net capital expenditures of $ 2.3 million and common stock repurchases of $ 42.3 million . 26 liquidity and capital resources the following table sets forth certain historical information with respect to the company 's statements of cash flows ( in thousands ) : replace_table_token_9_th the primary drivers of operating profits and cash flows include ( i ) top line sales ( ii ) interest rates on finance receivables , ( iii ) gross margin percentages on vehicle sales , and ( iv ) credit losses , a significant portion of which relates to the collection of principal on finance receivables . the company generates cash flow from income from operations . historically , most or all of this cash is used to fund finance receivables growth , capital expenditures and common stock repurchases . to the extent finance receivables growth , capital expenditures and common stock repurchases exceed income from operations the company generally increases its borrowings under its revolving credit facilities . the majority of the company 's growth has been self-funded . cash flows from operations in fiscal 2018 compared to fiscal 2017 increased primarily as a result of net income offset by a decrease in deferred income taxes and income taxes payable , net . finance receivables , net , increased by $ 26.5 million during fiscal 2018 . 27 cash flows from operations in fiscal 2017 compared to fiscal 2016 decreased primarily as a result of ( i ) an increase in finance receivables originations and ( ii ) an increase in inventory , offset by ( iii ) a higher non-cash charge for credit losses and ( iv ) an increase in income tax payable and ( v ) higher payment protection plan claims . finance receivables , net , increased by $ 22.4 million during fiscal 2017. the purchase price the company pays for a vehicle has a significant effect on liquidity and capital resources . because the company bases its selling price on the purchase cost for the vehicle , increases in purchase costs result in increased selling prices . as the selling price increases , it becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the company 's customers have limited incomes and their car payments must remain affordable within their individual budgets . several external factors can negatively affect the purchase cost of vehicles . decreases in the overall volume of new car sales , particularly domestic brands , lead to decreased supply in the used car market . also , constrictions in consumer credit , as well as general economic conditions , can increase overall demand for the types of vehicles the company purchases for resale as used vehicles become more attractive than new vehicles in times of economic instability . a negative shift in used vehicle supply , combined with strong demand , results in increased used vehicle prices and thus higher purchase costs for the company . new vehicle sales decreased dramatically during the economic recession of 2008 and did not return to pre-recession levels until 2016. in addition , the challenging macro-economic environment , together with the constriction in consumer credit starting in 2008 , contributed to increased demand for the types of vehicles the company purchases and a resulting increase in used car prices . these negative macro-economic conditions have continued to affect our customers in the years since the recession and , in turn , have helped keep demand high for the types of vehicles we purchase . this increased demand , coupled with depressed levels of new vehicle sales in recent years , negatively impacted both the quality and the quantity of the used vehicle supply available to the company . management expects the tight supply of vehicles and resulting increases in vehicle purchase costs to continue , although some relief is expected to continue as a result of increased new car sales levels in recent periods . the company has devoted significant efforts to improving its purchasing processes to ensure adequate supply at appropriate prices , including expanding its purchasing territories to larger cities in close proximity to its dealerships and increasing its efforts to purchase vehicles from individuals at the dealership level as well as via the internet . the company has also increased the level of accountability for its purchasing agents including the establishment of sourcing and pricing guidelines . even with these efforts , the company expects gross margin percentages to remain under pressure over the near term .
| the company 's cost structure is more fixed in nature and is sensitive to volume changes . revenues can be affected by our level of competition , which is influenced to a large extent by the availability of funding to the sub-prime automobile industry , together with the availability and resulting purchase cost of the types of vehicles the company purchases for resale . revenues can also be affected by the macro-economic environment . down payments , contract term lengths and proprietary credit scoring are critical to helping customers succeed and are monitored closely by corporate management at the point of sale . after the sale , collections , delinquencies and charge-offs are crucial elements of the company 's evaluation of its financial condition and results of operations and are monitored and reviewed on a continuous basis . management believes that developing and maintaining a relationship with its customers and earning their repeat business is critical to the success and growth of the company and can serve to offset the effects of increased competition and negative macro-economic factors . a challenging competitive environment puts pressure on sales volumes especially at older dealerships which tend to have higher overall sales volumes and more repeat customers . additionally , as the company attempts to attract and retain target customers , increased competition can contribute to lower down payments and longer contract terms which can have a negative effect on collection percentages , liquidity and credit losses . management believes that the ultra-low interest rate environment combined with a lack of other investment alternatives has been attracting excess capital into the sub-prime automobile market and increasing competition . in an effort to combat the increased competition the company will continue to focus on the benefits of excellent customer service and its “ local ” face to face offering in an effort to help customers succeed . the company , over recent years , also focuses on providing a good mix of vehicles in various price ranges to increase affordability for customers , to address sales volume challenges
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we have modified certain business and workforce practices ( including those related to employee travel , employee work locations , and cancellation of physical participation in meetings , events and conferences ) and implemented protocols to promote social distancing and enhance sanitary measures in our offices and facilities to conform to government restrictions and best practices encouraged by governmental and regulatory authorities . however , the quarantine of personnel or the inability to access our offices or other locations could adversely affect our operations . if a large proportion of our employees were to contract covid-19 or be quarantined as a result of the virus , at the same time , we would rely upon our business continuity plans in an effort to continue operations , but there is no certainty that such measures will be sufficient to mitigate the adverse impact to our operations that could result from shortages of highly skilled employees . many of our suppliers and other business counterparties have made similar modifications . the resources available to those of our employees who are working remotely may not enable them to maintain the same level of productivity and efficiency , and those and other employees may face additional demands on their time , such as increased responsibilities resulting from school closures or the illness of family members . although we have experienced only limited absenteeism from employees who are required to be on-site to perform their jobs , absenteeism may increase in the future and may harm our productivity . further , our increased reliance on remote access to our information systems increases our exposure to potential cybersecurity breaches . we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees , customers , suppliers and other business counterparties . as a result of the covid-19 pandemic , we have observed an amplification of migration from urban centers to the suburban areas in which we build our homes , and an increase in entry-level homebuyers , one of our primary customer focuses , seeking to move out of apartments and into more spacious homes , as people are generally spending more time at home with remote-working arrangements increasing in prevalence . in addition , the federal reserve 's efforts to address the sharp economic downturn that resulted from the covid-19 pandemic has contributed to mortgage interest rates reaching historic lows . according to the freddie mac 's nationwide survey of mortgage rates released on july 16 , 2020 , the average rate on a 30-year fixed mortgage has fallen below 3.0 % for the first time since the mortgage-backed finance firm began publishing data in 1971. we believe such low interest rates , particularly if sustained through broader economic recovery and job creation , are likely to serve as a powerful incentive for some potential homebuyers to expedite their next home purchase in order to secure these favorable mortgage terms , therefore driving home sales . our primary focus remains doing everything we can to ensure the safety and well-being of our employees , customers and trade partners . while covid-19 infection rates , hospitalizations and deaths declined in certain parts of the country since the initial surge in april and may 2020 , infection rates increased significantly in other parts of the country , including in florida and texas during june and july 2020 , two states that account for a significant portion of our homebuilding business . residential construction has been deemed an essential business in each of our markets throughout the covid-19 pandemic . in addition , state and or local governments in each of our markets have instituted social distancing measures and other restrictions , which have resulted in significant changes to the way we conduct business . in all markets where we are permitted to operate , we are operating in accordance with the guidelines issued by the centers for disease control and prevention , as well as state and local guidelines . 51 despite the encouraging rebound in our net new orders since april 2020 , we can not be certain that these positive trends will continue if covid-19 infections and related hospitalizations and deaths continue to grow in our core markets or that we will be able to convert net new orders into home closings . there is uncertainty regarding the extent and timing of the disruption to our business that may result from the covid-19 pandemic and any related governmental actions . there is also uncertainty as to the effects of the covid-19 pandemic and related economic relief efforts on the u.s. economy , unemployment , consumer confidence , demand for our homes and the mortgage market , including lending standards , interest rates and secondary mortgage markets . we are unable to predict the extent to which this will impact our operational and financial performance , including the impact of future developments such as the duration and spread of the covid-19 virus , corresponding governmental actions ( including as a result of the change in the u.s. presidential administration ) and the impact of such on our employees , customers and trade partners . for more information , see “ risk factors—our business could be materially and adversely disrupted by an epidemic or pandemic ( such as the current covid-19 pandemic ) , or similar public threat , or fear of such an event , and the measures that federal , state and local governments and other authorities implement to address it. ” initial public offering on january 25 , 2021 , we completed the ipo of 11,040,000 shares of our class a common stock at a price to the public of $ 13.00 per share , which was conducted pursuant to our registration statement on form s-1 ( file no . 333-251612 ) , as amended , that was declared effective on january 20 , 2021. the ipo provided us with net proceeds of $ 133.5 million . story_separator_special_tag on january 25 , 2021 , we used the net proceeds from the ipo , cash on hand and borrowings under our credit agreement to repay ( i ) all borrowings under our then-existing 34 separate secured vertical construction lines of credit facilities totaling $ 319.0 million and upon such repayment terminated such facilities and ( ii ) the bomn bridge loan used to finance the h & h acquisition , totaling $ 20.0 million , plus contractual interest of $ 0.6 million . the historical consolidated financial statements included in this annual report on form 10-k are based on the consolidated financial statements of our predecessor , dfh llc , prior to our corporate reorganization in connection with the ipo . as a result , the historical consolidated financial data may not give you an accurate indication of what our actual results would have been if the reorganization transactions in conjunction with the ipo had been completed at the beginning of the periods presented or of what our future results of operations are likely to be . 52 story_separator_special_tag $ 44.9 million for the year ended december 31 , 2019. the increase in net and comprehensive income was primarily attributable to an increase in gross margin on homes closed of $ 66.6 million , or 67.7 % , during the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 . 54 net and comprehensive income attributable to dream finders holdings llc . net and comprehensive income attributable to dream finders holdings llc for the year ended december 31 , 2020 was $ 79.1 million , an increase of $ 39.9 million , or 101.8 % , from $ 39.2 million for the year ended december 31 , 2019. the increase was primarily attributable to a significant increase in home closings and gross margin . we closed 3,154 homes for the year ended december 31 , 2020 , an increase of 1,106 units , or 54.0 % , from the 2,048 homes closed for the year ended december 31 , 2019. gross margin for the year ended december 31 , 2020 was $ 165.0 million , an increase of $ 66.6 million , or 67.7 % , from $ 98.4 million for the year ended december 31 , 2019. net and comprehensive income attributable to noncontrolling interests . net and comprehensive income attributable to noncontrolling interests for the year ended december 31 , 2020 was $ 5.4 million , a decrease of $ 0.3 million , or 5.0 % , as compared to $ 5.7 million for the year ended december 31 , 2019. backlog . backlog at december 31 , 2020 was 2,424 homes valued at approximately $ 865.1 million , an increase of 1,570 homes and $ 530.3 million , respectively , or 183.8 % and 158.4 % , respectively , as compared to 854 homes valued at approximately $ 334.8 million at december 31 , 2019. the increase in backlog was primarily attributable to an increase in active communities of 41 , or 48.2 % , during the year ended december 31 , 2020 . 55 year ended december 31 , 2019 compared to year ended december 31 , 2018 the following table presents summary consolidated results of operations for the periods presented : replace_table_token_9_th ( 1 ) a community becomes active once the model is completed or the community has its fifth sale . a community becomes inactive when it has fewer than five units remaining to sell . ( 2 ) gross margin is home sales revenue less cost of sales . ( 3 ) calculated as a percentage of home sales revenue . ( 4 ) adjusted gross margin and ebitda are a non-gaap financial measures . for definitions of adjusted gross margin and ebitda and a reconciliation to our most directly comparable financial measures calculated and presented in accordance with gaap , see “ —non-gaap financial measures. ” ( 5 ) calculated as a percentage of revenues . revenues . revenues for the year ended december 31 , 2019 were $ 744.3 million , an increase of $ 222.0 million , or 42.5 % , from $ 522.3 million for the year ended december 31 , 2018. the increase in revenues was primarily attributable to an increase in home closings of 640 homes , or 45.5 % , during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. the increase in home closings was primarily attributable to a 60.4 % increase in active communities from 53 at december 31 , 2018 to 85 at december 31 , 2019. average sales price of homes closed remained consistent year over year as our shift to a higher proportionate share of first-time and move-up homebuyers with lower price points was offset by an increasing proportionate share of home closings from our operating segments with higher price points such as dc metro and colorado . 56 cost of sales and gross margin . cost of sales for the year ended december 31 , 2019 was $ 641.3 million , an increase of $ 186.9 million , or 41.1 % , from $ 454.4 million for the year ended december 31 , 2018. the increase in the cost of sales is primarily due to more home closings in 2019 as compared to 2018. gross margin for the year ended december 31 , 2019 was $ 98.4 million , an increase of $ 33.8 million , or 52.2 % , from $ 64.7 million for the year ended december 31 , 2018. gross margin as a percentage of home sales revenue was 13.3 % for the year ended december 31 , 2019 , an increase of 80 bps , or 6.4 % , from 12.5 % for the year ended december 31 , 2018. the increases in gross margin and gross margin as a percentage of home sales revenue were primarily attributable to increased margins in our newer markets , decreased cost of labor , decreased price of materials and decreased average build times during the year ended december 31
| the average sales price of homes closed remained relatively consistent year over year as our shift to a higher proportionate share of first-time and move-up homebuyers with lower price points was offset by an increasing proportionate share of home closings from our operating segments with higher price points such as dc metro and colorado . cost of sales and gross margin . cost of sales for the year ended december 31 , 2020 was $ 962.9 million , an increase of $ 321.6 million , or 50.1 % , from $ 641.3 million for the year ended december 31 , 2019. the increase in the cost of sales is primarily due to the increase in home closings in 2020 as compared to 2019. gross margin for the year ended december 31 , 2020 was $ 165.0 million , an increase of $ 66.6 million , or 67.7 % , from $ 98.4 million for the year ended december 31 , 2019. gross margin as a percentage of home sales revenue was 14.6 % for the year ended december 31 , 2020 , an increase of 130 bps , or 10.0 % , from 13.3 % for the year ended december 31 , 2019. the increase in gross margin percentage was attributable to higher margins in certain of our operating segments , driven by increased efficiencies in build times and costs . adjusted gross margin . adjusted gross margin for the year ended december 31 , 2020 was $ 252.7 million , an increase of $ 96.4 million , or 61.6 % , from $ 156.3 million for the year ended december 31 , 2019. adjusted gross margin as a percentage of home sales revenue for the year ended december 31 , 2020 was 22.5 % , an increase of 140 bps , or 6.6 % , as compared to 21.1 % for the year ended december 31 , 2019. the increases in adjusted gross margin and adjusted gross margin percentage was driven by increased efficiencies in build times and costs . adjusted gross margin is a non-gaap financial measure . for the definition of adjusted gross margin and a reconciliation to our most directly
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collaboration revenue upon adoption of financial accounting standards board ( the “ fasb ” ) accounting standards codification ( “ asc ” ) 606 on january 1 , 2018 , we recognize research and development ( “ r & d ” ) reimbursements as collaboration revenue earned over time as services are performed . prior to adoption of asc 606 , we recorded research reimbursement as collaboration revenue and development reimbursement as an offset to r & d expense once the license revenue cap was met . milestone revenue we generally classify each of its milestones into one of three categories : ( i ) clinical milestones ; ( ii ) regulatory and development milestones ; and ( iii ) commercial milestones . clinical milestones are typically achieved when a product candidate advances into or completes a defined phase of clinical research . for example , a milestone payment may be due to us upon the initiation of a clinical trial for a new indication . regulatory and development milestones are typically achieved upon acceptance of the submission for marketing approval of a product candidate or upon approval to market the product candidate by the the u.s. food and drug administration ( the “ fda ” ) or other regulatory authorities . for example , a milestone payment may be due to us upon submission for marketing approval of a product candidate by the fda . commercial milestones are typically achieved when an approved product reaches certain defined levels of net royalty sales by the licensee of a specified amount within a specified period . in general , we consider such milestone payments as variable consideration with constraint and therefore we recognize the revenue from such milestone payments as collaboration revenue at point in time when we can conclude it is probable that a significant revenue reversal will not occur in future periods . profit share revenue for agreements , with profit sharing arrangements , we will record our share of the pre-tax commercial profit as collaboration revenue when the profit sharing can be reasonably estimated and that a significant revenue reversal will not occur in future periods . royalty revenue we will recognize revenue from royalties based on licensees ' sales of our products or products using our technologies . royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and that a significant revenue reversal will not occur in future periods . taxes , shipping and handling we exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer ( e.g. , sales , use , value added , some excise taxes ) . in addition , we account for shipping and handling as activities that are performed after our customers obtain control of the goods as activities to fulfill our performance obligation to transfer the goods . incremental costs to obtain or fulfill a contract for costs to obtain a contract , we will capitalize such amounts if they are incremental and expected to be recovered . sales commissions directly related to obtaining new contracts will be capitalized unless the amortization period is one year or less , at which these costs will be recorded within selling and general administrative expenses . 47 build-to-suit lease accounting in certain lease arrangements , we are involved in the construction of the building . to the extent we are involved with structural improvements of the construction project or take construction risk prior to the commencement of a lease , asc 840-40 , leases – sale-leaseback transactions ( subsection 05-5 ) , requires us to be considered the owner for accounting purposes of these types of projects during the construction period . therefore , we record an asset in property and equipment , net on the consolidated balance sheets , including capitalized interest costs , for the replacement cost of the pre-existing building plus the amount of estimated construction costs and tenant improvements incurred by the landlord and us as of the balance sheet date . we record a corresponding build-to-suit lease obligation on our consolidated balance sheets representing the amounts paid by the lessor . once construction is complete , we consider the requirements for sale-leaseback accounting treatment , including evaluating whether all risks of ownership have been transferred back to the landlord , as evidenced by a lack of continuing involvement in the leased property . if the arrangement does not qualify for sale-leaseback accounting treatment , the building asset remains on our consolidated balance sheets at its historical cost , and such asset is depreciated over its estimated useful life of 30 years . we bifurcate our lease payments into a portion allocated to the building , and a portion allocated to the parcel of land on which the building has been built . the portion of the lease payments allocated to the land are treated for accounting purposes as operating lease payments , and therefore recorded as rent expense in the consolidated statements of operations . the portion of the lease payments allocated to the building is further bifurcated into a portion allocated to interest expense and a portion allocated to reduce the build-to-suit lease obligation . the interest rate used for the build-to-suit lease obligation represents our estimated incremental borrowing rate , adjusted to reduce any built in loss . the initial recording of these assets and liabilities is classified as non-cash investing and financing items , respectively , for purposes of the consolidated statements of cash flows . the most significant estimates used by management in accounting for build-to-suit leases and the impact of these estimates are as follows : expected lease term- our expected lease term includes the contractual lease period . the expected lease term is used in determining the depreciable life of the asset or the straight-line rent recognition period for the portion of the lease payment allocable to the land component . incremental borrowing rate- we estimate our incremental borrowing rate . story_separator_special_tag for build-to-suit leases recorded on our consolidated balance sheets with a related build-to-suit lease obligation , the incremental borrowing rate is used in allocating our rental payments between interest expense and a reduction of the outstanding build-to-suit lease obligation . fair market value of leased asset- the fair market value of a build-to-suit lease property is based on replacement cost of the pre-construction shell and comparable market data . fair market value is used in determining the amount of the property asset and related build-to-suit lease obligation to be recognized on our consolidated balance sheet for build-to-suit leases . research and development we expense r & d costs as incurred . r & d expenses include , but are not limited to , salary and benefits , share-based compensation , clinical trial activities , drug development and manufacturing prior to fda approval and third-party service fees , including clinical research organizations and investigative sites . we recognize costs for certain development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations , or information provided to us by our vendors on their actual costs incurred . the objective of our accrual policy is to match the recording of the expenses in our consolidated financial statements to the actual services we have received and efforts we have expended . as such , expense accruals related to clinical trials are recognized based on our estimate of the degree of completion of the events specified in the specific clinical study or trial contract . payments for these activities are based on the terms of the individual arrangements , which may differ from the pattern of costs incurred , and are reflected in our consolidated financial statements as prepaid or accrued research and development . amounts due may be fixed fee , fee for service , and may include upfront payments , monthly payments , and payments upon the completion of milestones or receipt of deliverables . restructuring charges we recognize restructuring charges related to our reorganization plan . in connection with these activities , we record restructuring charges for contractual employee termination benefits , one-time employee termination benefits and contract termination costs . we account for our restructuring charges as a liability when the obligations are incurred and record such charges at fair value . the recognition of restructuring charges requires us to make certain judgments and estimates regarding the nature , timing and amount of costs associated with the planned reorganization plan . to the extent the actual results differ from its estimates and assumptions , we may be required to revise the estimates of future liabilities , requiring the recognition of additional restructuring 48 charges or the reduction of liabilities already recognized . such changes to previously estimated amounts may be material to the consolidated financial statements . changes in the estimates of the restructuring charges are recorded in the period the change is determined . at the end of each reporting period , we evaluate the remaining accrued balances to ensure that no excess accruals are retained and the utilization of the provisions are for their intended purpose in accordance with developed restructuring plans . share-based compensation we account for our share-based compensation in accordance with the fair value recognition provisions of current authoritative guidance . share-based awards , including stock options , are measured at fair value as of the grant date and recognized to expense over the requisite service period ( generally the vesting period ) , which we have elected to amortize on a straight-line basis . since share-based compensation expense is based on awards ultimately expected to vest , it has been reduced by an estimate for future forfeitures . forfeitures are estimated based on historical experience . we estimate forfeitures at the time of grant and revise our estimate , if necessary , in subsequent periods . we estimate the fair value of options granted using the black-scholes option valuation model . significant judgment is required in determining the proper assumptions used in these models . the assumptions used include the risk free interest rate , expected term , expected volatility and expected dividend yield . we use the historical volatility of our shares to estimate expected volatility . through december 31 , 2017 , the expected volatility was based on a combination of historical volatility for our shares and the historical volatilities of several of our publicly traded comparable companies . these peer companies are publicly traded , have similar industry , life cycle , revenue and market capitalization . in addition , since we do not have sufficient historical employee share option exercise data , the simplified method has been used to estimate the expected life of all options . these assumptions consist of estimates of future market conditions , which are inherently uncertain , and therefore subject to our judgment and therefore any changes in assumptions could significantly impact the future grant date fair value of share-based awards . total share-based compensation expense for the years ended december 31 , 2018 , 2017 and 2016 was $ 27.0 million , $ 26.8 million and $ 24.9 million , respectively . the information contained in note 2 to the consolidated financial statements under the heading “ recent accounting pronouncements ” is hereby incorporated by reference into this part ii , item 7. story_separator_special_tag g & a expenses to decrease in 2019 over the prior year . restructuring and impairment related charges in may 2018 , we commenced a reorganization plan to reduce our operating costs and better align our workforce with the needs of our business following our decision in april 2018 to discontinue further development of neod001 . we have incurred aggregate restructuring and impairment related charges of approximately $ 16.1 million for the year ended december 31 , 2018 . restructuring charges incurred under this plan primarily consist of employee termination benefit and contract termination costs ( including costs associated with the termination of our commercial supply contract with rentschler biopharma se ) .
| the decrease for year ended december 31 , 2018 was primarily due to lower manufacturing and clinical costs associated primarily with neod001 and prx003 programs , lower personnel costs ( including share-based compensation expense ) and lower consulting expenses , offset in part by higher expense associated with prasinezumab . for the year ended december 31 , 2017 , our r & d expenses increased by $ 15.0 million , or 13 % , compared to the prior year . the increase for the year ended december 31 , 2017 was primarily due to higher personnel costs ( including share-based compensation expenses ) , and to a lesser extent higher clinical trial costs associated primarily with the neod001 program , higher consulting expenses and higher expense associated with prasinezumab , which was partially offset by a decrease in external expenses related to product manufacturing . our research activities are aimed at developing new drug products . our development activities involve the translation of our research into potential new drugs . r & d expenses include personnel costs and related expenses , external expenses associated with nonclinical and drug development and materials , equipment and facilities costs that are allocated to clearly related r & d activities . the following table sets forth the r & d expenses for our major programs ( specifically , any program with successful first dosing in a phase 1 clinical trial , which were neod001 , prasinezumab , prx003 and prx004 ) and other r & d expenses for the years ended december 31 , 2018 , 2017 and 2016 , and the cumulative amounts to date ( in thousands ) : replace_table_token_5_th 50 ( 1 ) cumulative r & d costs to date for neod001 include the costs incurred from the date when the program has been separately tracked in preclinical development . expenditures in the early discovery stage are not tracked by program and accordingly have been excluded from this cumulative amount . in april 2018 , we announced that we were discontinuing development of neod001 . since that date we have incurred costs associated with the close out of our phase 2b pronto , phase 3 vital as well as the
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to better align costs and improve long-term efficiency , we are executing realignment programs to accelerate both short- and long-term strategic plans , including targeted manufacturing optimization through the consolidation of facilities , sg & a efficiency initiatives , transfer of activities from high-cost regions to lower-cost facilities and the divestiture of certain non-strategic assets . at the completion of the programs , we expect a 15 % to 20 % reduction in our global workforce , relative to early 2015 workforce levels . with an expected near-term investment of approximately $ 360 million , including projects still under final evaluation , we expect the results of our realignment programs will deliver annualized run-rate savings of approximately $ 230 million . since inception of the realignment programs in 2015 , we have incurred charges of $ 294.8 million and we expect to incur most remaining charges in 2018. in addition , we are focusing on our ongoing low-cost sourcing , including greater use of third-party suppliers and increasing our lower-cost , emerging market capabilities . our markets the following discussion should be read in conjunction with the `` outlook for 2018 `` section included below in this md & a . our products and services are used in several distinct industries : oil and gas , chemical , power generation , water management , and several other industries , such as mining , steel and paper , that are collectively referred to as `` general industries . '' demand for most of our products depends on the level of new capital investment as well as planned and unplanned maintenance expenditures by our customers . the level of new capital investment depends , in turn , on capital infrastructure projects driven by the need for products that rely on oil and gas , chemicals , power generation and water resource management , as well as general economic conditions . these drivers are generally related to the phase of the business cycle in their respective industries and the expectations of future market behavior . the levels of maintenance expenditures are additionally driven by the reliability of equipment , planned and unplanned downtime for maintenance and the required capacity utilization of the process . sales to epc firms and original equipment manufacturers are typically for large project orders and critical applications , as are certain sales to distributors . project orders are typically procured for customers either directly from us or indirectly through contractors for new construction projects or facility enhancement projects . the quick turnaround business , which we also refer to as `` short-cycle , '' is defined as orders that are received from the customer ( booked ) and shipped generally within six months of receipt . these orders are typically for more standardized , general purpose products , parts or services . each of our three business segments generate certain levels of this type of business . in the sale of aftermarket products and services , we benefit from a large installed base of our original equipment , which requires periodic maintenance , repair and replacement parts . we use our manufacturing platform and global network of qrcs to offer a broad array of aftermarket equipment services , such as installation , advanced diagnostics , repair and retrofitting . in geographic regions where we are positioned to provide quick response , we believe customers have traditionally relied on us , rather than our competitors , for aftermarket products due to our highly engineered and customized products . however , the aftermarket for standard products is competitive , as the existence of common standards allows for easier replacement of the installed products . as proximity of service centers , timeliness of delivery and quality are important considerations for all aftermarket products and services , we continue to selectively expand our global qrc capabilities to improve our ability to capture this important aftermarket business . 27 oil and gas the oil and gas industry represented approximately 38 % and 36 % of our bookings in 2017 and 2016 , respectively . capital spending in the oil and gas industry decreased in 2017 compared to the previous year due to continued broad-based capital spending declines , heightened pricing pressures and negative currency impacts caused by a stronger u.s. dollar especially during the first half of 2017. aftermarket opportunities in this industry solidified throughout 2017 due to catch up of deferred spending on our customers ' repair and maintenance budgets from previous years . the outlook for the oil and gas industry is heavily dependent on the demand growth from both mature markets and developing geographies . in the short-term , we believe that an improved oil price outlook will somewhat positively impact oil and gas upstream investment and impact mid-stream and downstream investment to a lesser extent . a recovery in the overall level of spending by oil and gas companies could continue to increase demand for our aftermarket products and services . we believe the medium and long-term fundamentals for this industry remain attractive , and see a stabilized environment as the industry works through current excess supply . in addition , we believe projected depletion rates of existing fields and forecasted long-term demand growth will require additional investments . with our long-standing reputation in providing successful solutions for upstream , mid-stream and downstream applications , along with the advancements in our portfolio of offerings , we believe that we continue to be well-positioned to assist our customers . chemical the chemical industry , which represented approximately 21 % of our bookings in both 2017 and 2016 , experienced a decreased level of capital spending in 2017 primarily due to broad-based capital spending declines , heightened pricing pressures and negative currency impacts caused by a stronger u.s. dollar especially during the first half of 2017. the aftermarket opportunities solidified throughout 2017 due to catch up of deferred spending of our customers ' repair and maintenance budgets from previous years . the outlook for the chemical industry remains heavily dependent on global economic conditions . story_separator_special_tag as global economies stabilize and unemployment conditions improve , a rise in consumer spending should follow . an increase in spending would drive greater demand for chemical-based products supporting improved levels of capital investment . we believe the chemical industry in the near-term will continue to invest in north america and middle east capacity additions , maintenance and upgrades for optimization of existing assets and that developing regions will selectively invest in capital infrastructure to meet current and future indigenous demand . we believe our global presence and our localized aftermarket capabilities are well-positioned to serve the potential growth opportunities in this industry . power generation the power generation industry represented approximately 13 % and 14 % of our bookings in 2017 and 2016 , respectively . in 2017 , the power generation industry continued to experience softness in thermal power generation capital spending in the mature and key developing markets . china curtailed the construction of new coal-fired power generation over the last year , while in india and southeast asia capital investment remained in place driven by increased demand forecasts . natural gas-fired combined cycle plants increased its share of the energy mix , driven by market prices for gas remaining low and stable , low capital expenditures , and the ability to stabilize unpredictable renewable sources . with the potential of unconventional sources of gas , the global power generation industry is forecasting an increased use of this form of fuel for power generation plants . political efforts to limit the emissions of carbon dioxide may have some adverse effect on thermal power investment plans depending on the potential requirements imposed and the timing of compliance by country . however , we believe that proposed methods of capturing and limiting carbon dioxide emissions offer business opportunities for our products and services . at the same time , we continue to take advantage of new investments in concentrated solar power generating capacity , where our pumps , valves , and seals are uniquely positioned for both molten salt applications as well as the traditional steam cycle . we believe the long-term fundamentals for the power generation industry remain solid based on projected increases in demand for electricity driven by global population growth , growth of urbanization in developing markets and the increased use of electricity driven transportation . we also believe that our long-standing reputation in the power generation industry , our portfolio of offerings for the various generating methods , our advancements in serving the renewable energy market and carbon capture methodologies , as well as our global service and support structure , position us well for the future opportunities in this important industry . 28 water management the water management industry represented approximately 4 % our bookings in both 2017 and 2016 . water management industry activity levels experienced some softness in 2017 despite worldwide demand for fresh water and water treatment continuing to create requirements for new facilities or for upgrades of existing systems , many of which require products that we offer , particularly pumps . the proportion of people living in regions that find it difficult to meet water requirements is expected to double by 2025. we believe that the persistent demand for fresh water during all economic cycles supports continued investments , especially in north america and developing regions . general industries general industries represented , in the aggregate , approximately 24 % and 25 % of our bookings in 2017 and 2016 , respectively . general industries comprise a variety of different businesses , including mining and ore processing , pharmaceuticals , pulp and paper , food and beverage and other smaller applications , none of which individually represented more than 5 % of total bookings in 2017 and 2016 . general industries also include sales to distributors , whose end customers operate in the industries we primarily serve . the outlook for this group of industries is heavily dependent upon the condition of global economies and consumer confidence levels . the long-term fundamentals of many of these industries remain sound , as many of the products produced by these industries are common staples of industrialized and urbanized economies . we believe that our specialty product offerings designed for these industries and our aftermarket service capabilities will provide continued business opportunities . our results of operations throughout this discussion of our results of operations , we discuss the impact of fluctuations in foreign currency exchange rates . we have calculated currency effects on operations by translating current year results on a monthly basis at prior year exchange rates for the same periods . as previously disclosed in our quarterly report on form 10-q for the quarterly period ended june 30 , 2017 , we identified accounting errors focused mainly at two of our non-u.s. sites in the inventory , accounts receivable , cost of sales ( `` cos '' ) and sg & a balances for prior periods through the first quarter of 2017. we assessed these errors , individually and in the aggregate , and concluded that they were not material to any prior annual or interim period . however , to facilitate comparisons among periods we revised our previously issued audited consolidated financial information which is included in our 2016 annual report and unaudited condensed consolidated financial information for the interim periods included in our form 10-q/a and form 10-q for the quarters ended march 31 , 2017 and june 30 , 2017 , respectively . effective july 6 , 2017 , we sold our fcd vogt product line and related assets and liabilities to a privately held company . in 2016 , sales related to the vogt business totaled approximately $ 17 million , with earnings before interest and taxes of approximately $ 4 million . effective may 2 , 2017 we sold our fcd gestra ag business to a leading provider of steam system solutions . in 2016 , gestra recorded sales of approximately $ 101 million ( 92 million ) with earnings before interest and taxes of approximately $ 17 million ( 15 million ) .
| 36 bookings in 2016 decreased by $ 89.5 million , or 10.1 % , as compared with 2015. the decrease included negative currency effects of approximately $ 10 million . the decrease in customer bookings was primarily driven by the oil and gas , power generation and chemical industries . bookings decreased $ 36.7 million into asia pacific , $ 19.1 million into europe , $ 12.5 million into africa , $ 7.7 million into latin america and $ 7.2 million into north america . the decrease was driven by customer original equipment bookings . of the $ 797.7 million of bookings in 2016 , approximately 44 % were from general industries , 22 % from chemical , 14 % from oil and gas , 14 % from water management and 6 % from power generation . interdivision bookings ( which are eliminated and are not included in consolidated bookings as disclosed above ) decreased $ 7.4 million . sales in 2017 decrease d by $ 59.9 million , or 7.2 % , as compared with 2016 . the decrease included currency benefits of approximately $ 8 million and was driven by decreased customer original equipment sales . customer sales decreased $ 35.0 million into asia pacific , $ 26.0 million into north america , $ 14.1 million into africa and $ 5.7 million into latin america , partially offset by increased sales of $ 10.0 million into the middle east and $ 7.4 million into europe . interdivision sales ( which are eliminated and are not included in consolidated sales as disclosed above ) increase d $ 0.4 million . sales in 2016 decreased by $ 146.8 million , or 15.0 % , as compared with 2015. the decrease included negative currency effects of approximately $ 13 million and was primarily driven by customer original equipment sales . customer sales decreased $ 54.8 million into europe , $ 31.3 million into north america , $ 17.8 million into asia pacific , $ 14.5 million into the middle east , $ 13.1 million into latin america and $ 5.4 million into africa . interdivision
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in addition , astral employs artificial intelligence ( “ ai ” ) to automatically extend the color gamut and enhance the dynamic range to be viewed in 4k and or high-dynamic range ( “ hdr ” ) , collectively known as ultra-high definition ( “ uhd ” ) . although we believe astral has developed valuable technology fortified by patents and trade secrets , the potential market has not evolved as quickly as anticipated . due to funding constraints , the company 's primary focus remains on the pursuit of opportunities for 1 s t detect . consequently , headcount and expenditures at astral have been minimized and new development is exclusively focused on strategic initiatives that would facilitate the realization of astral 's value . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles ( “ u.s . gaap ” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , 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 . estimates and assumptions are reviewed periodically . actual results may differ from these estimates under different assumptions or conditions . use of estimates the preparation of consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that directly affect the amounts reported in the company 's consolidated financial statements and accompanying notes . management continuously evaluates its critical accounting policies and estimates , including those used in evaluating the recoverability of long-lived assets , recognition of revenue , valuation of inventory , and the recognition and measurement of loss contingencies , if any . 20 revenue recognition in fiscal year 2018 , astrotech recognized revenue employing two generally accepted revenue recognition methodologies . the methodology used was based on contract type and the manner in which products and services are provided . software licensing agreements when revenue for sale of manufactured product is commenced or when we license our software for use , we will recognize revenue when it is realized or realizable and earned . the company considers revenue realized or realizable and earned when a firm sales contract or invoice is in place , delivery has occurred or services have been provided , and collectability is reasonably assured . construction-type and production-type contracts in fiscal year 2018 , some of the company 's revenue was derived from contracts to manufacture a product to a buyer 's specification . these contracts are accounted for under the provisions of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 605-35 “ revenue recognition : construction-type and production-type contracts. ” this contract was fixed-price and was revenue was recorded once completed and shipped . in fiscal year 2018 , we had two revenue sources and , in both arrangements , there were no undelivered elements at june 30 , 2018. astrotech recognizes revenue employing the generally accepted revenue recognition methodologies described under the provisions of fasb asc topic 606 “ revenue from contracts with customers , ” which was adopted by the company in fiscal year 2019. the methodology used is based on contract type and how products and services are provided . the guidelines of topic 606 establish a five-step process to govern the recognition and reporting of revenue from contracts with customers . the five steps are : ( i ) identify the contract with a customer , ( ii ) identify the performance obligations within the contract , ( iii ) identify fixed or determinable price , ( iv ) allocate the transaction price to the performance obligations within the contract , and ( v ) recognize revenue when or as the performance obligations are satisfied . an additional factor is reasonable assurance of collectability . this necessitates deferral of revenue recognition until collection has occurred or collection is reasonably assured . in fiscal years 2019 and 2018 , we had two revenue sources and , in both arrangements , revenue was recognized at a point in time consistent with the guidelines in topic 606. research and development research and development costs are expensed as incurred . research and development expenses for the fiscal years ended june 30 , 2019 and 2018 were $ 3.6 million and $ 6.1 million , respectively , after adjusting for $ 18 thousand and $ 19 thousand in research and development expenses that were reclassified to cost of sales due to certain activities being associated with revenue recognition . the reason for this decrease was reduced compensation and related expenses and a reclassification of research and development materials to inventory on the balance sheet as we transition to selling tracer 1000 units to the international airport security market . net loss per common share basic net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period . diluted net loss per common share is the same as basic net loss per common share as the potential dilutive shares are considered to be anti-dilutive ( see note 11 to the consolidated financial statements ) . cash and cash equivalents the company considers short-term investments with original maturities of three months or less to be cash equivalents . cash equivalents are comprised primarily of operating cash accounts , money market investments , and certificates of deposit . accounts receivable the carrying value of the company 's accounts receivable , net of an allowance for doubtful accounts , represents their estimated net realizable value . story_separator_special_tag astrotech estimates an allowance for doubtful accounts based on type of customer , age of 21 outstanding receivable , historical collection trends , and existing economic conditions . if events or changes in circumstances indicate that a specific receivable balance may be unrealizable , further consideration is given to the collectability of those balances , and the allowance is adjusted accordingly . receivable balanc es deemed uncollectible are written off against the allowance . the company anticipates collecting all unreserved receivables within one year . as of june 30 , 2019 and 2018 , there was no allowance for doubtful accounts deemed necessary . inventory the company computes inventory cost on a first-in , first-out basis , and inventory is valued at the lower of cost or net realizable value . the valuation of inventory also requires the company to estimate obsolete and excess inventory as well as inventory that is not of saleable quality . property and equipment property and equipment are stated at cost . all furniture , fixtures , and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets , which is generally five years . purchased software is typically depreciated over three years . leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the lease . repairs and maintenance are expensed when incurred . impairment of long-lived assets the company continuously evaluates its long-lived assets for impairment to assess whether the carrying amount of an asset may not be recoverable . our evaluation is based on an assessment of potential indicators of impairment , such as an adverse change in the business climate that could affect the value of an asset , current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of an asset , and a current expectation that , more likely than not , an asset will be disposed of before the end of its previously estimated useful life . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . recoverability of long-lived assets is dependent on a number of conditions , including uncertainty about future events and demand for our services . during the fourth quarter of fiscal year 2018 , the company determined that there was an impairment indicator associated with the color ice software platform and scanner of astral ( “ astral assets ” ) . during the quarter , management 's push to sell a newer version of astral 's color ice software to a major scanning company was postponed , possibly indefinitely . in addition , even though the company secured its first contract that utilized astral 's latest software , the contract yielded minimal revenues . in light of the company 's limited resources , expenses in astral have been reduced and efforts have been scaled back until the market begins to develop . due to the delay in the development of the market which has to date not yielded significant revenues , management believes that , for the foreseeable future , it is probable that astral net cash flows will continue to fall short of the value of the astral assets . management therefore recorded an impairment charge of $ 1.6 million in fiscal year 2018. as of june 30 , 2019 and 2018 , the fair value of these assets was immaterial . on june 1 , 2018 , the company entered into its third amendment of the original lease for the 1 st detect facility removing 8,118 square feet from its leased space . management therefore wrote-off the leasehold improvements and other assets associated with this reduction of square footage . the total amount associated with this impairment recognized during the year ended june 30 , 2018 was $ 114 thousand . see note 13 to the consolidated financial statements for more information relating to the amended lease agreement . there was no impairment of long-lived assets recognized during the year ended june 30 , 2019. fair value of financial instruments astrotech 's financial instruments consist of cash and cash equivalents , accounts receivable , accounts payable , and accrued liabilities . the company 's management believes the carrying amounts of these assets and liabilities approximates their fair value . for more information about the company 's accounting policies surrounding fair value investments , see note 6 to the consolidated financial statements . 22 available-for-sale investments investments that are designated as available-for-sale are reported at fair value , with unrealized gains and losses recorded in accumulated other comprehensive loss . the company determines the cost of investments sold based on a first-in , first-out cost basis at the individual security level . the company also considers specific adverse conditions related to the financial health of , and the business outlook for , the investee , which may include industry and sector performance , changes in technology , operational and financing cash flow factors , and changes in the investee 's credit rating . the company records other than temporary impairments on marketable equity securities and marketable equity method investments in gains ( losses ) on equity investments , net of previously recorded gains ( losses ) . for more information on investments , see note 4 to the consolidated financial statements . operating leases the company leases space under operating leases . lease agreements often include tenant improvement allowances , rent holidays , and rent escalation clauses , as defined in the respective lease agreements . most of the company 's lease agreements include renewal periods at the company 's option .
| operating expenses – our operating expenses decreased $ 4.9 million , or 37 % , during the fiscal year ended june 30 , 2019 , compared to the fiscal year ended june 30 , 2018. significant changes to operating expenses include the following : selling , general and administrative expenses – as a result of management 's ongoing commitment to optimizing our available resources , our selling , general and administrative expenses decreased $ 0.8 million , or 13 % , for the year ended june 30 , 2019 , compared to the year ended june 30 , 2018. this reduction was driven by decreases in compensation and related expenses , lobbying , investor relations , directors fees , legal , consulting , and audit fees . research and development expenses – research and development expenses , prior to a reclassification of $ 18 thousand and $ 19 thousand to cost of revenue in fiscal years 2019 and 2018 , respectively , were $ 3.6 million and $ 6.1 million . the reason for this decrease was reduced compensation and related expenses and a reclassification of research and development materials to inventory on the balance sheet as we transition to selling tracer 1000 units to the international airport security market . loss on impairment of long-lived assets – during the fourth quarter of fiscal year 2018 , the company determined that there was an impairment indicator associated with the color ice software platform and scanner of the astral assets . during that quarter , management 's push to sell a newer version of astral 's color ice software to a major scanning company was postponed , possibly indefinitely . in addition , even though the company secured its first contract that utilized astral 's latest software , the contract yielded minimal revenues . in light of the company 's limited resources , expenses in astral have been reduced and efforts have been scaled back until the market begins to develop . due to the delay in the development of the market which has to date not yielded significant revenues , management believes that , for the foreseeable future , it is probable that astral net cash flows will continue to fall short of the value of the astral assets . management therefore recorded an impairment charge of $ 1.6 million in fiscal year 2018. as
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the reverse stock split became effective on july 11 , 2013. all share and per share amounts in the consolidated financial statements have been retroactively adjusted for all periods presented to give effect to this reverse stock split , including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital . since inception , we have incurred significant operating losses . our net losses were $ 53.5 million , $ 39.4 million and $ 20.1 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 , we had an accumulated deficit of $ 166.9 million . we expect to continue to incur significant expenses and operating losses over the next several years . our net losses may fluctuate significantly from year to year . we anticipate that our expenses will increase significantly as we continue to advance and expand clinical development activities for our lead programs , ag-221 , ag-120 and ag-348 ; continue to discover and validate novel targets and drug product candidates ; expand and protect our intellectual property portfolio ; hire additional commercial , development and scientific personnel ; and continue to operate as a publicly-traded company . financial operations overview revenue through december 31 , 2014 , we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the near future . primarily all of our revenue to date has been derived from our collaboration with celgene and funding from research grant agreements . through the date of the amendment of our collaboration agreement in july 2014 , we were recognizing revenue related to the upfront license fee of $ 121.2 million , the implied premium of $ 3.1 million paid on the purchase of $ 8.8 million of series b convertible preferred stock , and the two $ 20.0 million extension payments received in october 2011 and may 2014 to extend the discovery phase until april 2015 , ratably over the period over which we expected to fulfill our performance obligations , which we referred to as the performance period . as a result of an amendment to the collaboration agreement in july 2014 , we were required to reevaluate the arrangement under the current revenue recognition accounting guidance . under this guidance , the best estimate of selling price of all undelivered units of accounting was estimated and was determined to be less than the combination of future contractual consideration to be received and the remaining deferred revenue balance at the amendment date . as a result , we immediately recognized revenue on the amendment date related to the excess of total arrangement consideration over the best estimate of selling price of the undelivered elements . for the period january 1 , 2014 through the amendment date , we recognized a total of $ 42.7 million in revenues under the previous accounting guidance and upon the modification . we recognized total revenues of $ 65.4 million in connection with the celgene collaboration during the year ended december 31 , 2014. during 2014 , we received $ 20.1 million related to reimbursable development costs for our idh2 program . as of december 31 , 2014 , we have recorded a collaboration receivable of $ 6.5 million related to reimbursable development costs for this program for activities performed during the fourth quarter of 2014. we expect to receive additional consideration under our collaboration agreement with celgene related to certain development services to be performed . we will also receive an additional $ 20.0 million extension payment as a result of celgene electing to extend the discovery phase until april 2016. we may also receive future milestone or royalty payments under the celgene collaboration agreement . we expect that any revenue we generate from our collaboration agreement will fluctuate from quarter to quarter as a result of our analysis of each unit of accounting , primarily from the timing of revenue recognition related to the delivery of the license for ag-120 , and the uncertain timing and amount of milestone payments , royalties and other payments . 65 in the future , we will seek to generate revenue from a combination of product sales and upfront payments , extension payments , cost reimbursements , milestone payments , and royalties on future product sales in connection with our celgene collaboration or other strategic relationships . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts , and the development of our product candidates , which include : employee-related expenses including salaries , benefits , and stock-based compensation expense ; expenses incurred under agreements with third parties , including contract research organizations , or cros , that conduct research and development and both preclinical and clinical activities on our behalf and the cost of consultants ; the cost of lab supplies and acquiring , developing , and manufacturing preclinical and clinical study materials ; and facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance , and other operating costs . research and development costs are expensed as incurred . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . the following summarizes our most advanced current research and development programs . ag-221 : lead idh2 program ag-221 is an orally available , selective , potent inhibitor of the mutated idh2 protein , making it a highly targeted therapeutic candidate for the treatment of patients with cancers that harbor idh2 mutations , including those with aml . we have been evaluating ag-221 in several phase 1b dose escalation trials evaluating both hematological and solid tumor cancers with idh2 mutations . story_separator_special_tag to date , all clinical data reported by us highlights that the mechanism of response is consistent with preclinical studies , including substantial reduction of plasma 2hg levels , as well as evidence of cellular differentiation and normalization of cell counts in the bone marrow and blood . this differentiation effect is distinct from that seen with traditional chemotherapeutics commonly used to treat aml . we intend to begin a global registration program for ag-221 in 2015 for idh2-mutant positive hematologic malignancies . in june 2014 , celgene exercised its option to an exclusive global license for development and commercialization of ag-221and is responsible for all development and commercialization costs . ag-120 : lead idh1 program ag-120 is an orally available , selective , potent inhibitor of the mutated idh1 protein , making it a highly targeted therapeutic candidate for the treatment of patients with cancers that harbor idh1 mutations . mutations in idh1 have been identified in difficult to treat hematologic and solid tumor cancers , including aml , chondrosarcoma and cholangiocarcinoma where both the treatment options and prognosis for patients are poor . in march 2014 , we initiated two phase 1 studies for ag-120 , one in patients with advanced hematologic malignancies and the second in patients with advanced solid tumors ; both trials are only enrolling patients that carry an idh1 mutation . in november 2014 , we reported initial clinical data from the ongoing ag-120 phase 1 study in advanced hematologic malignancies . the clinical data reported by us highlights that the mechanism of response is consistent with the early clinical data observed in our ag-221 program and preclinical studies , including substantial reduction of plasma 2hg levels , as well as evidence of cellular differentiation and normalization of cell counts in the bone marrow and blood . this differentiation effect is distinct from that seen with traditional chemotherapeutics commonly used to treat aml . based on these findings , we plan to initiate multiple expansion cohorts in the first half of 2015. we intend to initiate a global registration program for ag-120 in idh1-mutant positive hematologic malignancies by early 2016 . 66 in january 2015 , celgene agreed to exercise it exclusive option to license development and commercialization rights to ag-120 outside the united states , subject to receipt of any required regulatory approvals including any applicable clearance under the hart-scott-rodino act . we had previously elected to exercise our option to retain development and commercialization rights to ag-120 in the u.s. in january 2014. upon celgene 's exercise of its exclusive option under the terms of our agreement , celgene would lead development and commercialization outside the united states for ag-120 , and we and celgene would equally fund the global development costs of ag-120 that are not specific to any particular region or country . celgene would be responsible for development and commercialization costs specific to countries outside the united states , and we would be responsible for development and commercialization costs specific to the united states . celgene would be eligible to receive royalties on any net sales in the u.s. we would be eligible to receive royalties on any net sales outside the u.s. and up to $ 120.0 million in payments on achievement of certain milestones . ag-348 : lead pyruvate kinase deficiency program our lead rgd program relates to certain genetic defects of the pyruvate kinase enzyme causing a form of hemolytic anemia known as pyruvate kinase deficiency , or pk deficiency . ag-348 is an orally available , potent small molecule activator of the pkr enzyme , an isoform of pk that when mutated leads to pk deficiency , making ag-348 a highly targeted therapeutic candidate for the treatment of patients with pk deficiency . in april 2014 , we initiated a single ascending dose , or sad , escalation phase 1 clinical trial for ag-348 in healthy volunteers and in june 2014 , we initiated a multiple ascending dose , or mad , escalation phase 1 clinical trial for healthy volunteers . the sad trial is complete and met its primary endpoint . the mad trial also met its primary endpoint , and recently completed dosing . the primary endpoint was to identify a safe and pharmacodynamically active dose and schedule for ag-348 to be used in subsequent clinical studies in patients with pyruvate kinase deficiency . in december 2014 , we reported first clinical data from the phase 1 sad and mad clinical trials of ag-348 . these results provided early proof-of-mechanism for ag-348 as a novel , first-in-class , oral activator of both wild-type ( normal ) and mutated pkr enzymes . we expect to provide final results from the mad study in 2015 and to initiate a phase 2 study of ag-348 in patients with pk deficiency in the first half of 2015. a natural history study of pk deficiency is also ongoing and patient enrollment is on track . we expect to provide the first data from the natural history study in 2015. we have worldwide development and commercial rights to ag-348 and expect to fund the future development and commercialization costs related to this program . other research and platform programs other research and platform programs include activities related to exploratory efforts , target validation , lead optimization for our discovery and follow-on programs and our proprietary metabolomics platform . we use our employee and infrastructure resources across multiple research and development programs , and we allocate internal employee-related and infrastructure costs , as well as certain third-party costs , to each of these programs based on the personnel resources allocated to such program . our research and development expenses , by major program , are outlined in the table below : replace_table_token_6_th 67 the successful development of our product candidates is highly uncertain . as such , 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 remainder of the development of these product candidates .
| liquidity and capital resources sources of liquidity since our inception , and through december 31 , 2014 , we have raised net proceeds of approximately $ 757.6 million to fund our operations , of which approximately $ 181.2 million was received through upfront , 76 extension , and cost reimbursement payments related to our collaboration agreement with celgene , approximately $ 120.0 million was received from the issuance of preferred stock , $ 111.0 million was received from the ipo , after deducting underwriting discounts , commissions , and expenses , approximately $ 12.8 million was received from the concurrent private placement of common stock to an affiliate of celgene , $ 94.7 million was received through our april 2014 follow-on offering after deducting underwriting discounts , commissions and expenses , and $ 237.9 million was received through our december 2014 follow-on offering after deducting underwriting discounts , commissions and expenses . in addition to our existing cash , cash equivalents and marketable securities , we are eligible to earn a significant amount of milestone payments and are entitled to cost reimbursement under our collaboration agreement with celgene . our ability to earn the milestone payments and cost reimbursements and the timing of earning these amounts are dependent upon the timing and outcome of our development , regulatory , and commercial activities and are uncertain at this time . our right to payments under our collaboration agreement is our only committed potential external source of funds . cash flows the following table provides information regarding our cash flows for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_9_th net cash used in operating activities the use of cash in all periods resulted primarily from funding our net losses adjusted for non-cash charges and changes in components of working capital . net cash used in operating activities was $ 59.4 million during the year ended december 31 , 2014 compared to $ 56.4 million during the year ended december 31 , 2013. the increase in cash used in operating activities was primarily attributable to increased operating expenses which primarily relate to increases in clinical study costs due
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u.s. dvh procedure volume grew from approximately 140,000 cases in 2011 to approximately 176,000 cases in 2012 to approximately 191,000 cases in 2013 , of which approximately 41,000 were for the treatment of cancer and approximately 150,000 were related to benign conditions . the lower 2013 u.s. gynecology procedure growth rate reflected a number of factors including , but not limited to , dvh for cancer approaching standard of care penetration levels , apparent pressure on benign gynecology hospital admissions , negative media reports , and a trend by payers toward encouraging conservative disease management and treatment in outpatient settings . we estimate the total annual u.s. addressable robotic hysterectomy market to consist of approximately 300,000 procedures previously performed via open surgery , of which approximately 50,000 are for cancer . based upon procedure run rates exiting 2013 , general surgery is now our second largest and fastest growing specialty in the u.s. overall u.s. general surgery procedure volume grew from approximately 15,000 cases in 2011 to approximately 42,000 in 2012 and to approximately 81,000 in 2013. over 800 customers have purchased da vinci single-site instrumentation through the end of 2013. u.s. urology procedure volume was approximately 85,000 in 2013 , compared to approximately 88,000 in 2012 , and 93,000 in 2011. we consider dvp to be the standard of care for the surgical treatment of prostate cancer in the u.s. about 58,000 dvps were performed in 2013 , compared to 62,000 in 2012 , and 73,000 in 2011. the approximately 15 % reduction in 2012 dvp procedures in the u.s. were caused by the u.s. preventive services task force recommendation against prostate-specific antigen ( “ psa ” ) screening , as well as changes in treatment pattern for low risk prostate cancer away from definitive treatment . u.s. dvp volumes appear to have stabilized throughout 2013. international procedures overall international procedure volume grew to approximately 101,000 in 2013 , compared to approximately 83,000 in 2012 and 68,000 in 2011 . dvp accounted for the majority of international procedures , having grown from about 40,000 in 2011 , to 47,000 in 2012 , and to 56,000 in 2013. growth in international dvp was driven by higher procedure volumes in japan , italy , the united kingdom and australia . procedure seasonality the majority of da vinci procedures performed are now for benign conditions , most notably benign hysterectomies . the proportion of these benign procedures is growing in relation to the total number of procedures performed . hysterectomies for benign conditions and other short-term elective procedures tend to be more seasonal than cancer operations and surgeries for other life threatening conditions . seasonality for these benign procedures results in higher fourth quarter procedure volume when more patients have met annual deductibles and lower first quarter procedure volume when deductibles are reset . third quarter activity is also slower given vacation periods , particularly in europe . as we achieve deeper penetration in certain procedures , seasonality has a more substantial impact on our business . business model we generate revenue from both the initial capital sales of da vinci surgical systems as well as recurring revenue , derived from sales of instruments , accessories and service . the da vinci surgical system generally sells for between $ 1.0 million and $ 2.3 million , depending upon configuration and geography , and represents a significant capital equipment investment for our customers . we generate recurring revenue as our customers consume our endowrist and single-site instruments 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 are replaced . we also generate recurring revenue from ongoing system service . we typically enter into service contracts at the time systems are sold at an annual rate of approximately $ 100,000 to $ 170,000 per year , depending upon the configuration of the underlying system . these service contracts have generally been renewed at the end of the initial contractual service periods . recurring revenue has generally grown at a faster rate than the rate of growth of system revenue . recurring revenue increased from $ 979.5 million , or 56 % of total revenue in 2011 to $ 1,245.9 million , or 57 % of total revenue in 2012 to $ 1,430.2 million , or 63 % of total revenue in 2013 . the increase in recurring revenue relative to system revenue reflects lower 2013 system sales and continuing adoption of procedures on a growing base of installed da vinci surgical systems . the installed base of da vinci surgical systems has grown to 2,966 at december 31 , 2013 , compared with 2,585 at december 31 , 2012 , and 2,132 at december 31 , 2011 . we provide our products through a direct sales organization in the u.s. and in europe , excluding spain , italy , greece and eastern european countries . in january 2012 , we acquired our korean distributor and began selling directly to korean customers . 38 beginning in 2013 , we began to provide our products through a direct sales organization in the czech republic , slovakia and hungary , whereas prior to 2013 , these markets were served by a distributor . in the remainder of our world markets , we provide our products through distributors . regulatory activities we believe that we have obtained the clearances required to market our multiport products to our targeted surgical specialties within the u.s. and most of europe . as we make additions to target procedures and introduce new products , we will continue to seek necessary clearances . in february 2013 , we received fda clearance to market our single-site instruments for benign hysterectomy and salpingo oophorectomy procedures . story_separator_special_tag fda clearance for single-site cholecystectomy was received in december 2011. in september 2013 , we received fda clearance to expand the indication for use for firefly to include visual assessment of at least one of the major extra-hepatic bile ducts ( cystic duct , common bile duct and common heptatic duct ) , using near infrared imaging . fluorescence imaging of biliary ducts with the da vinci fluorescence imaging vision system is intended for use with standard of care white light and , when indicated , intraoperative cholangiography . the device is not intended for standalone use for biliary duct visualization . we believe that the use of firefly during cholecystectomy procedures will enhance the ability of surgeons to identify key anatomical structures during the surgery . in november 2009 , we received shonin approval from the japanese ministry of health , labor , and welfare ( “ mhlw ” ) for our da vinci s surgical system in japan . until april 2012 , we had partnered with the experienced regulatory team from johnson & johnson k.k . medical company ( “ jjkk ” ) to assist in navigating the japanese regulatory process . in april 2012 , the marketing authorization application for da vinci products was transferred to intuitive surgical japan from jjkk , and intuitive surgical japan now has primary responsibility for regulatory support of our products in japan . we continue to partner with adachi co. , ltd as our separate independent distribution partner for marketing , selling , and servicing our products in japan . effective april 2012 , we obtained national reimbursement for the dvp procedures in japan , our only reimbursed procedure to date . in japan additional procedures are considered for reimbursed status in april of even numbered years as the mhlw considers recommendations and data brought forth from japanese surgical societies . we do not expect any additional procedures to be granted reimbursement status in the april 2014 cycle . we are supporting the japanese surgical societies to gather the necessary data for mhlw consideration for reimbursement of additional procedures in the april 2016 cycle . in october 2012 , we obtained mhlw approval for da vinci si surgical systems in japan . if we are not successful in obtaining additional regulatory clearances , importation licenses , and adequate procedure reimbursements for future products and procedures , then the demand for our products in japan could be limited . fda inspection a fda inspection of the company 's facilities occurred in april-may 2013 and the fda issued a form fda 483 listing four observations relating to the reporting of field corrections , information which is to be included on reports of field corrections , written procedures for changes to certain product labeling , and design input documentation . we responded to each observation with corrective actions during the course of the inspection and provided additional evidence of corrective actions to the fda in response to the form fda 483. the fda issued a warning letter , dated july 16 , 2013 , related to two of the four form fda 483 observations asking for additional corrective actions and indicated their intent to perform a follow-up inspection . we have responded to the warning letter with plans for corrective action , and continue to provide supplemental responses with objective evidence of corrections as they are completed . in addition , the fda collected electronic samples of all our advertising and promotional material for review , and to date have taken no action in connection therewith . however , we can not assure that , upon re-inspection , the fda will find that our corrective actions are acceptable or that they have been adequately implemented . we also can not assure that the fda will not find other observations . the fda previously inspected our sunnyvale , ca facilities in january 2012 and did not issue a form fda 483 as a result of this inspection . the receipt of a warning letter places certain limits on the ability to obtain fda issued certificates to foreign government used for new and re-registration of products in certain foreign countries . medical device reporting in september of 2012 we contacted the office of surveillance and biometrics ( “ osb ” ) in the fda center for devices and radiological health ( “ cdrh ” ) regarding proposed changes to our reporting practices for non-injury malfunction medical device reports ( “ mdrs ” ) . in addition we discussed summary reporting for well characterized events . as a result of the proposed changes , we have increased our reports of device malfunction mdrs , the vast majority of which are related to instruments and not to systems . by definition , none of these device malfunction mdrs involve reportable injuries or deaths . these mdrs are posted on the fda manufacturer and user facility device experience ( “ maude ” ) database . in addition , claims brought to our attention by plaintiffs ' attorneys , which contain allegations of patient injury , are required to be investigated . in those cases in which da vinci was used and the system can not yet be ruled out as a cause of the alleged injury , these cases are reported to the fda as mdrs . this has led to increases in mdrs . 39 we will continue to work with the fda , cdrh and osb to establish agreement on reporting criteria and to complete any retrospective reporting that may be required as a result of new criteria . we can not predict when this work will be completed as it is highly dependent on fda questions and the acceptance of our responses and data . recalls and corrections medical device companies have regulatory obligations to correct or remove medical devices in the field which have factors which could pose a risk to health .
| u.s. dvp volumes appear to have stabilized throughout 2013 , with a gradually decreasing trend . revenue generated in the u.s. accounted for 72 % , 79 % and 78 % of total revenue during the years ended december 31 , 2013 , 2012 and 2011 , respectively . we believe domestic revenue has accounted for the large majority of total revenue primarily due to the ability of patients to choose their provider and method of treatment in the u.s. our international revenue grew in proportion to u.s. revenue in 2013 , primarily due to higher system sales in the japanese and european markets , higher international instrument and accessory sales driven by increased procedures and lower 2013 system sales in the u.s. 43 the following table summarizes our revenue and da vinci surgical system unit sales information for the years indicated ( in millions , except unit sales and percentages ) : replace_table_token_4_th product revenue product revenue increased to $ 1,867.8 million during the year ended december 31 , 2013 , from $ 1,836.2 million during the year ended december 31 , 2012 . instruments and accessories revenue increased to $ 1,032.9 million for the year ended december 31 , 2013 , up 14 % compared with $ 903.3 million for the year ended december 31 , 2012 . the increase in revenue was driven by an approximate 16 % increase in procedure volume and , to a lesser extent , higher initial instrument and accessory orders associated with recently released products , including da vinci single-site , the endowrist one vessel sealer , and firefly fluorescence imaging products , partially offset by lower initial instrument and accessory stocking orders associated with lower 2013 system units sales and procedure mix . the growth in our overall procedure volume was driven by growth in u.s. general surgery procedures , u.s. gynecologic procedures and international urology procedures , partially offset by a decline of approximately 6 % in u.s. dvp procedures . systems revenue decreased to $ 834.9 million during the
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due to the strong performance of our land development segment , which produced the lot sales and lead to the increase in water and wastewater taps sales , along with the recognition of the $ 6.3 million of other income from receipt of the reimbursables , net income increased to $ 6.8 million for fiscal 2020 compared to $ 4.8 million for fiscal 2019 , for an increase of 40 % . our business we are a diversified land and water resource development company . at our core we are an innovative and vertically integrated wholesale water and wastewater service provider that , in addition to owning and developing wholesale water and wastewater resources , develops a master planned community on land we own and to which we provide water and wastewater services . we have accumulated valuable water and land interests over the past 30 years and have developed an extensive network of wholesale water production , storage , treatment and distribution systems , and wastewater collection and treatment systems that we use to serve domestic , commercial and industrial customers in the denver metropolitan region . our primary land asset , sky ranch , is located in one of the most active development areas in the denver metropolitan region along the i-70 corridor , and we are developing lots at sky ranch for residential , commercial , retail , and light industrial uses . although we report our results of operations in two segments , our water and wastewater service segment and our land development segment , we operate these segments as a cohesive business designed to provide a cost effective , sustainable and value added business enterprise . water and wastewater water resources throughout the western united states and more prominently in colorado are a scarce and valuable resource . we own or control a portfolio of 29,500 acre-feet of groundwater and surface water supplies , 26,000 acre-feet of adjudicated reservoir sites , wastewater reclamation facilities , water treatment facilities , potable and raw water storage facilities , wells and water production facilities , and roughly 50 miles of water distribution and wastewater collection lines . our water supplies and wholesale facilities are located in southeast denver , in arapahoe county , an area which is limited in both water availability and infrastructure to produce , treat , store , and distribute water and wastewater , which we believe provides us with a unique competitive advantage in offering these services . we provide wholesale water and wastewater service to local governments , including the rangeview district , arapahoe county , the sky ranch cab , and elbert 86 district . our mission is to provide sustainable , reliable , high quality water to our customers and collect and treat wastewater using advance water treatment systems , which produce high quality reclaimed water we can reuse for outdoor irrigation and industrial demands . by using and reusing our water supplies , we seek to demonstrate good stewardship over our valuable water rights in the water-scarce denver , colorado region . we design , permit , construct , operate and maintain wholesale water and wastewater systems that we own or operate on behalf of governmental entities . we also design , permit , construct , operate and maintain retail distribution and collection systems that we own or operate on behalf of our governmental customers . additionally , we handle administrative functions , including meter reading , billing and collection of monthly water and wastewater revenues , regulatory water quality monitoring , sampling , testing , and reporting requirements to the colorado department of public health and environment . our water and wastewater service segment generates revenue from the following sources , described in greater detail in item 1 – business above : monthly water usage and wastewater treatment fees ; one-time water and wastewater tap ( connection ) fees ; construction and special facility funding fees ; consulting fees ; and industrial – oil and gas operation fees land development in 2017 , we launched our land development segment . we are actively developing the sky ranch master planned community located along the i-70 corridor to provide residential , commercial , retail , and light industrial lots . sky ranch is zoned to include up to 3,200 single-family and multifamily homes , parks , open spaces , trails , recreational centers , schools , and over two million square feet of retail , commercial and light industrial space just four miles south of dia . our land development activities include the design , permitting , and construction of all of the horizontal infrastructure , including , storm water , drainage , roads , curbs , sidewalks , parks , open space , trails and other infrastructure to deliver “ ready to build ” finished lots to home builders and commercial customers . our land development activities generate revenue from the sale of finished lots as well as construction revenues from activities where we construct infrastructure on behalf of others . land development revenues come from our home builder customers under specific agreements for the delivery of finished lots as well as reimbursements for the construction of public improvements , such as roads , curbs , storm water , drainage , sidewalks , parks , open space , trails etc. , which come from the local governmental entity , the sky ranch cab , subject to the approval and issuance of municipal bonds to fund such reimbursements . 33 our land development activities provide a strategic complement to our water and wastewater services because a significant component of any master planned community is providing high quality domestic water , irrigation water , and wastewater to the community . story_separator_special_tag having control over land and the water and wastewater services enables us to build infrastructure for potable water and irrigation distribution , wastewater and storm water collection , roads , parks , open spaces and other investments efficiently , and to manage delivery of these investments to match take-down commitments from our home builder customers without significant excess capacity in any of these investments . in june 2017 , we entered into separate contracts with three national home builders ( richmond american homes , taylor morrison , and kb home ) , pursuant to which we agreed to sell 506 total single-family , detached residential lots at the sky ranch property . we are obligated , pursuant to these contracts , to construct infrastructure and other improvements , such as roads , curbs and gutters , park amenities , sidewalks , street and traffic signs , water and sanitary sewer mains and stubs , storm water management facilities , and lot grading improvements for delivery of finished lots to each builder . we were also required to cause the rangeview district to install and construct wholesale infrastructure improvements ( i.e. , a wastewater reclamation facility and wholesale water facilities ) for the provision of water and wastewater service to the property . as of august 31 , 2020 , we have substantially completed all of the wholesale infrastructure improvements for the initial residential lots , which included the completion of a wastewater reclamation facility that can serve approximately 2,000 sfe 's in sky ranch before expansion . pursuant to various agreements , we provide financing to the rangeview district and the sky ranch districts ( through the sky ranch cab ) as described in note 14 – related party transactions to the accompanying consolidated financial statements for the majority of the improvements at sky ranch . in conjunction with approvals from arapahoe county for the sky ranch project , we , together with the rangeview district and or sky ranch districts and or the sky ranch cab , are obligated to maintain a deposit account with arapahoe county to ensure completion of certain public infrastructure improvements and to warranty the improvements for a one-year period following completion and delivery . as of august 31 , 2020 , $ 1.0 million remains on deposit , with the warranty period set to expire in october 2021. as of august 31 , 2020 , we have expended $ 33.5 million related to the development of the first filing of sky ranch out of the total estimated $ 35.8 million . we anticipate the remaining $ 2.3 million will be spent during our fiscal 2021. these amounts include estimated reimbursable costs of $ 29.0 million , for which we received a partial reimbursement of $ 10.5 million in november 2019. we believe the remaining $ 18.5 million remaining reimbursables from the sky ranch cab will be paid from future municipal bonds as the project continues to grow its assessed value and tax base . as of august 31 , 2020 , lot sales to home builders generated $ 35.1 million in cash payments , with the remaining $ 1.6 million paid in november 2020 , which combined represents the full $ 36.7 million sales price contracted for with the home builders . in addition , as of august 31 , 2020 , the sky ranch development produced $ 8.9 million of water and wastewater tap fees , and we expect that an additional $ 5.9 million of tap fees will be received during our fiscal 2021. in december 2020 , we expect to begin construction on the second filing at sky ranch , which is expected to include nearly 900 residential lots . subsequent to august 31 , 2020 , we entered into separate agreements with four home builders ( kb home , meritage homes , dr horton and challenger homes ) pursuant to which we agreed to sell 789 single-family attached and detached residential lots at the sky ranch property . due to our strong performance in phase one of the sky ranch project , we were able to realize a 30 % increase in our lot price from $ 75,000 for a 50 ' lot in phase one to $ 97,000 for the same 50 ' lot in phase two . this next filing at sky ranch will incorporate approximately 250 acres and is planned to be completed in four sub-phases . the timing of cash flows will include certain milestone deliveries , including , but not limited to , completion of governmental approvals for final plats , installation of wet utility public improvements , and final completion of lot deliveries . critical accounting policies and use of estimates 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 about future events that affect the amounts reported in the financial statements and accompanying notes . future events and their effects can not be determined with absolute certainty . therefore , the determination of estimates requires the exercise of judgment . actual results inevitably will differ from those estimates , and such differences may be material to the financial statements . the most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with the timing of revenue recognition , the impairment of water assets and other long-lived assets , fair value estimates and share-based compensation . below is a summary of these critical accounting policies . revenue recognition revenues derived from our water and wastewater services consist mainly of monthly metered wholesale water usage and wastewater treatment fees , tap fees , construction fees/special facility funding , and consulting fees . revenues derived from land development activities consist mainly of lot sales and project management service fees . revenue is recognized from our water and wastewater segment and land development segment as described below and further described in note 2 – summary of significant accounting policies to the accompanying consolidated financial statements .
| we sold 113 water and wastewater taps at sky ranch , one commercial water tap and six residential water taps at wild pointe during fiscal 2019 , which generated revenues of $ 3.6 million . we have 202 water and wastewater taps remaining to be sold in the first phase of the development at sky ranch , which we believe will be sold in our fiscal 2021. land development revenues – we broke ground on our first phase of sky ranch in march 2018. as of august 31 , 2020 , we completed construction on all 506 lots and delivered and received payment for 483 finished lots to home builders . we delivered the remaining lots on november 3 , 2020. during fiscal 2020 and 2019 , we received $ 16.6 million and $ 15.6 million in lot sale proceeds , for a total of $ 35.1 million since development started . during fiscal 2020 and 2019 , we recognized revenues of $ 18.9 million and $ 12.0 million using both the over time and point in time accounting methods . additionally , we have substantially completed improvements ( including over lot grading , water , sewer , and storm water ) , off-site improvements ( including drainage ) , and our entry roadway ( monahan road ) , for the remaining lots , and carry those investments , totaling $ 481,500 in land development inventories in our financial statements . as of october 31 , 2020 , the builders have sold 315 homes at sky ranch . based on current sales rates , we believe the initial filing at sky ranch will be sold out before the end of calendar 2021. we act as the project manager and provide all services required to deliver eligible improvements for the sky ranch cab . for these services , we charge a five percent ( 5 % ) project management fee calculated on actual construction of sky ranch cab eligible reimbursable improvements . no payment is required of the sky
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extended periods of low commodity prices , higher input costs or poor weather conditions could result in reduced profit margins , reducing demand for goods and services provided by agriculture-related businesses , which , in turn , could affect other businesses in the company 's market area . moreover , the recent changes in u.s. trade policy , including the imposition of tariffs by the u.s. government and retaliatory tariffs imposed in response by foreign governments , could create further volatility for commodities prices as the volume of exports of agricultural products to these foreign markets could be adversely impacted . lastly , uncertainty regarding governmental mandates affecting ethanol production could reduce the demand for corn in the company 's trade area , thus introducing further price volatility for this commodity . any combination of these factors could produce losses within the company 's agricultural loan portfolio and in the commercial loan portfolio with respect to borrowers whose businesses are directly or indirectly impacted by the health of the agricultural economy . key performance indicators certain key performance indicators for the company and the industry are presented in the following chart . the industry figures are compiled by the federal deposit insurance corporation ( fdic ) and are derived from 5,177 commercial banks and savings institutions insured by the fdic . management reviews these indicators on a quarterly basis for purposes of comparing the company 's performance from quarter to quarter against the industry as a whole . selected indicators for the company and the industry replace_table_token_2_th 24 key performance indicators include : ● return on assets this ratio is calculated by dividing net income by average assets . it is used to measure how effectively the assets of the company are being utilized in generating income . the company 's return on assets ratio is lower than that of the industry , primarily as a result of the company 's net interest margin being lower than the industry . ● return on equity this ratio is calculated by dividing net income by average equity . it is used to measure the net income or return the company generated for the shareholders ' equity investment in the company . the company 's return on equity ratio is lower than the industry primarily as a result of the company 's higher capital ratio and lower net interest margin as compared to the industry . ● net interest margin this ratio is calculated by dividing net interest income by average earning assets . earning assets consist primarily of loans and investments that earn interest . this ratio is used to measure how well the company is able to maintain interest rates on earning assets above those of interest-bearing liabilities , which is the interest expense paid on deposit accounts and other borrowings . the company 's net interest margin is slightly lower than the industry average . ● efficiency ratio this ratio is calculated by dividing noninterest expense by net interest income and noninterest income . the ratio is a measure of the company 's ability to manage noninterest expenses . the company 's efficiency ratio is slightly higher than the industry average . ● capital ratio the capital ratio is calculated by dividing average total equity capital by average total assets . it measures the level of average assets that are funded by shareholders ' equity . given an equal level of risk in the financial condition of two companies , the higher the capital ratio , generally the more financially sound the company . the company 's capital ratio is significantly higher than the industry average . story_separator_special_tag of $ 1 billion or more , residential real estate reserves declined by $ 831.4 million ( 8 % ) and commercial real estate reserves fell by $ 669.6 million ( 2 % ) . loan-loss reserves for credit card portfolios rose by $ 775.6 million ( 1.9 % ) from third quarter 2019 . 26 total assets increase from the previous quarter total assets increased by $ 163.4 billion ( 0.9 % ) from the previous quarter , primarily because of growth in loan and leases balances ( up $ 117.9 billion ) . banks increased their securities holdings by $ 45.5 billion ( 1.2 % ) , as mortgage-backed securities rose by $ 24.4 billion ( 1 % ) and holdings of u.s. treasury securities grew by $ 8.5 billion ( 1.4 % ) . cash and balances due from depository institutions rose by $ 40.6 billion ( 2.5 % ) . loan balances expand from the previous quarter and a year ago total loan and lease balances rose by $ 117.9 billion ( 1.1 % ) from third quarter 2019. more than half ( 59.2 % ) of all banks grew their loan and lease balances from the third quarter . almost all of the major loan categories registered quarterly increases , except for the c & i loan portfolio which registered the first quarterly decline since fourth quarter 2016 ( down $ 11 billion , or 0.5 % ) . quarterly growth among major loan categories was led by consumer loans ( up $ 58.2 billion , or 3.3 % ) , nonfarm nonresidential loans ( up $ 21.6 billion , or 1.4 % ) , and residential mortgage loans ( up $ 19.1 billion , or 0.9 % ) .3 over the past year , total loan and lease balances rose by $ 366.3 billion ( 3.6 % ) , slightly below the annual growth rate reported in third quarter 2019. the slowdown in annual growth of total loan and lease balances was led by the c & i loan portfolio , which expanded at its slowest rate since 2010 ( 1.9 % ) . deposits rise 1.8 % from the previous quarter total deposit balances increased by $ 258.4 billion ( 1.8 % ) from the previous quarter , as interest-bearing accounts rose by $ 216.3 billion ( 2.2 % ) and noninterest-bearing accounts grew by $ 22.6 billion ( 0.7 % ) . story_separator_special_tag deposits held in foreign offices increased by $ 19.5 billion ( 1.5 % ) . nondeposit liabilities , which include fed funds purchased , repurchase agreements , federal home loan bank ( fhlb ) advances , and secured and unsecured borrowings , fell by $ 69 billion ( 5 % ) from the previous quarter . the change in nondeposit liabilities was led by a decline in securities sold under agreements to repurchase ( down $ 30 billion , or 13.3 % ) , the largest quarterly dollar decline since fourth quarter 2013. fhlb advances were lower by $ 16.3 billion ( 3.3 % ) . equity capital increases from third quarter 2019 equity capital rose by $ 12.8 billion ( 0.6 % ) from third quarter 2019. fourth quarter 2019 declared dividends of $ 49.1 billion were below quarterly net income of $ 55.2 billion . common equity tier 1 ratio increased by 5 basis points from a year ago to 13.21 % . fourteen insured institutions with $ 1.8 billion in total assets were below the requirements for the well-capitalized category as defined for prompt corrective action purposes . three new banks are added in fourth quarter 2019 the number of fdic-insured commercial banks and savings institutions declined from 5,258 to 5,177 during fourth quarter 2019. three new banks were added , 77 institutions were absorbed by mergers , and three banks failed . for full-year 2019 , 13 new banks were added , 226 institutions were absorbed by mergers , and four banks failed . the number of institutions on the fdic 's “ problem bank list ” fell from 55 at the end of third quarter to 51 at the end of fourth quarter , the lowest level since fourth quarter 2006. aggregate total assets of problem banks declined from $ 48.8 billion in third quarter 2019 to $ 46.2 billion in fourth quarter 2019. critical accounting policies the discussion contained in this item 7 and other disclosures included within this annual report are based on the company 's audited consolidated financial statements which appear in item 8 of this annual report . these statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the financial information contained in these statements is , for the most part , based on the financial effects of transactions and events that have already occurred . however , the preparation of these statements requires management to make certain estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . the company 's significant accounting policies are described in the “ notes to consolidated financial statements ” accompanying the company 's audited financial statements . based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments , management has identified the allowance for loan losses , the fair value determination of investment securities and the assessment of goodwill to be the company 's most critical accounting policies . 27 allowance for loan l osses the allowance for loan losses is established through a provision for loan losses that is treated as an expense and charged against earnings . loans are charged against the allowance for loan losses when management believes that collectability of the principal is unlikely . the company has policies and procedures for evaluating the overall credit quality of its loan portfolio , including timely identification of potential problem loans . on a quarterly basis , management reviews the appropriate level for the allowance for loan losses , incorporating a variety of risk considerations , both quantitative and qualitative . quantitative factors include the company 's historical loss experience , delinquency and charge-off trends , collateral values , known information about individual loans and other factors . qualitative factors include various considerations regarding the general economic environment in the company 's market area . to the extent actual results differ from forecasts and management 's judgment , the allowance for loan losses may be greater or lesser than future charge-offs . due to potential changes in conditions , it is at least reasonably possible that change in estimates will occur in the near term and that such changes could be material to the amounts reported in the company 's financial statements . for further discussion concerning the allowance for loan losses and the process of establishing specific reserves , see the section of this annual report entitled “ asset quality review and credit risk management ” and “ analysis of the allowance for loan losses ” . fair value of investment securities the company 's securities available-for-sale portfolio is carried at fair value with “ fair value ” being defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . a fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or , in the absence of a principal market , the most advantageous market for the asset or liability . the price in the principal ( or most advantageous ) market used to measure the fair value of the asset or liability is not adjusted for transaction costs . an orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities ; it is not a forced transaction . market participants are buyers and sellers in the principal market that are ( i ) independent , ( ii ) knowledgeable , ( iii ) able to transact , and ( iv ) willing to transact . goodwill goodwill arose in connection with various acquisitions , most recently in 2019 and 2018. goodwill is tested annually for impairment or more often if conditions indicate a possible impairment .
| the annual decline in nim occurred for all five asset size groups featured in the quarterly banking profile but was especially pronounced among banks with total assets between $ 10 billion and $ 250 billion . banks responded to the low interest-rate environment by growing longer-term assets , but these assets generated lower yields and contributed to the nim decline . noninterest expense increases 3.2 % from fourth quarter 2018 noninterest expense was $ 121.5 billion in fourth quarter 2019 , up $ 3.7 billion ( 3.2 % ) from fourth quarter 2018. about two out of every three banks ( 67.5 % ) reported annual increases in noninterest expense . close to 80 % of the aggregate increase was attributable to higher salary and employee benefits , which grew by $ 2.9 billion ( 5.4 % ) . the average assets per employee increased from $ 8.7 million in fourth quarter 2018 to $ 9 million in fourth quarter 2019. noninterest income expands 2.5 % from 12 months ago noninterest income totaled $ 66 billion during the fourth quarter , up $ 1.6 billion ( 2.5 % ) from 12 months ago . the increase was broad-based , as more than half ( 61.8 % ) of all banks reported higher annual noninterest income . the annual increase was driven by higher trading revenues ( up $ 3.2 billion , or 76.4 % ) and net gains on loan sales ( up $ 1.1 billion , or 41.6 % ) . loan-loss provisions increase modestly from a year ago in the fourth quarter , banks set aside $ 14.8 billion in loan-loss provisions , an increase of $ 779 million ( 5.5 % ) from a year ago . more than one-third ( 38.4 % ) of all banks reported year-over-year increases in loan-loss provisions . the increase was mostly concentrated at larger institutions . loan-loss provisions as a share of net operating revenue increased to 7.3 % during the fourth quarter , the highest level since year-end 2012. net charge-offs rise by $ 1.3 billion from a year ago net charge-offs totaled $ 13.9 billion during the fourth quarter , an increase of $ 1.3 billion ( 10.4 % ) from fourth quarter 2018 .
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actual results could differ materially using different estimates and assumptions , or if conditions are significantly different in the future . allowance for accounts receivable . we evaluate the collectability of our accounts receivable based on a combination of factors . in circumstances where we are aware of a specific customer 's inability to meet its financial obligations to us , we record a specific allowance for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected . in addition , we recognize allowances for bad debts based on the length of time receivables are past due with allowance percentages , based on our historical experiences , applied on a graduated scale relative to the age of the receivable amounts . if circumstances change ( e.g. , higher than expected bad debt experience or an unexpected material adverse change in a major customer 's ability to meet its financial obligations to us ) , our estimates of the recoverability of amounts due to us could change by a material amount . inventory reserves . reserves for slow moving and obsolete inventories are provided based on historical experience , inventory aging and product demand . we continuously evaluate the adequacy of these reserves and make adjustments to these reserves as required . we also evaluate reserves for losses under firm purchase commitments for goods or inventories . 20 net assets held for sale . net assets held for sale represent land , buildings and land improvements less accumulated depreciation . we record net assets held for sale in accordance with accounting standards codification ( asc ) 360 property , plant , and equipment , at the lower of carrying value or fair value less cost to sell . fair value is based on the estimated proceeds from the sale of the facility utilizing recent purchase offers , market comparables and or data obtained from our commercial real estate broker . our estimate as to fair value is regularly reviewed and subject to changes in the commercial real estate markets and our continuing evaluation as to the facility 's acceptable sale price . goodwill , other intangible assets and other long-lived assets . we account for goodwill in accordance with asc 350 , intangiblesgoodwill and other. under asc 350 , purchased goodwill and intangible assets with indefinite lives are not amortized , but instead are tested for impairment either annually or when events and circumstances indicate an impairment may have occurred . our reporting units contain goodwill and indefinite-lived intangibles that are assessed for impairment . a reporting unit is the operating segment , or a business one level below that operating segment ( the component level ) if discrete financial information is prepared and regularly reviewed by segment management . however , components are aggregated as a single reporting unit if they have similar economic characteristics . intangible assets with finite lives , primarily customer relationships , patents , non-competition agreements and trademarks , continue to be amortized over their useful lives . in conducting the annual impairment tests , the estimated fair value of our reporting units is compared to its carrying amount including goodwill . if the estimated fair value exceeds the carrying amount , then no impairment exists . if the carrying amount exceeds the estimated fair value , further analysis is performed to assess impairment . our determination of estimated fair value of the reporting units is based on a discounted cash flow analysis utilizing the income approach . under this method , the principal valuation focus is on the reporting unit 's cash-generating capabilities . the discount rates used for impairment testing are based on our weighted average cost of capital . the use of alternative estimates , peer groups or changes in the industry , or adjusting the discount rate , earnings before interest , taxes , depreciation , depletion and amortization ( ebitda ) multiples or price earnings ratios used could affect the estimated fair value of the assets and potentially result in impairment . any identified impairment would result in an adjustment to our results of operations . we performed our annual impairment tests in fiscal 2012 , 2011 , and 2010 , which resulted in no impairment charges . properties , plants and equipment . depreciation on properties , plants and equipment is primarily provided on the straight-line method over the estimated useful lives of our assets . we own timber properties in the southeastern united states and in canada . with respect to our united states timber properties , which consisted of approximately 270,100 acres as of october 31 , 2012 , depletion expense is computed on the basis of cost and the estimated recoverable timber acquired . our land costs are maintained by tract . merchantable timber costs are maintained by five product classes , pine saw timber , pine chip-n-saw , pine pulpwood , hardwood sawtimber and hardwood pulpwood , within a depletion block , with each depletion block based upon a geographic district or subdistrict . currently , we have eight depletion blocks . these same depletion blocks are used for pre-merchantable timber costs . each year , we estimate the volume of our merchantable timber for the five product classes by each depletion block . these estimates are based on the current state in the growth cycle and not on quantities to be available in future years . our estimates do not include costs to be incurred in the future . we then project these volumes to the end of the year . upon acquisition of a new timberland tract , we record separate amounts for land , merchantable timber and pre-merchantable timber allocated as a percentage of the values being purchased . these acquisition volumes and costs acquired during the year are added to the totals for each product class within the appropriate depletion block ( s ) . story_separator_special_tag the total of the beginning , one-year growth and acquisition volumes are divided by the total undepleted historical cost to arrive at a depletion rate , which is then used for the current year . as timber is sold , we multiply the volumes sold by the depletion rate for the current year to arrive at the depletion cost . our canadian timber properties , which consisted of approximately 11,860 acres as of october 31 , 2012 , did not have any depletion expense since they were not actively managed at this time . we believe that the lives and methods of determining depreciation and depletion are reasonable ; however , using other lives and methods could provide materially different results . as of october 31 , 2012 , 2011 and 2010 , we recorded capitalized interest costs of $ 2.7 million , $ 3.8 million and $ 5.3 million , respectively . restructuring reserves . restructuring reserves are determined in accordance with appropriate accounting guidance , including asc 420 , exit or disposal cost obligations. under asc 420 , a liability is measured at its fair value and recognized as incurred . income taxes . we record a tax provision for the anticipated tax consequences of our reported results of operations . in accordance with asc 740 , income taxes the provision for income taxes is computed using the asset and liability method , under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating losses and tax credit carryforwards . deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled . we record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized . our effective tax rate is based on income , statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate . significant judgment is required in determining our effective tax rate and in evaluating our tax positions . 21 we have been providing a valuation allowance against deferred tax assets as required under asc 740. during 2012 , this valuation allowance increased by $ 11.6 million , primarily due to an increase related to net operating loss carryforwards outside the u.s. we reevaluate our ability to use net operating losses on an annual basis . in accordance with asc 740 , income taxes , we believe it is more likely than not that forecasted income , including income that may be generated as a result of certain tax planning strategies , together with the tax effects of the deferred tax liabilities , will be sufficient to fully recover the remaining deferred tax assets . in the event that all or part of the net deferred tax assets are determined not to be realizable in the future , an adjustment to the valuation allowance would be charged to earnings , in the period such determination is made . in addition , the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of asc 740 and other complex tax laws . resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition and operating results . during 2012 we decreased tax liabilities primarily due to a prior year issue in a non-u.s. jurisdiction where a settlement was made with the tax authorities . refer to note 12 to the notes to consolidated financial statements in item 8 of this form 10-k for further discussion . a number of years may elapse before a particular matter , for which we have established a reserve , is audited and finally resolved . the number of years with open tax audits varies depending on the tax jurisdiction . while it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter , we believe that our reserves reflect the probable outcome of known tax contingencies . unfavorable settlement of any particular issue would require use of our cash . favorable resolution would be recognized as a reduction to our effective tax rate in the period of resolution . we have estimated the reasonably possible expected net change in unrecognized tax benefits through october 31 , 2012 based on lapses of the applicable statutes of limitation on unrecognized tax benefits . the estimated net decrease in unrecognized tax benefits for the next 12 months ranges from $ 0 to $ 28.0 million . actual results may differ from this estimated range . pension and postretirement benefits . pension and postretirement assumptions are significant inputs to the actuarial models that measure pension and postretirement benefit obligations and related effects on operations . two assumptions discount rate and expected return on assets are important elements of plan expense and asset/liability measurement . we evaluate these critical assumptions at least annually on a plan and country-specific basis . at least annually , we evaluate other assumptions involving demographic factors , such as retirement age , mortality and turnover , and update them to reflect our experience and expectations for the future . actual results in any given year will often differ from actuarial assumptions because of economic and other factors . accumulated and projected benefit obligations are measured as the present value of future cash payments . we discount those cash payments using the weighted average of market-observed yields for high quality fixed income securities with maturities that correspond to the payment of benefits . lower discount rates increase present values and subsequent-year pension expense ; higher discount rates decrease present values and subsequent-year pension expense .
| ebitda was $ 300.6 million and $ 331.8 million for 2011 and 2010 , respectively . this decrease was due to lower gross profit margin and an increase in restructuring and acquisition-related costs . depreciation , depletion and amortization expense was $ 93.0 million for 2011 compared with $ 79.1 million for 2010. flexible products & services our flexible products & services segment offers a comprehensive line of flexible products , such as flexible intermediate bulk containers and multiwall bags . key factors influencing profitability in the flexible products & services segment are : selling prices , customer demand and sales volumes ; raw material costs , primarily resin and containerboard ; energy and transportation costs ; benefits from executing the greif business system ; restructuring charges ; and impact of foreign currency translation . net sales were $ 538.0 million for 2011 compared with $ 233.1 million for 2010. the $ 304.9 million increase was primarily due to same-structure growth and sales attributable to flexible intermediate bulk contained companies acquired in 2010 . 31 gross profit was $ 115.0 million and $ 49.2 million for 2011 and 2010 , respectively . gross profit margin increased to 21.4 percent for 2011 from 21.1 percent for 2010. the change in gross profit margin was primarily due to operating efficiencies attributable to the greif business system . there was an operating profit of $ 16.9 million for 2011 compared with an operating loss of $ 1.3 million for 2010. the increase was primarily due to acquisitions during 2010 and the improved gross profit margins for this segment . operating profit before special items increased to $ 41.3 million for 2011 from $ 18.8 million for 2010. ebitda was $ 32.1 million and $ 2.4 million for 2011 and 2010 , respectively . the increase was primarily due to acquisitions during 2010 and the improved gross profit margins for this segment . depreciation , depletion and amortization expense was $ 16.6 million for 2011 compared with $ 4.9 million for
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subsequently in 2019 , the bank expanded its presence in the greater philadelphia and new york city markets . at december 31 , 2019 , co mmercial loans represented 66.9 % of the loan pipeline and 56.1 % of the bank 's total loans , as compared to 55.7 % and 42.6 % at december 31 , 2014 , respectively . commercial loan products entail a higher degree of credit risk than is involved in one-to-four family residential mortgage lending activity . as a consequence , management continues to employ a well-defined credit policy focusing on quality underwriting and close management and board monitoring . see “ risk factors – increased emphasis on commercial lending may expose the bank to increased lending risks . ” increasing core deposits the bank seeks to increase core deposit ( all deposits excluding time deposits ) market share in its primary market area by improving market penetration . core account development has benefited from bank efforts to attract business deposits in conjunction with its commercial lending operations and from an expanded mix of retail core account products . as a result of these efforts the bank 's core deposit ratio was 85.2 % at december 31 , 2019 , and the loan to deposit ratio was 98.1 % . enhancing non-interest income management continues to diversify the bank 's product line and expand related resources in order to enhance non-interest income . the bank is focused on growth opportuni ties in areas such as derivative contracts , trust and asset management and digital product offerings . the bank also offers investment products for sale through its retail branch network . in late 2018 , the bank replaced its third party broker/dealer investment sales program with a hybrid robo-advisor product offered by the bank 's partner , nest egg , a registered investment adviser . nest egg is an investment platform that helps define and reach financial goals by providing access to high quality and cost-effective investments . it includes web-based tools as well as access to personal financial advisors via phone , chat , or video . at december 31 , 2019 , the company had an ownership interest of less than 20 % in nestegg and a seat on the board of directors . branch rationalization and service delivery management continues to evaluate the bank 's branch network for consolidation opportunities . the bank anticipates at least 13 branch consolidations in 2020 , of which eight are a result of the two river merger . this follows the consolidation of eight and 17 branches in 2019 and 2018 , respectively . in addition to branch consolidation , the bank is adapting to the industry wide trend of declining branch activity by transitioning to a universal banker staffing model , with a smaller branch staff handling sales and service transactions , as well as increasing the marketing of products that feature digital and mobile service . in certain locations , routine transactions are handled through “ video teller machines , ” an advanced technology with live team members in a remote location performing transactions for multiple video teller machines . the bank is also investing in multiple digital services to enhance the customer experience and improve security . at december 31 , 2019 , a majority of the branch staff were trained as certified digital bankers to better support customers use and adoption of digital services . capital management in addition to the objectives described above , the company actively manages its capital position to improve return on tangible equity . the company has , over the past few years , implemented or announced , five stock repurchase programs . the most recent plan to repurchase up to 5 % of outstanding common stock was announced on december 18 , 2019 to repurchase up to an additional 2.5 million shares . this amount is in addition to the remaining 167,996 shares available under the 2017 repurchase program . for the year ended december 31 , 2019 , the company repurchased 1.1 million shares of its common stock under these repurchase programs . at december 31 , 2019 , 2.7 million shares remain available for repurchase . 36 story_separator_special_tag include all loans modified as troubled debt restructurings . for collateral dependent loans , the specific allowance represents the difference between the bank 's recorded investment in the loan , net of any interim charge-offs , and the estimated fair value of the collateral , less estimated selling costs . impairment for all other impaired loans is calculated based on a combination of the estimated fair value of non-real estate collateral , personal guarantees , or the present value of the expected future cash flows . 37 generally , for collateral dependent real estate loans , the bank obtains an updated collateral appraisal once the loan is impaired . for impaired residential real estate loans , the appraisal is generally updated annually if the loan remains delinquent for an extended period . for impaired commercial real estate loans , the bank assesses whether there has likely been an adverse change in the collateral value supporting the loan . the bank utilizes information based on its knowledge of changes in real estate conditions in its lending area to identify whether a possible deterioration of collateral value has occurred . based on the severity of the changes in market conditions , management determines if an updated commercial real estate appraisal is warranted or if downward adjustments to the previous appraisal are warranted . if it is determined that the deterioration of the collateral value is significant enough to warrant ordering a new appraisal , an estimate of the downward adjustments to the existing appraised value is used in assessing if additional specific reserves are necessary until the updated appraisal is received . a general allowance is determined for all loans that are not individually evaluated for impairment ( excluding acquired loans that have not been renewed under the bank 's underwriting criteria ) . story_separator_special_tag in determining the level of the general allowance , the bank segments the loan portfolio into the following portfolio segments : residential real estate ; consumer ; investor-owned commercial real estate ; owner-occupied commercial real estate ; construction and land ; and commercial and industrial . the portfolio segments are further segmented by delinquency status or risk rating . an estimated loss factor is then applied to the outstanding principal loan balance of the delinquency status or risk rating category for each portfolio segment . to determine the loss factor , the bank utilizes historical loss experience adjusted for certain qualitative factors and the loss emergence period . the bank 's historical loss experience is based on a rolling 36-month look-back period for each portfolio segment . the look-back period was selected based on ( 1 ) management 's judgment that this period captures sufficient loss events ( in both dollar terms and number of individual events ) to be relevant ; and ( 2 ) that the bank 's underwriting criteria and risk characteristics have remained relatively stable throughout this period . the historical loss experience is adjusted for certain qualitative factors including , but not limited to , ( 1 ) delinquency trends , ( 2 ) net charge-off trends , ( 3 ) nature and volume of the loan portfolio , ( 4 ) loan policies and underwriting standards , ( 5 ) experience and ability of lending personnel , ( 6 ) concentrations of credit , ( 7 ) loan review system , and external factors such as ( 8 ) changes in current economic conditions , ( 9 ) local competition and ( 10 ) regulation . economic factors that the bank considers in its estimate of the allowance for loan losses include : local and regional trends in economic growth , unemployment and real estate values . the bank considers the applicability of each of these qualitative factors in estimating the general allowance for each portfolio segment . each quarter , the bank considers the current conditions for each of the qualitative factors , as well as a forward looking view on trends and events , to support an assessment unique to each portfolio segment . the bank calculates and analyzes the loss emergence period on an annual basis or more frequently if conditions warrant . the bank 's methodology is to use loss events in the past 12 quarters to determine the loss emergence period for each loan segment . the loss emergence period is specific to each portfolio segment . it represents the amount of time that has elapsed between ( 1 ) the occurrence of a loss event , which resulted in a potential loss and ( 2 ) the confirmation of the potential loss , when the bank records an initial charge-off or downgrades the risk-rating of the loan to substandard . the bank also maintains an unallocated portion of the allowance for loan losses . the primary purpose of the unallocated component is to account for the inherent factors that can not be practically assigned to individual loss categories , including the periodic update of appraisals , subjectivity of the bank 's credit review and risk rating process , and economic conditions that may not be fully captured in the bank 's loss history or qualitative factors . upon completion of the aforementioned procedures , an overall management review is performed including ratio analyses to identify divergent trends compared with the bank 's own historical loss experience , the historical loss experience of the bank 's peer group , and management 's understanding of general regulatory expectations . based on that review , management may identify issues or factors that previously had not been considered in the estimation process , which may warrant further analysis or adjustments to estimated loss or qualitative factors applied in the calculation of the allowance for loan losses . of the bank 's loan portfolio , 92.2 % is secured by real estate , whether consumer or commercial . additionally , most of the bank 's borrowers are located throughout new jersey and the metropolitan areas of philadelphia and new york city . these concentrations may adversely affect the bank 's loan loss experience should local real estate values decline or should the markets served experience difficult economic conditions including increased unemployment or should the area be affected by a natural disaster such as a hurricane or flooding . management believes the primary risk characteristics for each portfolio segment are a decline in the general economy , including elevated levels of unemployment , a decline in real estate market values and rising interest rates . any one or a combination of these events may adversely affect the borrowers ' ability to repay their loans , resulting in increased delinquencies , loan charge-offs and higher provisions for loan losses . 38 although management believes that the bank has established and maintained the allowance for loan losses at adequate levels , additions may be necessary if future economic and other conditions differ substantially from the current operating environment . in addition , various regulatory agencies , as part of their examination process , periodically review the bank 's allowance for loan losses . such agencies may require the bank to make additional provisions for loan losses based upon information available to them at the time of their examination . although management uses what it believes to be the best information available , future adjustments to the allowance may be necessary due to economic , operating , regulatory and other conditions beyond the bank 's control . analysis of net interest income net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities . net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them .
| the company remains well-capitalized with a tangible common equity ratio of 9.71 % at december 31 , 2019 . critical accounting policies note 1 summary of significant accounting policies , to the company 's audited consolidated financial statements for the year ended december 31 , 2019 contains a summary of significant accounting policies . various elements of these accounting policies , by their nature , are inherently subject to estimation techniques , valuation assumptions and other subjective assessments . certain assets are carried in the consolidated statements of financial condition at estimated fair value or the lower of cost or estimated fair value . policies with respect to the methodology used to determine the allowance for loan losses are the most critical accounting policies because it is important to the presentation of the company 's financial condition and results of operations , involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters . the use of different judgments , assumptions and estimates could result in material differences in the results of operations or financial condition . critical accounting policies and their application are reviewed periodically and , at least annually , with the audit committee of the board of directors . allowance for loan losses the allowance for loan losses is a valuation account that reflects probable incurred losses in the loan portfolio . the adequacy of the allowance for loan losses is based on management 's evaluation of the bank 's past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral , current economic and regulatory conditions , as well as organizational changes . additions to the allowance arise from charges to operations through the provision for loan losses or from the recovery of amounts previously charged-off . the allowance is reduced by loan charge-offs . the allowance for loan losses is maintained at an amount management considers
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the loss in fiscal 2014 is due to certain minimal continued operating costs associated with the closure of the repair 18 group in the first quarter of fiscal 2014. income in fiscal 2013 was primarily due to the after-tax gain of $ 2.5 million on the sale of asc during the first quarter of fiscal 2013 , which was partially offset by an after-tax loss of $ 2.0 million due to the exiting of the repair group as of september 30 , 2013. net income net income decreased by $ 5.2 million , or 50.9 % , to $ 5.0 million , or 4.2 % of net sales , during fiscal 2014 , compared with $ 10.2 million , or 8.8 % of net sales , in fiscal 2013. net income decreased primarily due to higher selling , general and administrative expenses and lower gross margin as noted above . fiscal year 2013 compared with fiscal year 2012 net sales the company 's results for fiscal 2013 include the results of colorado springs from the date of its acquisition and the company 's results for fiscal 2012 include the results of orange from the date of its acquisition . net sales in fiscal 2013 increased 12.8 % to $ 116.0 million , compared to $ 102.9 million in fiscal 2012. net sales comparative information for fiscal 2013 and 2012 , respectively , is as follows : replace_table_token_5_th the increase in net sales of forged components for fixed wing aircraft and rotorcraft during fiscal 2013 compared to fiscal 2012 is principally due to additional sales volume from its base business , the impact of the acquisition of colorado springs during the fourth quarter of fiscal 2013 , along with the full year impact in fiscal 2013 of the acquisition of qaf during the first quarter of fiscal 2012. the increase in net sales of components for power generation units is due to organic growth and acquisition related synergies . commercial net sales were 52.4 % and military net sales were 47.6 % in fiscal 2013 compared to 50.2 % and 49.8 % in fiscal 2012 , respectively . the increase in commercial net sales is attributable to higher concentration of commercial sales and the acquisition of orange . despite the effect of sequestration , military net sales increased $ 3.7 million to $ 55.2 million in fiscal 2013 , compared to $ 51.5 million in fiscal 2012 , due to the continued demand of selective programs . the company 's aerospace components have both military and commercial applications . cost of goods sold cost of goods sold increased by $ 6.9 million , or 8.5 % , to $ 88.0 million during fiscal 2013 , compared to $ 81.1 million in fiscal 2012. the increase in the dollar amount of cost of goods sold in fiscal 2013 compared to fiscal 2012 was primarily due to organic sales growth and increased sales from acquisitions . gross profit gross profit increased by $ 6.2 million , or 28.5 % , to $ 28.0 million during fiscal 2013 , compared to $ 21.8 million in fiscal 2012. gross margin as a percentage of sales increased by 3.0 percentage points to 24.2 % during fiscal 2013 , compared to 21.2 % in fiscal 2012. the improvement in gross margin as a percentage of sales in fiscal 2013 compared to fiscal 2012 was primarily due to enriched sales mix , lower material costs , and increased plant efficiencies . selling , general and administrative expenses selling , general and administrative expenses increased by $ 2.4 million , to $ 12.3 million , or 10.6 % of net sales , during fiscal 2013 , compared to $ 9.9 million , or 9.6 % of sales , in fiscal 2012. the increase in the dollar amount of selling , general and administrative expenses in fiscal 2013 compared to fiscal 2012 was primarily due to a non-recurring severance payment to a former executive , as well as increases in salary , bonus , and benefit costs . these higher expenses were partially offset by a decrease in equity-based compensation costs . 19 amortization of intangibles amortization of intangibles decreased by $ 0.8 million to $ 2.1 million during fiscal 2013 , compared to $ 2.9 million in fiscal 2012. this was primarily due to certain intangibles associated with prior acquisitions becoming fully amortized during the year . this decrease was partially offset by the start of amortization on the intangibles related to the colorado springs acquisition . other/general interest expense decreased $ 0.1 million to $ 0.4 million during fiscal 2013 , compared to $ 0.5 million in fiscal 2012. as described more fully in note 5 to the consolidated financial statements , the company borrowed $ 12.4 million from its revolving credit facility , $ 10.0 million on a term note , and issued a $ 2.4 million promissory note to the seller in connection with the october , 2011 acquisition of the orange business . the following table sets forth the weighted average interest rates and weighted average outstanding balances under the company 's debt agreements in fiscal 2013 and 2012 : replace_table_token_6_th other income , net consists principally of $ 0.4 million of rental income earned from the lease of the cork , ireland facility . the company believes that inflation did not materially affect its results of operations in either fiscal 2013 or 2012. income taxes the company 's effective tax rate in fiscal 2013 was 30 % , compared to 31 % in fiscal 2012 , and differs from the u.s. federal statutory rate due primarily to ( i ) the impact of u.s. state and local taxes , ( ii ) domestic production activities deduction , ( iii ) application of tax credits , and ( iv ) the recognition of federal income taxes on undistributed earnings of non-u.s. subsidiaries . story_separator_special_tag income from continuing operations income from continuing operations increased by $ 3.5 million , or 55.5 % , to $ 9.8 million , or 8.4 % of net sales , during fiscal 2013 , compared to $ 6.3 million , or 6.1 % of net sales , in fiscal 2012 due primarily to the factors noted above . income from discontinued operations income from discontinued operations , net of tax , was $ 0.5 million during fiscal 2013 , compared to income from discontinued operations of $ 0.2 million in fiscal 2012. this line item consists of income from discontinued operations related to asc and the repair group . the change is primarily due to the after-tax gain of $ 2.5 million on the sale of asc during the first quarter of fiscal 2013 , which was offset by an after-tax loss of $ 2.0 million due to the exiting of the repair group as of september 30 , 2013 , as more fully discussed in item 8 , note 12 to the consolidated financial statements . net income net income increased by $ 3.7 million , or 56.3 % , to $ 10.2 million , or 8.8 % of net sales , during fiscal 2013 , compared to $ 6.5 million , or 6.4 % of net sales , in fiscal 2012. net income increased primarily due to the factors noted above . b. liquidity and capital resources cash and cash equivalents increased to $ 4.6 million at september 30 , 2014 , compared with $ 4.5 million at september 30 , 2013 and $ 7.2 million at september 30 , 2012. at september 30 , 2014 , essentially all of the $ 4.6 million of the company 's cash and cash equivalents is in the possession of its non-operating irish subsidiary . in the future , if the company determines that there is no longer a need to maintain such cash within its non-operating irish subsidiary , it may elect to distribute such cash to its u.s. operations . distributions from the company 's non-operating irish subsidiary to the company may be subject to adverse tax consequences . the company 's operating activities of continuing operations provided $ 11.0 million of cash in fiscal 2014 compared with $ 7.8 million and $ 9.2 million in fiscal 2013 and 2012 , respectively . the $ 11.0 million of cash provided by operating activities of continuing operations in fiscal 2014 was primarily due to net income of $ 5.0 million and $ 7.6 million from the net impact of such 20 non-cash items as depreciation and amortization expense , deferred taxes , equity compensation expense and lifo effect , partially offset by $ 2.2 million decrease in operating assets and liabilities . these changes in the components of working capital were due primarily to factors resulting from normal business conditions of the company , including ( i ) supporting growth in the business , ( ii ) the relative timing of sales and collections from customers and ( iii ) the relative timing of payments to suppliers and tax authorities . capital expenditures for the company were $ 9.8 million in fiscal 2014 compared with $ 3.4 million and $ 2.9 million in fiscal 2013 and 2012 , respectively . the increase is attributed to the company 's erp installation and a large capital investment at the cleveland plant , which we anticipate will reduce future operating costs . the company anticipates that total fiscal 2015 capital expenditures will be within a range of $ 11.0 million to $ 12.0 million and will relate principally to the expansion of the orange plant in order to better facilitate the integration of the colorado springs operations and administration and further enhancement of production and product offering capabilities . the company anticipates using the current credit facility to fund future capital expenditures . in the fourth quarter of fiscal 2014 , the company declared a special cash dividend of $ 0.20 per common share , which will result in a cash expenditure of $ 1.1 million during first quarter of fiscal 2015. as described more fully in note 12 to the consolidated financial statements included in item 8 , the company acquired colorado springs , a forging business , in july 2013 for approximately $ 4.4 million at closing payable in cash by drawing on its revolving credit facility . in october 2011 , the company acquired orange , a forging business , for approximately $ 24.8 million at closing . the acquisition was financed by borrowing approximately $ 22.4 million from its bank , which borrowing consisted of a new $ 10.0 million term loan and drawing approximately $ 12.4 million from its revolving credit facility . the balance of the acquisition was financed by the company issuing a $ 2.4 million promissory note to the seller , which was paid by the company in november 2013. in october 2011 , the company entered into an amendment to its existing credit agreement with its bank increasing the maximum borrowing amount from $ 30.0 million to $ 40.0 million , of which $ 10.0 million is a five ( 5 ) year term loan and $ 30.0 million is a five ( 5 ) year revolving loan , secured by substantially all the assets of the company and its u.s. subsidiaries and a pledge of 65 % of the stock of its non-u.s. subsidiaries . the term loan is repayable in quarterly installments of $ 0.5 million starting december 1 , 2011. in september 2014 , the company entered into an amendment to its existing credit agreement to revise the definition of the fixed charge coverage ratio . the term loan has a variable interest rate based on libor , which becomes an effective fixed rate of 2.9 % after giving effect to an interest rate swap agreement . borrowing under the revolving loan bears interest at a rate equal to libor plus 0.75 % to 1.75 % , which percentage fluctuates based on the company 's leverage ratio of outstanding indebtedness to ebitda .
| net sales comparative information for fiscal 2014 and 2013 , respectively , is as follows : replace_table_token_3_th overall , net sales for the company increased $ 3.7 million in fiscal 2014 compared with fiscal 2013. the increase in fixed wing aircraft sales , due primarily to the acquisition of colorado springs , was partially offset by lower rotorcraft sales , resulting from decreased demand in the black hawk and v-22 military rotorcraft programs . the company 's lower energy components sales were due to a major customer announcing the closing of a facility , which resulted in decreased demand . the company 's higher commercial products and other revenue sales were due to sales related to a new ordnance program . commercial net sales were 55.9 % of total net sales and military net sales were 44.1 % of total net sales in fiscal 2014 , compared with 52.4 % and 47.6 % , respectively , in the comparable period in fiscal 2013. although commercial net sales increased in fiscal 2014 , it was partially offset by lower sales of the company 's energy components . military net sales decreased $ 2.5 million to $ 52.8 million in fiscal 2014 , compared to $ 55.2 million in fiscal 2013. this was primarily due to the decline in military rotorcraft sales , which was partially offset by an increase in sales due to the new ordnance program . the company 's aerospace components have both military and commercial applications . 17 cost of goods sold cost of goods sold increased by $ 5.7 million , or 6.5 % , to $ 93.7 million during fiscal 2014 , compared to $ 88.0 million in the comparable period of fiscal 2013 , primarily due to the additional business as a result of the acquisition of colorado springs and higher employee benefits expense . gross profit gross profit decreased by $ 2.1 million , or 7.5 % , to $ 25.9 million during fiscal 2014 , compared with $ 28.0 million in fiscal 2013. gross margin as a percentage of sales was 21.7 % during fiscal 2014 , compared with 24.2 % in fiscal 2013. the decrease in gross margin as a percentage of sales in fiscal 2014 compared to fiscal 2013 was primarily due to a change in mix within
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in addition to managed payments and point-of-sale services , we offer our sellers a range of products and services , with instant deposit , caviar , and square capital , currently comprising the majority of our subscription and services-based revenue . our other subscription and services-based products include cash app , gift cards , square appointments , customer engagement , employee management , payroll , and other subscription and services-based products offered through our square marketplace . instant deposit is a functionality within the cash app and our managed payment solutions that enables customer to instantly deposit funds into their bank accounts . we charge a per transaction fee which we recognize as revenue when customers instantly deposit funds to their bank account . revenue for caviar , our food ordering platform , is derived from seller fees , which are a percentage of total food order value , delivery fees , and service fees paid by the consumer based on total food order value . square capital facilitates loans to sellers that are offered through a partnership bank and are generally repaid through withholding a percentage of the collections of the seller 's receivables processed by us . during the first quarter of 2016 , we fully 49 transitioned from offering merchant cash advances ( mcas ) to loans . the loans are originated by a bank partner , from whom we purchase the loans obtaining all rights , title , and interest . our intention is to sell the rights , title , and interest in these loans to third-party investors for an upfront fee when the loans are sold . we are retained by the third-party investors to service the loans and earn a servicing fee for facilitating the repayment of these receivables through our payments solutions . hardware revenue . hardware revenue includes revenue from sales of contactless and chip readers , chip card readers , square stand , square register and third-party peripherals . third-party peripherals include cash drawers , receipt printers , and barcode scanners , all of which can be integrated with square stand to provide a comprehensive point-of-sale solution . in the fourth quarter of 2017 , we began selling square register , our first all-in-one offering that combines our hardware , point-of-sale software , and payments technology . cost of revenue and gross margin transaction-based costs . transaction-based costs consist primarily of interchange and assessment fees , processing fees and bank settlement fees paid to third-party payment processors and financial institutions . starbucks transaction-based costs . starbucks transaction-based costs consist of the same components as our overall transaction-based costs , as applicable to the previously described starbucks transaction . subscription and services-based costs . subscription and services-based costs consist primarily of caviar-related costs , which include payments to third-party couriers for deliveries and the cost of equipment provided to sellers . cost of revenue for other subscription and services-based products consists primarily of the amortization related to the development of software for certain subscription and services-based products . hardware costs . hardware costs consist primarily of product costs associated with contactless and chip readers , chip card readers , square stand , square register and third-party peripherals . product costs include manufacturing-related overhead and personnel costs , certain royalties , packaging , and fulfillment costs . hardware is sold primarily as a means to grow our transaction-based revenue and , as a result , generating positive gross margins from hardware sales is not the primary goal of the hardware business . amortization of acquired technology . these costs consist of amortization related to technologies acquired through acquisitions that have the capability of producing revenue . operating expenses operating expenses consist of product development , sales and marketing , general and administrative expenses , transaction , loan and advance losses , and amortization of acquired customer assets . for product development and general and administrative expenses , the largest single component is personnel-related expenses , including salaries , commissions and bonuses , employee benefit costs , and share-based compensation . in the case of sales and marketing expenses , a significant portion is related to paid advertising expenses in addition to personnel-related expenses . operating expenses also include allocated overhead costs for facilities , human resources , and it . product development . product development expenses currently represent the largest component of our operating expenses and consist primarily of expenses related to our engineering , data science , and design personnel ; fees and supply costs related to maintenance and capacity expansion at third-party data center facilities ; hardware related development and tooling costs ; and fees for software licenses , consulting , legal , and other services that are directly related to growing and maintaining our portfolio of products and services . additionally , product development expenses include the depreciation of product-related infrastructure and tools , including data center equipment , internally developed software , and computer equipment . we continue to focus our product development efforts on adding new features and apps , and on enhancing the functionality and ease of use of our offerings . our ability to realize returns on these investments is substantially dependent upon our ability to successfully address current and emerging requirements of sellers and buyers through the development and introduction of these new products and services . while we expect total product development expenses to increase as we invest further in engineering and design personnel , over time we also expect our product development expenses to decline as a percentage of total net revenue . sales and marketing . sales and marketing expenses consist primarily of four components . the first component is comprised of costs incurred to acquire new sellers through various paid advertising channels , including online search , online display , direct mail , direct response television , mobile advertising , affiliates , and referrals , all of which are expensed as incurred . 50 the second component includes expenses related to our direct sales , account management , local and product marketing , retail and ecommerce , partnerships , and communications personnel . story_separator_special_tag the third component includes costs associated with free cash app peer-to-peer transactions . the fourth component includes the costs associated with the manufacturing and distribution of our magstripe reader , which is offered for free on our website and provided through various marketing events and distribution channels . new sellers who purchase a magstripe reader from one of our retail distribution partners are offered a rebate equal to the price paid . the cost to us of manufacturing and distributing magstripe readers are partially offset by amounts received from retail distribution partners . as our sellers transition to using our contactless and chip reader , we expect to distribute relatively fewer magstripe readers , thus reducing that component of our sales and marketing expenses . while we expect sales and marketing expenses to increase as the scale of our business grows , over the long term we also expect sales and marketing expenses to decline as a percentage of total net revenue . over the short term , however , sales and marketing expenses as a percentage of total net revenue may demonstrate variability based on the timing and magnitude of marketing and customer acquisition initiatives . general and administrative . general and administrative expenses consist primarily of expenses related to our finance , legal , customer success , square capital operations , caviar operations , risk operations , human resources , and administrative personnel . general and administrative expenses also include costs related to fees paid for professional services , including legal , tax , and accounting services . while we expect general and administrative expenses to increase in dollar amount to support our growth and costs of compliance associated with being a public company , over time we expect general and administrative expenses to decline as a percentage of total net revenue . transaction , loan and advance losses . we are exposed to transaction losses due to chargebacks as a result of fraud or uncollectibility . examples of transaction losses include chargebacks for unauthorized credit card use and inability to collect on disputes between buyers and sellers over the delivery of goods or services . we base our reserve estimates on prior chargeback history and current period data points indicative of transaction loss . we reflect additions to the reserve in current operating results , while we make charges to the reserve when we incur losses . the establishment of appropriate reserves is an inherently uncertain process , and ultimate losses may vary from the current estimates . we regularly update our reserve estimates as new facts become known and events occur that may affect the settlement or recovery of losses . for the period from january 1 , 2015 through december 31 , 2017 , our transaction losses accounted for approximately 0.1 % of gpv . loan losses related to loans that have been retained by the company are recorded whenever the amortized cost of a loan exceeds its fair value , with such charges being reversed for subsequent increases in fair value but only to the extent that such reversals do not result in the amortized cost of a loan exceeding its fair value . to determine the fair value of loans , the company utilizes industry standard modeling , such as discounted cash flow models , to arrive at an estimate of fair value . amortization of acquired customer assets . amortization of acquired customer assets includes customer relationships , restaurant relationships , courier relationships , subscriber relationships , and partner relationships . interest and other income and expense , net interest and other income and expense , net consists primarily of interest expense related to our long-term debt , interest income on our investment in marketable securities and foreign currency-related gains and losses . provision for income taxes the provision for income taxes consists primarily of federal , state , local , and foreign tax . our effective tax rate fluctuates from period to period due to changes in the mix of income and losses in jurisdictions with a wide range of tax rates , the effect of acquisitions , changes resulting from the amount of recorded valuation allowance , permanent differences between u.s. generally accepted accounting principles and local tax laws , certain one-time items , and changes in tax contingencies . as discussed in further detail in note 11 to the consolidated financial statements , the 2017 tax act contains many significant changes to u.s. federal tax laws . the 2017 tax act requires complex computations that were not previously provided for under u.s. tax law . the company has provided for an estimated effect of the 2017 tax act in its financial statements . the 2017 tax act requires significant judgments to be made in interpretation of the law and significant estimates in the calculation of the provision for income taxes . sec staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act ( `` sab 118 '' ) was issued in december 2017. the company will continue to monitor and assess potential impacts of the 2017 tax act in accordance with sab 118 . 51 deemed dividend on series e preferred stock for the year ended december 31 , 2015 , we issued 10,299,696 shares of our common stock to certain holders of series e preferred stock in the form of a deemed stock dividend of $ 32.2 million . there were no similar occurrences in any other period presented . 52 story_separator_special_tag ended december 31 , 2016 . hardware costs decreased to a greater extent than hardware revenue mainly as a result of the growth in sales of third-party peripherals which have relatively better terms than our other hardware products . additionally , during the year ended december 31 , 2017 , we recorded $ 4.9 million in inventory reserves , revaluations , and write-offs compared to $ 4.2 million for the year ended december 31 , 2016 . this includes a $ 2.3 million charge recorded as a result of the bankruptcy of one of our distribution partners during the third quarter of 2017.
| subscription and services-based revenue grew to 11 % of total net revenue in the year ended december 31 , 2017 , up from 8 % in the year ended december 31 , 2016 . hardware revenue for the year ended december 31 , 2017 , decreased by $ 2.9 million , or 7 % , compared to the year ended december 31 , 2016 . during the year ended december 31 , 2016 , we had experienced elevated growth in shipments of our contactless and chip reader driven by the fulfillment of the majority of the backlog of pre-orders received in the first half of 2016 , following its launch in the fourth quarter of 2015. there was no similar activity during the year ended december 31 , 2017 . this was offset in part by growth in our sales of our square stand and third-party peripherals driven primarily by new features and product offerings . comparison of years ended december 31 , 2016 and 2015 total net revenue for the year ended december 31 , 2016 , increased by $ 441.6 million , or 35 % , compared to the year ended december 31 , 2015. transaction-based revenue for the year ended december 31 , 2016 , increased by $ 405.7 million , or 39 % , compared to the year ended december 31 , 2015. this increase was attributable to growth in gpv processed of $ 14.0 billion , or 39 % , to $ 49.7 billion from $ 35.6 billion . we benefited from positive dollar-based retention from our existing sellers , in addition to meaningful contributions from new sellers . additionally , gpv from larger sellers , represented 43 % of our gpv in the fourth quarter of 2016 , an increase from 39 % in the fourth quarter of 2015. starbucks transaction-based revenue for the year ended december 31 , 2016 , decreased by $ 63.4 million , or 45 % , compared to the year ended december 31 , 2015. starbucks-related payment volume declined throughout 2016 and during the fourth quarter of 2016 , as
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any changes in these estimates are recorded in the period the need for such an adjustment arises . while we offer a diversified mix of managed care products , including ppo , hmo , pos and cdhp products , our aggregate cost of care can fluctuate based on a change in the overall mix of these 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 utilization management ; ( ii ) health and wellness , including disease management services for such things 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 . these types of claims-related costs are designed to ultimately lower our members ' cost of care . our selling expense consists of external broker commission expenses , and generally varies with premium or membership volume . our general and administrative expense consists of fixed and variable costs . examples of fixed costs are depreciation , amortization and certain facilities expenses . other costs are variable or discretionary in nature . certain variable costs , such as premium taxes , vary directly with premium 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 associate compensation expense . examples of discretionary 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 health care 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 health care 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 health care 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 health care 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 impact on our results of operations . our future results of operations will also be impacted by certain external forces and resulting changes in our business model and strategy . in 2010 , the u.s. congress passed and the president signed into law the patient protection and affordable care act , or aca , as well as the health care and education reconciliation act of 2010 , or hcera , or collectively , health care reform , which represents significant changes to the u.s. health 44 care system . the legislation is far-reaching and is intended to expand access to health insurance coverage over time by increasing the eligibility thresholds for most state medicaid programs and providing certain other individuals and small businesses with tax credits to subsidize a portion of the cost of health insurance coverage . the legislation includes a requirement that most individuals obtain health insurance coverage beginning in 2014 and also a requirement that certain large employers offer coverage to their employees or pay a financial penalty . in addition , the new laws include certain new taxes and fees , including an excise tax on high premium insurance policies ( which becomes effective in 2017 ) , limitations on the amount of compensation that is tax deductible and new fees on companies in our industry , some of which will not be deductible for income tax purposes . the legislation also imposes new regulations on the health insurance sector , including , but not limited to , guaranteed coverage requirements , prohibitions on some annual and all lifetime limits on amounts paid on behalf of or to our members , increased restrictions on rescinding coverage , establishment of minimum medical loss ratio requirements , a requirement to cover preventive services on a first dollar basis , the establishment of state insurance exchanges and essential benefit packages and greater limitations on how we price certain of our products . the legislation also reduces the reimbursement levels for health plans participating in the medicare advantage program over time . as a result of health care reform , the department of health and human services , or hhs , issued medical loss ratio , or mlr , regulations that require us to meet minimum mlr thresholds for large group , small group and individual lines of business . for purposes of determining mlr rebates , hhs has defined the types of costs that should be included in the mlr rebate calculation . this definition varied from our prior classification under gaap . where appropriate , we have adopted this revised classification effective january 1 , 2011 to further align our gaap basis benefit expense to that used in the calculation for determining mlr rebates under hhs guidance . prior period amounts were not reclassified due to immateriality . however , certain components of the mlr calculation as defined by hhs can not be classified consistently under gaap . story_separator_special_tag while considered benefit expense or a reduction of premium revenue by hhs , certain of these costs are classified as other types of expense , such as income tax expense or selling , general and administrative expense , in our gaap basis financial statements . accordingly , the benefit expense ratio determined using our consolidated gaap operating results is not comparable to the mlr calculated under hhs regulations . these and other provisions of health care reform are likely to have significant effects on our future operations , which , in turn , could impact the value of our business model and results of operations , including potential impairments of our goodwill and other intangible assets . we will continue to evaluate the impact of health care reform as additional guidance is made available . for additional discussion regarding health care reform , see part i , item 1 businessregulation and part i , item 1a risk factors in this form 10-k. in addition , federal and state regulatory agencies may further restrict our ability to obtain new product approvals , implement changes in premium rates or impose additional restrictions , under new or existing laws that could adversely affect our business , cash flows , financial condition and results of operations . in addition to external forces discussed in the preceding paragraphs , our results of operations are impacted by levels and mix of membership . in recent years , we experienced membership declines due to unfavorable economic conditions driving increased unemployment . we expect unemployment levels will remain relatively high throughout 2013 , which will likely impact our ability to maintain current membership levels . in addition , we believe the self-insured portion of our group membership base will continue to increase as a percentage of total group membership . these membership trends could have a material adverse effect on our future results of operations . also see part i , item 1a risk factors in this form 10-k. the national organization of life & health insurance guaranty associations , or nolhga , is a voluntary association consisting of the state life and health insurance guaranty organizations located throughout the u.s. state life and health insurance guaranty associations , working together with nolhga , provide a safety net for 45 their state 's policyholders , ensuring that they continue to receive coverage even if their insurer is declared insolvent . we are aware that the pennsylvania insurance commissioner , or insurance commissioner , has placed penn treaty network america insurance company and its subsidiary american network insurance company , or collectively penn treaty , in rehabilitation , an intermediate action before insolvency . the state court denied the insurance commissioner 's petition for the liquidation of penn treaty and ordered the commissioner to file an updated plan of rehabilitation . the insurance commissioner has filed a notice of appeal asking the pennsylvania supreme court to reverse the order denying the liquidation petition . in the event rehabilitation of penn treaty is unsuccessful and penn treaty is declared insolvent and placed in liquidation , we and other insurers may be required to pay a portion of their policyholder claims through state guaranty association assessments in future periods . given the uncertainty around whether penn treaty will ultimately be declared insolvent and , if so , the amount of the insolvency , the amount and timing of any associated future guaranty fund assessments and the availability and amount of any potential premium tax and other offsets , we currently can not estimate our net exposure , if any , to this potential insolvency . we will continue to monitor the situation and may record a liability and expense in future reporting periods , which could be material to our cash flows and results of operations . executive summary we are one of the largest health benefits companies in terms of medical membership in the united states , serving 36.1 medical members through our affiliated health plans and a total of 66.5 individuals through all subsidiaries as of december 31 , 2012. we are an independent licensee of the blue cross and blue shield association , or bcbsa , an association of independent health benefit plans . we serve our members as the blue cross licensee for california and as the blue cross and blue shield , or bcbs , licensee for : colorado , connecticut , georgia , indiana , kentucky , maine , missouri ( excluding 30 counties in the kansas city area ) , nevada , new hampshire , new york ( as bcbs in 10 new york city metropolitan and surrounding counties , and as blue cross or bcbs in selected upstate counties only ) , ohio , virginia ( excluding the northern virginia suburbs of washington , d.c. ) , and wisconsin . in a majority of these service areas we do business as anthem blue cross , anthem blue cross and blue shield , blue cross and blue shield of georgia , empire blue cross blue shield , or empire blue cross ( in our new york service areas ) . we conduct business as amerigroup in texas , florida , georgia , maryland , tennessee , new jersey , new york , nevada , ohio , new mexico , louisiana and washington , and beginning january 1 , 2013 amerigroup conducts business in kansas . we also serve customers throughout the country as unicare and in certain california , arizona , nevada , new york and virginia markets through our caremore health group , inc. , or caremore , subsidiary . we are licensed to conduct insurance operations in all 50 states through our subsidiaries . we also sell contact lenses , eyeglasses and other ocular products through our 1-800 contacts business . operating revenue for the year ended december 31 , 2012 was $ 60,728.5 , an increase of $ 863.3 , or 1.4 % , from the year ended december 31 , 2011 , primarily reflecting higher premium revenue in our consumer segment , partially offset by lower premium revenue in our commercial segment .
| administrative fees increased primarily as a result of pricing increases for self-funded members in our national accounts and local group businesses , partially offset by membership declines in our self-funded national accounts business . net investment income decreased $ 17.6 , or 2.5 % , to $ 686.1 in 2012 , primarily due to lower investment yields , partially offset by higher average cash and investment balances resulting from debt issuances in 2012 , including the debt issuance related to our acquisition of amerigroup . net realized gains on investments , net of other-than-temporary impairment losses , increased $ 155.3 , or 110 % , to $ 297.1 in 2012 , primarily due to increased gains on sales of fixed maturity securities and , to a lesser extent , decreased other-than-temporary impairment losses on equity securities as a result of improved market conditions . benefit expense increased $ 566.1 , or 1.2 % , to $ 48,213.6 in 2012 , primarily due to increases in our senior and state-sponsored businesses , partially offset by decreases in our local group business . the increase in our senior business was driven primarily by membership growth in our medicare advantage business , including caremore , while the increase in our state-sponsored business was driven by both increased benefit cost trends and membership growth , including membership acquired with the acquisition of amerigroup . these increases were partially offset by the fully-insured membership declines in our local group business as described above , as well as favorable prior year reserve development in 2012 compared to modest reserve strengthening in 2011. our benefit expense ratio increased 20 basis points to 85.3 % in 2012 , primarily due to higher medical costs in our state-sponsored business , primarily in california . the benefit expense ratio increase was partially offset by improvements in our local group and senior businesses and the favorable prior year reserve development . selling , general and administrative expense increased $ 302.7 , or 3.6 % , to $ 8,738.3 in 2012 , primarily due to additional selling , general
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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 . 44 consolidated results of operations 2016 compared to 2015 the following table provides selected financial information : replace_table_token_11_th replace_table_token_12_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 15 , related party transactions , to the consolidated financial statements . 45 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_13_th 46 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 story_separator_special_tag 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_14_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 . 47 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 . the three projects were acquired as part of the november 2015 drop down assets . as discussed in item 15 — note 3 , business acquisitions , the historical cost for november 2015 drop down assets was $ 369 million for the net assets , which was higher than the fair value paid of $ 207 million . the difference between the historical cost of net assets and the fair value paid for the november 2015 drop down assets was recorded to noncontrolling interest on the company 's consolidated balance sheet . loss on debt extinguishment a loss on debt extinguishment of $ 9 million was recorded for the year ended december 31 , 2015 , driven by the refinancing of the el segundo credit facility and the termination of the interest rate swaps for alta wind x and xi in connection with the sale of an economic interest in alta te holdco to a financial institution , as further described in item 15 — note 5 , investments accounted for by the equity method and variable interest entities , to the consolidated financial statements . equity in earnings of unconsolidated affiliates equity in earnings of unconsolidated affiliates increased by $ 11 million during the year ended december 31 , 2016 , compared to the same period in 2015 , primarily due to an increase in equity earnings from desert sunlight , which was acquired in june 2015 , dgpv holdco 1 and rpv holdco , partially offset by losses from elkhorn ridge . interest expense interest expense increased by $ 11 million during the year ended december 31 , 2016 compared to the same period in 2015 due to : ( in millions ) amortization of the fair value of interest rate swaps primarily acquired with the january 2015 drop down assets and november 2015 drop down assets $ 10 issuance of the 2020 convertible notes in the second quarter of 2015 and amortization of the related discount and debt issuance costs 8 issuance of 2026 senior notes in august 2016 7 issuance of 2037 cvsr holdco notes in july 2016 4 higher revolving credit facility borrowings in 2016 2 repricing of project-level financing arrangements and lower principal balances ( 20 ) $ 11 income tax expense for the year ended december 31 , 2016 , the company recorded an income tax benefit of $ 1 million on a pretax loss of $ 16 million . for the same period in 2015 , the company recorded income tax expense of $ 12 million on pretax income of $ 77 million . for the years ended december 31 , 2016 and 2015 , the overall effective tax rate was different than the statutory rate of 35 % primarily due to taxable earnings allocated to nrg resulting from nrg 's interest in nrg yield llc and ptcs and itcs generated from certain wind and solar assets , respectively . income attributable to noncontrolling interests for the year ended december 31 , 2016 , the company had income of $ 29 million attributable to nrg 's interest in the company and a loss of $ 111 million attributable to noncontrolling interests with respect to its tax equity financing arrangements and the application of the hlbv method , which was primarily related to the impairment losses described above . for the year ended december 31 , 2015 , the company had income of $ 56 million attributable to nrg 's interest in the company and a loss of $ 14 million attributable to noncontrolling interests with respect to its tax equity financing arrangements and the application of the hlbv method .
| on october 31 , 2016 , nrg energy center minneapolis llc , a subsidiary of the company , received proceeds of $ 125 million from the issuance of 3.55 % series d notes due october 31 , 2031 , or the series d notes , and entered into a shelf facility for the anticipated issuance of an additional $ 70 million of notes at a 4.80 % fixed rate . in the first quarter of 2017 , nrg energy center minneapolis llc expects to amend its existing note purchase and private shelf agreement to permit the issuance of $ 10 million of notes , which if issued , will be utilized in addition to the existing , authorized $ 70 million of notes to make payments with respect to the epc agreement discussed below . 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 —
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22 research and development the following table summarizes our research and development expense : replace_table_token_12_th research and development expense in 2017 decreased by $ 1,448 million compared with 2016 primarily due to the reclassification of $ 1,235 million of costs from inventory in the second quarter of 2016 related to the fourth and fifth 787 flight test aircraft as well as lower spending on the 737 max , 787-10 , and 777x . research and development expense in 2016 increased by $ 1,296 million compared with 2015 primarily due to the reclassification of $ 1,235 million of costs from inventory in the second quarter of 2016 related to the fourth and fifth 787 flight test aircraft and higher spending on the 777x . backlog our backlog at december 31 was as follows : replace_table_token_13_th contractual backlog of unfilled orders excludes purchase options , announced orders for which definitive contracts have not been executed , and unobligated u.s. and non-u.s. government contract funding . the increase in contractual backlog during 2017 was primarily due to orders and funding in excess of deliveries . the decrease in contractual backlog during 2016 was primarily due to deliveries in excess of net orders . unobligated backlog includes u.s. and non-u.s. government definitive contracts for which funding has not been authorized . the increase in unobligated backlog in 2017 and 2016 was primarily due to contract awards , partially offset by reclassifications to contractual backlog related to bds and bgs contracts . additional considerations kc-46a tanker in 2011 , we were awarded a contract from the u.s. air force ( usaf ) to design , develop , manufacture and deliver four next generation aerial refueling tankers . the kc-46a tanker is a derivative of our 767 commercial aircraft . this engineering , manufacturing and development ( emd ) contract is a fixed-price incentive fee contract valued at $ 4.9 billion and involves highly complex designs and systems integration . in 2015 , we began work on low rate initial production ( lrip ) aircraft for the usaf . during the third quarter of 2016 , following our achievement of key flight testing milestones , the usaf authorized two lrip lots for 7 and 12 aircraft valued at $ 2.8 billion . on january 27 , 2017 , the usaf authorized an additional 23 lrip lot for 15 aircraft valued at $ 2.1 billion . the contract contains production options for both lrip aircraft and full rate production aircraft . if all options under the contract are exercised , we expect to deliver 179 aircraft for a total expected contract value of approximately $ 30 billion . the emd contract is currently in the certification and flight testing phases and we expect 18 fully operational aircraft to be delivered in 2018. during 2016 and 2015 , we recorded reach-forward losses of $ 1,128 million and $ 835 million related to the emd contract and lrip aircraft . during 2017 , we recorded further reach-forward losses of $ 471 million primarily reflecting higher estimated costs associated with certification and incorporating changes into lrip aircraft . as with any development program , this program remains subject to additional reach-forward losses or delivery delays if we experience further production , technical or quality issues , delays in certification and or flight testing . export-import bank of the united states many of our non-u.s. customers finance purchases through the export-import bank of the united states . following the expiration of the bank 's charter on june 30 , 2015 , the bank 's charter was reauthorized in december 2015. the bank is now authorized through september 30 , 2019. however , until the u.s. senate confirms members sufficient to reconstitute a quorum of the bank 's board of directors , the bank will not be able to approve any transaction totaling more than $ 10 million . as a result , we may fund additional commitments and or enter into new financing arrangements with customers . certain of our non-u.s. customers also may seek to delay purchases if they can not obtain financing at reasonable costs , and there may be further impacts with respect to future sales campaigns involving non-u.s. customers . we continue to work with our customers to mitigate risks associated with the lack of a quorum of the bank 's board of directors and assist with alternative third party financing sources . segment results of operations and financial condition commercial airplanes business environment and trends airline industry environment global economic growth , a primary driver for air travel , has returned to the long-term average of approximately 3 % . passenger traffic in 2017 is estimated to grow by more than 7 % , exceeding the long-term trend of approximately 5 % . while growth was strong across all major world regions , there continues to be variation between regions and airline business models . airlines operating in the asia pacific regions and europe , as well as low-cost-carriers globally , are currently leading the growth in passenger traffic . air cargo traffic growth , building on the recovery that started in 2016 , is expected to exceed 9 % in 2017 , driven by strong trade and industrial production in all regions . airline financial performance also plays a role in the demand for new capacity . airlines continue to focus on increasing revenue through alliances , partnerships , new marketing initiatives , and effective leveraging of ancillary services and related revenues . airlines are also focusing on reducing costs and renewing fleets to leverage more efficient airplanes . net profits in 2017 are expected to approximate $ 35 billion , consistent with 2016. the long-term outlook for the industry continues to remain positive due to the fundamental drivers of air travel growth : economic growth and the increasing propensity to travel due to increased trade , globalization , and improved airline services driven by liberalization of air traffic rights between countries . story_separator_special_tag our 20-year forecast projects a long-term average growth rate of 4.7 % per year for passenger traffic and 4.2 % for cargo traffic . based on long-term global economic growth projections of 2.8 % average annual gdp growth , we project a $ 6.1 trillion market for approximately 41,030 new airplanes over the next 20 years . the industry remains vulnerable to exogenous developments including fuel price spikes , credit market shocks , acts of terrorism , natural disasters , conflicts , epidemics and increased global environmental regulations . 24 industry competitiveness the commercial jet airplane market and the airline industry remain extremely competitive . market liberalization in europe , the middle east and asia is enabling low-cost airlines to continue gaining market share . these airlines are increasing the pressure on airfares . this results in continued cost pressures for all airlines and price pressure on our products . major productivity gains are essential to ensure a favorable market position at acceptable profit margins . continued access to global markets remains vital to our ability to fully realize our sales potential and long-term investment returns . approximately 91 % of commercial airplanes ' total backlog , in dollar terms , is with non-u.s. airlines . we face aggressive international competitors who are intent on increasing their market share . they offer competitive products and have access to most of the same customers and suppliers . with government support , airbus has historically invested heavily to create a family of products to compete with ours . regional jet makers embraer and bombardier continue to develop and market larger and increasingly more capable airplanes , including embraer 's e-195 in the regional jet market and bombardier 's c series in the 100-150 seat transcontinental market . additionally , other competitors from russia , china and japan are developing commercial jet aircraft . some of these competitors have historically enjoyed access to government-provided financial support , including “ launch aid , ” which greatly reduces the cost and commercial risks associated with airplane development activities . this has enabled the development of airplanes without commercial viability ; others to be brought to market more quickly than otherwise possible ; and many offered for sale below market-based prices . many competitors have continued to make improvements in efficiency , which may result in funding product development , gaining market share and improving earnings . this market environment has resulted in intense pressures on pricing and other competitive factors , and we expect these pressures to continue or intensify in the coming years . we are focused on improving our products and services and continuing our cost-reduction efforts , which enhances our ability to compete . we are also focused on taking actions to ensure that boeing is not harmed by unfair subsidization of competitors . results of operations replace_table_token_14_th revenues commercial airplanes revenues decreased by $ 1,283 million or 2 % in 2017 compared with 2016 due to delivery mix , with fewer twin aisle deliveries more than offsetting the impact of higher single aisle deliveries . commercial airplanes revenues decreased by $ 1,387 million or 2 % in 2016 compared with 2015 primarily due to fewer deliveries . 25 commercial airplanes deliveries as of december 31 were as follows : replace_table_token_15_th * intercompany deliveries identified by parentheses † aircraft accounted for as revenues by bca and as operating leases in consolidation identified by parentheses earnings from operations earnings from operations in 2017 increased by $ 3,437 million compared with 2016 . the increase in earnings and operating margins is primarily due to lower reach-forward losses , lower research and development costs and improved margins reflecting favorable cost performance , which more than offset the impact of lower revenues . earnings from operations in 2016 decreased by $ 2,289 million compared with 2015. the decrease in earnings and operating margins is primarily due to higher research and development costs of $ 1,395 million , delivery mix and higher reach-forward losses on the 747 program of $ 1,258 million compared with $ 885 million in 2015. research and development expense in 2016 reflect the reclassification from inventory to research and development expense of $ 1,235 million related to the fourth and fifth 787 flight test aircraft and higher planned spending related to the 777x program . reach-forward losses of $ 378 million , $ 772 million and $ 513 million were recorded related to the kc-46a tanker in 2017 , 2016 and 2015 , respectively . during 2016 and 2015 , we recorded reach-forward losses on the 747 program of $ 1,258 million and $ 885 million . backlog firm backlog represents orders for products and services where no contingencies remain before we and the customer are required to perform . backlog does not include prospective orders where customer controlled contingencies remain , such as the customer receiving approval from its board of directors , shareholders or government or completing financing arrangements . all such contingencies must be satisfied or have expired prior to recording a new firm order even if satisfying such conditions is highly certain . firm backlog excludes options . a number of our customers may have contractual remedies that may be implicated by program delays . we address customer claims and requests for other contractual relief as they arise . however , once orders are included in firm backlog , orders remain in backlog until canceled or fulfilled , although the value of orders is adjusted as changes to price and schedule are agreed to with customers . bca total backlog was $ 421,345 million , $ 413,036 million and $ 429,346 million at december 31 , 2017 , 2016 and 2015 , respectively . the increase in 2017 was primarily due to net orders in excess of deliveries . the decrease in 2016 was primarily due to deliveries in excess of net orders . 26 accounting quantity the accounting quantity is our estimate of the quantity of airplanes that will be produced for delivery under existing and anticipated contracts .
| earnings from operations the following table summarizes earnings from operations : replace_table_token_6_th 19 earnings from operations in 2017 increased by $ 4,444 million compared with 2016 , primarily due to higher earnings at bca and bds , and higher unallocated pension income , which more than offset other unallocated items and eliminations . bca 's 2017 earnings increased by $ 3,437 million primarily reflecting lower reach-forward losses , lower research and development costs , and improved margins reflecting favorable cost performance , which more than offset the impact of lower revenues . in 2016 , bca recorded reach-forward losses of $ 1,258 million on the 747 program and reclassified $ 1,235 million of 787 flight test aircraft inventory costs to research and development expense . bds earnings from operations in 2017 increased by $ 257 million compared with 2016 primarily due to lower charges on the kc-46a tanker and commercial crew programs , which more than offset the impact of fewer c-17 deliveries and apache delivery mix . earnings from operations in 2016 decreased by $ 1,609 million compared with 2015 due to lower earnings at bca , partially offset by the change in unallocated pension and postretirement income/ ( expense ) . bca earnings in 2016 decreased by $ 2,289 million primarily due to the reclassification of $ 1,235 million of 787 flight test aircraft costs to research and development and higher reach-forward losses on the 747 and kc-46a tanker programs . the reclassification of flight test aircraft costs was recorded in the second quarter of 2016 as a result of our determination that two 787 flight test aircraft were no longer commercially saleable . the change in the unallocated pension and postretirement income/ ( expense ) in 2016 was primarily driven by lower service costs and lower amortization of actuarial losses . during 2017 , 2016 and 2015 , we recorded reach-forward losses on the kc-46a tanker program . in 2017 , we recorded charges of $ 471 million , of
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our investments in research and development may result in enhancements or products that may not achieve adequate levels of market adoption , are more expensive to develop than anticipated , may take longer to generate revenue or may generate less revenue than we anticipate . we expect that our results of operations and cash flows will be impacted by the timing , size and level of success of these product development investments . we also intend to continue to invest and expand our sales and marketing functions and channel programs , including expanding our global network of channel partners and carrying out associated marketing activities in key geographies . by investing in sales and technical training , demand generation and partner programs , we believe we can enable many of our partners to independently identify , qualify , sell and upgrade customers , with limited involvement from us . however , if we fail to effectively identify , train and manage our channel partners and to monitor their sales activity , as well as the customer support and services being provided to our customers in their local markets , our business , operating results , financial condition and cash flows could be harmed . in addition , we intend to expand and continue to invest in our international operations , which we believe will be an important factor in our continued growth . however , even though our revenue generated from customers outside of the united states was 23 % and 22 % of our total revenue for the fiscal years ended january 31 , 2015 and 2016 , our international operations are relatively new and we have limited experience operating in foreign jurisdictions . our inexperience in operating our business outside of the united states increases the risk that our international expansion efforts may not be successful . as a result of our strategy to increase our investments in research and development , sales , marketing , support and international expansion , we expect to continue to incur operating losses and negative cash flows from operations at least in the near future and may require additional capital resources to execute strategic initiatives to grow our business . 43 our business model currently , we sell our platform predominantly through a high touch , channel-fulfilled model . our global sales force works collaboratively with our channel partners . our channel partners typically place orders with us upon receiving an order from a customer and do not stock inventory . our sales organization is supported by systems engineers with deep technical expertise and responsibility for pre-sales technical support and engineering for our customers . we support our channel partners through product education and sales and support training . we intend to continue to invest in the channel to add more partners and to expand our reach to customers through our channel partners ' relationships . no channel partner represented over 10 % of revenue for the fiscal years ended january 31 , 2014 , 2015 and 2016. our business model enables customers to broadly adopt flash for a wide variety of workloads in their data center , with some of our most innovative customers adopting all-flash data centers . we do not charge separately for software , meaning that when a customer buys a flasharray , all software functionality of the purity operating environment is included in the base purchase price , and the customer is entitled to updates and new features as long as the customer maintains an active maintenance and support agreement . product revenue is recognized at the time title and risk of loss have transferred . support revenue is recognized ratably over the term of the related maintenance and support agreement , generally ranging from 1 to 3 years . by keeping our business model simple and efficient , we allow customers to buy more products and expand their footprint more easily while allowing us to reduce our sales and marketing costs . to deliver on the next level of operational simplicity and support excellence , we designed pure1 , our integrated cloud-based management and support . pure1 enables our customers , support staff and partners to collaborate to achieve the best customer experience and is included with an active maintenance and support agreement . in addition , our forever flash program provides our customers who continually maintain active maintenance and support for three years with an included controller refresh with each additional three year maintenance and support renewal . in this way , our customers improve and extend the service life of their arrays , we reduce our cost of support by keeping the array modern and we encourage capacity expansion . in accordance with multiple-element arrangement accounting guidance , we recognize the allocated revenue of the controllers and expense the related cost in the period in which we ship these controllers . the combination of our high-performance , all-flash products , our exceptional support and our innovative business model has had a substantial impact on customer success and loyalty and are strong drivers of both initial purchase and additional purchases of our products . for all customers that have been with us for at least 12 months as of january 31 , 2016 , for every $ 1 of initial product purchase , our top 25 customers on average spent more than $ 12 on new product purchases in the first 18 months following their initial purchase . factors affecting our performance adoption of all-flash storage systems organizations are increasingly replacing traditional disk-based systems with all-flash storage systems to achieve the performance they need . our success depends on the adoption of all-flash storage systems in it infrastructures . although flash is expected to penetrate the data center at a rapid rate , a lack of demand for all-flash storage systems for any reason , including technological challenges associated with the use of all-flash memory , the cost or availability of all-flash memory or the adoption of competing technologies and products , would adversely affect our growth prospects . story_separator_special_tag to the extent more organizations recognize the benefits of all-flash memory in data center storage systems and as the adoption of all-flash memory storage technology increases , our target customer base will expand . our business and results of operations will be significantly affected by the speed with which organizations implement all-flash storage systems . 44 adding new customers and expanding sales to our existing customer base we believe that the all-flash storage market is still in the early stages of adoption . we intend to target new customers by continuing to invest in our field sales force and extending our relationships with channel partners . we also intend to continue to target large customers including enterprises , service providers and government organizations who have yet to adopt all-flash storage throughout their it environment . a typical initial order involves educating prospective customers about the technical merits and capabilities and potential cost savings of our products as compared to our competitors ' products . we believe that customer references have been , and will continue to be , an important factor in winning new business . the average size of arrays deployed by our customers has increased over time . we expect this trend to continue and that a substantial portion of our future sales will be sales to existing customers , including expansion of their arrays . we sell additional products and services to our customers as the data within their existing application deployments naturally grows and they migrate additional applications to our all-flash storage platform . our business and results of operations will depend on our ability to continue to add new customers and sell additional products to our growing base of customers . leveraging channel partners we sell our products predominantly through a channel-fulfilled model . our sales force supports our channel partners and is responsible for large account penetration , global account coordination and overall market development . our channel partners help market and sell our products , typically with assistance from our sales force . this joint sales approach provides us with the benefit of direct relationships with substantially all of our customers and expands our reach through the relationships of our channel partners . we intend to continue to expand our partner relationships to further extend our distribution coverage and to invest in education , training and programs to increase the ability of our channel partners to sell our products independently . our business and results of operations will be materially affected by our success in leveraging our channel partners . investing in research and development for growth our future performance will also depend on our ability to continue to innovate , improve functionality in our products and adapt to new technologies or changes to existing technologies . we intend to continue to invest for long-term growth . accordingly , we expect to continue to invest heavily in our product development efforts , including software development in the purity operating environment and pure1 to further expand the capabilities and performance of our storage platform , hardware development in our flasharray and future hardware platforms , and to introduce new products including new releases and upgrades to our software and hardware . we expect that our results of operations will be impacted by the timing , size and level of success of these product development investments . components of results of operations revenue we derive revenue from the sale of our storage products and support services . provided that all other revenue recognition criteria have been met , we typically recognize product revenue upon shipment , as title and risk of loss are transferred to our channel partners at that time . products are typically shipped directly by us to customers , and our channel partners do not stock our inventory . we expect our product revenue may vary from period to period based on , among other things , the timing and size of orders and delivery of products and the impact of significant transactions . we provide our support services pursuant to maintenance and support agreements , which involve customer support , hardware maintenance and software upgrades for a period of generally 1 to 3 years . we recognize revenue from maintenance and support agreements over the contractual service period . we expect our support revenue to increase as we add new customers and our existing customers renew maintenance and support agreements . 45 cost of revenue cost of product revenue primarily consists of costs paid to our third-party contract manufacturers , which includes the costs of our components , and personnel costs associated with our manufacturing operations . personnel costs consist of salaries , bonuses and stock-based compensation expense . our cost of product revenue also includes freight , allocated overhead costs and inventory write-offs . allocated overhead costs consist of certain facilities and it costs . we expect our cost of product revenue to increase in absolute dollars as our product revenue increases . cost of support revenue includes personnel costs associated with our customer support organization and allocated overhead costs . cost of support revenue also includes parts replacement costs . we expect our cost of support revenue to increase in absolute dollars as our support revenue increases . operating expenses our operating expenses consist of research and development , sales and marketing and general and administrative expenses . salaries and personnel-related costs , including stock-based compensation expense , are the most significant component of each category of operating expenses . operating expenses also include allocated overhead costs for facilities and it costs . research and development . research and development expense consists primarily of employee compensation and related expenses , prototype expenses , depreciation associated with assets acquired for research and development , third-party engineering and contractor support costs , as well as allocated overhead . we expect our research and development expense to increase in absolute dollars , as we continue to invest in new products and existing products and build upon our technology leadership . sales and marketing .
| the number of customers grew from approximately 200 as of january 31 , 2014 to over 700 as of january 31 , 2015. the increase in support revenue was driven primarily by an increase in maintenance and support agreements sold with increased product sales , as well as the full year revenue impact from such agreements sold in the previous year . 48 cost of revenue and gro ss margin replace_table_token_9_th cost of revenue increased by $ 90.3 million , or 116 % , for the fiscal year ended january 31 , 2016 compared to the fiscal year ended january 31 , 2015. the increase in product cost of revenue was primarily driven by increased product sales and , to a lesser extent , by the increased costs in our manufacturing operations . the increase in support cost of revenue was primarily attributable to higher costs in our customer support organization primarily driven by increased personnel costs and an increase in parts replacement in support of our maintenance and support agreements . total headcount in these functions increased 84 % from january 31 , 2015 to january 31 , 2016. total gross margin increased from 56 % during the fiscal year ended january 31 , 2015 to 62 % during the fiscal year ended january 31 , 2016. product gross margin increased 6 points from the fiscal year ended january 31 , 2015 to the fiscal year ended january 31 , 2016 , primarily driven by a shift in the mix of products sold as we transitioned to flasharray//m , as well as continued cost reduction on certain key components . support gross margin increased 18 points from the fiscal year ended january 31 , 2015 to the fiscal year ended january 31 , 2016 , primarily due to increased recognition of deferred support revenue resulting from the increase in our customer base as well as operational efficiencies . cost of revenue increased by $ 53.4 million , or 221 % , for the fiscal year ended january 31 , 2015 compared to the fiscal year ended january
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other underwriting expenses represent the general and administrative expenses of our insurance business including employment costs , telecommunication and technology costs , and legal and auditing fees . net investment income net investment income is an important component of our results of operations . we earn investment income on our portfolio of cash and invested assets . our cash and invested assets are primarily comprised of fixed-maturity securities , and may also include cash and cash equivalents , equity securities and short-term investments . the principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio . as measured by amortized cost ( which excludes changes in fair value , such as changes in interest rates ) , the size of our investment portfolio is mainly a function of our invested equity capital along with premiums we receive from our insureds less payments on policyholder claims . 39 change in fair value of equity securities change in fair value of equity securities represents the increase or decrease in the market value of equity securities held during the period . net realized investment gains ( losses ) on investments net realized investment gains ( losses ) on investments are a function of the difference between the amount received by us on the sale of a security and the security 's amortized cost , as well as any `` other-than-temporary '' impairments recognized in earnings . income tax expense currently all of our income tax expense relates to federal income taxes . kinsale insurance is generally not subject to income taxes in the states in which it operates ; however , our non-insurance subsidiaries are subject to state income taxes . the amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect . key metrics we discuss certain key metrics , described below , which provide useful information about our business and the operational factors underlying our financial performance . underwriting income is a non-gaap financial measure . we define underwriting income as pre-tax income , excluding net investment income , net investment gains and losses , and other income and expenses . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income in accordance with gaap to underwriting income . net operating earnings is a non-gaap financial measure . we define net operating earnings as net income excluding net unrealized gains and losses on equity securities , after taxes , and net realized gains and losses on investments , after taxes . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income in accordance with gaap to net operating earnings . loss ratio , expressed as a percentage , is the ratio of losses and loss adjustment expenses to net earned premiums , net of the effects of reinsurance . expense ratio , expressed as a percentage , is the ratio of underwriting , acquisition and insurance expenses to net earned premiums . combined ratio is the sum of the loss ratio and the expense ratio . a combined ratio under 100 % generally indicates an underwriting profit . a combined ratio over 100 % generally indicates an underwriting loss . return on equity is net income as a percentage of average beginning and ending total stockholders ' equity during the period . operating return on equity is a non-gaap financial measure . we define operating return on equity as net operating earnings expressed as a percentage of average beginning and ending total stockholders ' equity during the period . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income in accordance with gaap to operating income . net retention ratio is the ratio of net written premiums to gross written premiums . gross investment return is investment income from fixed-maturity and equity securities , before any deductions for fees and expenses , expressed as a percentage of average beginning and ending balances of those investments during the period . 40 story_separator_special_tag adverse development largely resulted from management 's decision to lengthen the actuarial loss development factors in certain lines to provide for emergence of reported losses over a longer period of time , which added a modest amount of conservatism to the company 's incurred but not reported ( `` ibnr '' ) reserves . on an inception-to-date basis , all accident years have developed favorably , with the exception of the 2011 accident year . during the year ended december 31 , 2018 , loss reserves for prior accident years developed favorably by $ 7.0 million , which was largely attributable to accident years 2016 and 2017 of $ 10.6 million . this favorable development was offset in part by adverse development in the accident years 2011 through 2015 of $ 3.6 million . the following tables summarize the effect of the factors indicated above on the loss ratios for the years ended december 31 , 2019 and 2018 : replace_table_token_14_th expense ratio the following table summarizes the components of the expense ratio for the years ended december 31 , 2019 and 2018 : replace_table_token_15_th the overall expense ratio was lower for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . the decrease in the expense ratio was due to higher net earned premiums without a proportional increase in the amount of other underwriting expenses . this decrease was offset in part by higher net commissions incurred as a percentage of earned premiums year over year , which was largely due to lower ceding commissions as a result of a change in the mix of business , some of which has no ceding commissions . story_separator_special_tag in addition , as previously discussed , we increased the retention on our reinsurance treaties , which resulted in lower ceded premiums and 43 associated commissions for the year ended december 31 , 2019. direct commissions paid as a percent of gross written premiums was 14.6 % and 14.7 % for the years ended december 31 , 2019 and 2018 , respectively . investing results our net investment income increased by 28.3 % to $ 20.1 million for the year ended december 31 , 2019 from $ 15.7 million for the year ended december 31 , 2018 , primarily due to growth in our investment portfolio balance generated from excess operating funds and to a lesser degree , proceeds from our equity offering in august 2019. the following table summarizes the components of net investment income and net investment gains for the years ended december 31 , 2019 and 2018 : replace_table_token_16_th the weighted average duration of our fixed income portfolio , including cash equivalents , was 4.3 years at december 31 , 2019 and 3.9 years at december 31 , 2018 . our investment portfolio had a gross return of 3.1 % as of december 31 , 2019 , compared to 3.0 % as of december 31 , 2018 . during the year ended december 31 , 2019 , we recognized unrealized gains related to our equity portfolio of $ 12.4 million . these gains resulted from higher equity valuations for the year ended december 31 , 2019 and was reflective of gains in the broader stock markets during this period . for the year ended december 31 , 2018 , we recognized unrealized losses related to our equity portfolio of $ 6.6 million and was largely due to a significant decline in the broader stock markets , which occurred during the fourth quarter of 2018. we perform quarterly reviews of all available-for-sale securities within our investment portfolio to determine whether any other-than-temporary impairment has occurred . management concluded that there were no other-than-temporary impairments from available-for-sale securities with unrealized losses for the year ended december 31 , 2019 or 2018. income tax expense our effective tax rate for the year ended december 31 , 2019 was approximately 16.7 % compared to 16.5 % for the year ended december 31 , 2018. the effective tax rate was lower than the statutory rate of 21 % principally due to stock options exercised and the recognition of tax benefits related to income tax-advantaged investment securities . 44 return on equity our return on equity was 18.9 % for the year ended december 31 , 2019 compared to 13.5 % for the year ended december 31 , 2018. operating return on equity was 15.9 % for the full year of 2019 , an increase from 15.4 % for the full year of 2018. the increase in the operating return on equity was primarily due to growth in the business year over year , offset in part by the impact of the equity offering of $ 65.9 million in august 2019. liquidity and capital resources sources and uses of funds we are organized as a delaware holding company with our operations primarily conducted by our wholly-owned insurance subsidiary , kinsale insurance , which is domiciled in arkansas . accordingly , kinsale may receive cash through ( 1 ) loans from banks , ( 2 ) issuance of equity and debt securities , ( 3 ) corporate service fees from our insurance subsidiary , ( 4 ) payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other transactions and ( 5 ) dividends from our insurance subsidiary . we may use the proceeds from these sources to contribute funds to kinsale insurance in order to support premium growth , reduce our reliance on reinsurance , pay dividends and taxes and for other business purposes . we receive corporate service fees from kinsale insurance to reimburse us for most of the operating expenses that we incur . reimbursement of expenses through corporate service fees is based on the actual costs that we expect to incur with no mark-up above our expected costs . we file a consolidated federal income tax return with our subsidiaries , and under our corporate tax allocation agreement , each participant is charged or refunded taxes according to the amount that the participant would have paid or received had it filed on a separate return basis with the internal revenue service . state insurance laws restrict the ability of kinsale insurance to declare stockholder dividends without prior regulatory approval . state insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus . the maximum dividend distribution kinsale insurance may make absent the approval or non-disapproval of the insurance regulatory authority in arkansas is limited by arkansas law to the greater of ( 1 ) 10 % of policyholder surplus as of december 31 of the previous year , or ( 2 ) net income , not including realized capital gains , for the previous calendar year . the arkansas statute also requires that dividends and other distributions be paid out of positive unassigned surplus without prior approval . the maximum amount of dividends kinsale insurance can pay us during 2020 without regulatory approval is $ 40.7 million . insurance regulators have broad powers to ensure that statutory surplus remains at adequate levels , and there is no assurance that dividends of the maximum amount calculated under any applicable formula would be permitted . in the future , state insurance regulatory authorities that have jurisdiction over the payment of dividends by kinsale insurance may adopt statutory provisions more restrictive than those currently in effect . kinsale insurance paid $ 5.0 million of dividends to us during 2019. see also `` risk factors — risks related to our business and our industry — because we are a holding company and substantially all of our operations are conducted by our insurance subsidiary , our ability to pay dividends depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary . ''
| the increase in our underwriting income was attributable to a combination of growth in the business , lower catastrophe losses and higher net favorable development of loss reserves for prior accident years . the corresponding combined ratios were 84.7 % for the year ended december 31 , 2019 compared to 85.3 % for the year ended december 31 , 2018 . premiums gross written premiums were $ 389.7 million for the year ended december 31 , 2019 compared to $ 275.5 million for the year ended december 31 , 2018 , an increase of $ 114.2 million , or 41.4 % . the increase in gross written premiums for the for the year ended december 31 , 2019 over the prior year was due to higher submission activity from brokers across most lines of business and better pricing on bound accounts , resulting from favorable market conditions . the average premium per policy written by us was $ 8,200 in 2019 compared to $ 7,800 in 2018. excluding our personal lines insurance , which has relatively low premiums per policy written , the average premium per policy written was approximately $ 10,800 in 2019 compared to $ 10,400 in 2018. the increase in the average premium per policy written was due to changes in the mix of business and higher rates on bound accounts during 2019 compared to the prior year . the changes in gross written premiums were most notable in the following lines of business : construction , which represented approximately 18.2 % of our gross written premiums in 2019 , increased by $ 20.2 million , or 39.6 % , for the year ended december 31 , 2019 over the prior year ; commercial property , which represented approximately 7.5 % of our gross written premiums in 2019 , increased by $ 19.9 million , or 217.6 % , for the year ended december 31 , 2019 over the prior year ; small business , which represented approximately
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the portion of the transaction price allocated to support and maintenance is recognized ratably over the non-cancelable contract term . software licenses : software licenses revenue reflects fees we charge to license software on a perpetual basis . for software licenses that do not include significant customization we recognize revenue at the point in time where the customer has obtained access to the intellectual property and the license period has commenced . certain of our software arrangements require significant customization and modification and involve extended implementation periods . in these arrangements the professional services and software license are highly interdependent and we treat the software license and professional services as a combined performance obligation . we recognize revenue for the combined performance obligation over time and measure progress to completion based on labor hours incurred as a percentage of total expected labor hours . we believe the use of labor hours as an input measure provides a faithful depiction of the transfer of goods and services under these contracts . 25 support and maintenance : our software licenses are generally sold with post-contract support which is comprised of technical support and unspecified software upgrades . unspecified upgrades refer to software upgrades which we make available at our discretion and from time-to-time , on a “ when and as available ” basis . we account for post-contract support as a stand-ready performance obligation and recognize revenue ratably over the non-cancelable contract term which is typically one year . professional services : our professional services revenue is normally comprised of implementation , consulting and training services . except for professional service performance obligations that form part of an overall , highly customized arrangement , our professional services typically represent distinct performance obligations and revenue is recognized as the services are performed . other : other revenue which remains a minor component of total revenue is derived from the sale of equipment and supplies and is recognized at the point in time control transfers to the customer . critical accounting policies and significant judgments and estimates we believe that several accounting policies are important to understanding our historical and future performance . we refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate , and different estimates - which also would have been reasonable - could have been used . these critical accounting policies and estimates relate to revenue recognition , the valuation of goodwill and intangible assets , the valuation of acquired performance obligations , income taxes and capitalized software costs . these critical policies and our procedures related to these policies are discussed below . in addition , refer to note 2 significant accounting policies to our consolidated financial statements included in item 8 of this annual report on form 10-k for further details regarding this matter . revenue recognition effective july 1 , 2018 we adopted a new accounting standard related to revenue recognition . the new revenue standard applies to all customer contracts and requires that revenue be recognized upon the transfer of control of the product or service to the customer at an amount we expect to be entitled to in exchange for those products and services . we recognize revenue according to the following five step model : identifying the contract ( or contracts ) with a customer ; identifying the performance obligations in the contract ; determining the transaction price ; allocating the transaction price to the contractual performance obligations ; and recognizing revenue as performance obligations are satisfied . determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment . we account for a good or service as a distinct performance obligation when it is separately identifiable from other items in the contract and a customer can benefit from the good or service on its own . in determining whether a customer can benefit from a good or service on its own , we consider the complexity of any required integration or customization , the interdependency and interrelationship of the particular good or service to other items in the contract and the ability ( or inability ) of the customer 's personnel or other third party providers to successfully fulfill like goods or services . if a promised good or service does not meet the criteria to be accounted for as a separate performance obligation , it is combined with other items in the contract and treated as a combined performance obligation . revenue is then recognized in the amount of the transaction price allocated to the combined performance obligation as the combined performance obligation is transferred to the customer . the transaction price represents the amount of consideration that we expect to be entitled to receive under the contract and may involve significant judgment and estimation regarding the determination of variable consideration such as refunds , penalties , usage-based fees or similar items . unless we meet certain exceptions , we are required to estimate the amount of variable consideration we expect to receive under the contract . in formulating this estimate , we consider the specific customer 's operating history with us , current usage data and the length of time over which the fees are expected to be incurred . we include estimated variable consideration in the transaction price if we conclude that a significant future reversal of revenue under the contract will not occur . the transaction price is allocated to the individual performance obligations in a contract . if a contract only has one performance obligation ( for example , a professional services only engagement ) the entire transaction price is allocated to that performance obligation . for contracts with multiple performance obligations , the transaction price is allocated to each performance obligation based on the proportionate relationship of that performance obligation 's standalone selling price to the total transaction price . story_separator_special_tag determining the standalone selling price ( ssp ) involves significant judgment and estimation . we determine ssp by considering our overall pricing objectives and market conditions and we typically define ssp as an overall pricing range for individual products and services due to the stratification of those products and services by customer size and geography . in most cases we use an adjusted market assessment approach to estimate ssp and consider the following : 26 the price we charge when we sell that item separately ; internal price lists and internal pricing guidelines ; cost of delivering the item and overall gross margin expectations ; and information about the customer or class of customer . revenue is recognized for each performance obligation as we satisfy the obligation . performance obligations are satisfied either over time or at a point in time . our perpetual license and term license obligations that do not include significant customization are normally satisfied at a point in time . our professional services , support and maintenance , stand-ready performance obligations with respect to our hosted or saas solutions and software licenses dependent on significant customization by us are normally satisfied over time . deferred costs under the revenue standard , certain costs that we historically expensed as incurred are now required to be capitalized . costs capitalized can relate to either costs to fulfill a contract or costs to obtain a contract . we capitalize costs incurred to fulfill a contract when the costs relate directly to a specifically identifiable customer contract , when the costs generate or enhance the resources that we will use to satisfy performance obligations in the future and when we estimate that we will recover the costs through future revenues under the contract . costs incurred to obtain a contract are those incremental costs that would not have been incurred if the contract had not been obtained , such as sales commissions . we capitalize sales commissions when we estimate that the capitalized amounts will be recovered through future revenues under the contract and the period of benefit is longer than twelve months . any costs that we capitalize are amortized to expense over the period in which we expect to transfer the specific goods or services to the customer . estimating the expected period of benefit involves judgment . we estimate the future period of benefit after considering a number of factors , including the current contract term , estimated customer renewal terms and the estimated life of the technology solution underlying the contract . goodwill and acquired intangible assets goodwill and acquired intangible assets are initially recorded at fair value and tested periodically for impairment . we performed our annual impairment test of the carrying value of our goodwill for fiscal year 2019 during our fourth quarter , which is consistent with the historic timing of our annual goodwill impairment review . our analysis of goodwill impairment was performed at the reporting unit level , which requires an estimate of the fair value of each reporting unit . based on the results of our annual impairment review during the fourth quarter of fiscal year 2019 , we concluded there was no goodwill impairment in any of our reporting units . however , there can be no assurance that there will not be impairment charges in subsequent periods as a result of our future impairment reviews . to the extent that future impairment charges occur , it would have a material impact on our financial results . at june 30 , 2019 , the carrying value of goodwill for all of our reporting units was $ 206.1 million . we also perform periodic reviews of the carrying value and amortization periods of our other acquired intangible assets . these acquired intangible assets consist primarily of acquired customer related assets and acquired core technology . in evaluating potential impairment of these assets we specifically consider whether any indicators of impairment are present , including : whether there has been a significant adverse change in the business climate that affects the value of an asset ; whether there has been a significant change in the extent or manner in which an asset is used ; and whether there is an expectation that the asset will be sold or disposed of before the end of its originally estimated useful life . if indicators of impairment are present , an estimate of the undiscounted cash flows that the specific asset is expected to generate must be made to ensure that the carrying value of the asset can be recovered . at june 30 , 2019 , the carrying value of our acquired intangible assets , excluding goodwill , capitalized software and purchased software , was $ 121.6 million . as a result of our fiscal year 2019 impairment review , we concluded that none of these assets were impaired . valuation of acquired intangible assets and acquired performance obligations in connection with our acquisitions , we have recorded acquired intangible assets relating principally to customer related assets , acquired technology and acquired contractual rights that include favorable economic terms as compared to overall market rates at the date of acquisition . the valuation process used to calculate the values assigned to these acquired intangible assets is complex and involves significant estimation relative to our financial projections . one of the principal components of the valuation process is the determination of discounted future cash flows , and there are a number of variables that we consider for purposes of projecting these future cash flows . there is inherent uncertainty involved with this estimation process and , while our estimates are consistent with our internal planning assumptions , the ultimate accuracy of these estimates is only verifiable over time . further , the 27 projections required for the valuation process generally utilize at least a ten-year forecast , which exceeds our normal internal planning and forecasting timeline .
| the fiscal 2019 revenue increase was attributable to revenue increases in our cloud solutions segment of $ 20.3 million , our payments and transactional documents segment of $ 5.5 million and our banking solutions segment of $ 2.1 million . increased revenue from our legal spend management and paymode-x settlement network solution accounted for the revenue increase in our cloud solutions segment . the revenue increase in our payments and transactional documents segment was related to higher european subscriptions and transactions revenue in our payment products . 24 the banking solutions segment 's revenue increase was primarily due to new customer engagements and platform go-lives , as customers continued to deploy our solutions . net income was $ 9.4 million in the fiscal year ended june 30 , 2019 compared to net income of $ 9.3 million in the prior fiscal year . our net income for the fiscal year ended june 30 , 2019 was favorably impacted by gross profit expansion of $ 18.6 million and a reduction in other expense , net of $ 7.8 million , primarily due to a decrease in the amortization of debt discount costs . in addition , in fiscal 2019 we recorded as a component of other income , a non-recurring gain of $ 7.3 million upon the liquidation of an investment we held . in fiscal 2018 , we recorded non-recurring other income of $ 6.1 million attributable to the sale of a cost-method investment . these improvements were partially offset by an increase in operating expenses of $ 20.6 million as we continued to invest in development and sales and marketing and a decrease in our income tax benefit of $ 5.7 million . the increase in gross margins was driven by increases in revenue in our cloud solutions , payments and transactional documents and banking solutions segments . the increase in operating expenses was driven by increased product development and engineering costs of $ 9.9 million as we continued to invest in new product innovation , increased sales and marketing costs of $ 9.2 million and increased general and administrative costs of
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we seek to maintain relatively constant gross profit dollars per unit sold on each of our products as the cost of our raw materials increase or decrease , subject to competitive pricing pressures that may negatively impact our gross profit dollars per unit sold . since we expect that we will continue to experience fluctuations in our raw material costs and resulting prices in the future , we believe that gross profit dollars is the best measure of our profitability from the sale of our products , as opposed to gross profit as a percentage of sales . we use the last in , first out ( “ lifo ” ) method of valuing the majority of our inventory , which causes the most recent product costs to be recognized in our income statement . the valuation of lifo inventory for interim periods is based on our estimates of fiscal year-end inventory levels and costs . the lifo inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current chemical raw material prices . our lifo reserve decreased by $ 2.7 million in fiscal 2017 due to a reduction in inventory costs per unit over a wide variety of products and lower volumes of certain inventory on hand , 15 resulting in an increase to our reported gross profit for the year . our lifo reserve decreased by $ 1.4 million in fiscal 2016 due to a decrease in certain inventory volumes on hand , along with lower commodity prices , resulting in an increase to our reported gross profit for the year . we disclose the sales of our bulk commodity products as a percentage of total sales dollars for our industrial and water treatment segments . our definition of bulk commodity products includes products that we do not modify in any way , but receive , store , and ship from our facilities , or direct ship to our customers in large quantities . we review our sales reporting on a periodic basis to ensure we are including all products that meet this definition . the disclosures in this document referring to sales of bulk commodity products have been updated for all periods presented based on the most recent review . story_separator_special_tag related to our acquisition of stauber . operating income in our industrial segment increased by $ 1.2 million primarily as a result of the gross profit improvement discussed above . operating income for the water treatment segment was flat compared to the prior year as the increase in gross profit was offset by increased sg & a expenses . interest ( expense ) income , net interest expense increased by $ 1.8 million for fiscal 2017 due to the interest costs on the debt added at the end of the third quarter of fiscal 2016 to partially fund the stauber acquisition . income tax provision our effective income tax rate was 37.4 % for fiscal 2017 compared to 40.2 % for fiscal 2016 . our effective tax rate for fiscal 2016 was negatively impacted by income tax expense of approximately $ 0.5 million associated with $ 1.4 million of stauber acquisition related expenditures which were not deductible for tax purposes and were recorded as discrete items during fiscal 2016. our effective tax rate for 2016 was also negatively impacted by $ 0.2 million related to a preliminary audit finding by a state income 17 tax jurisdiction covering multiple years . the effective tax rate is generally impacted by projected levels of taxable income , permanent items , and state taxes . fiscal 2016 compared to fiscal 2015 sales sales increased $ 50.0 million , or 13.7 % , to $ 414.0 million for fiscal 2016 , as compared to sales of $ 364.0 million for fiscal 2015. our newly-established health and nutrition segment accounted for $ 33.9 million of the year-over-year increase and water treatment locations acquired in fiscal 2015 and 2016 accounted for $ 12.6 million of the increase . industrial segment . industrial segment sales increased $ 2.7 million , or 1.1 % , to $ 251.7 million for fiscal 2016. sales of bulk commodity products in the industrial segment were approximately 20 % of sales in fiscal 2016 compared to 23 % in fiscal 2015. an overall increase in sales volumes , driven in part by the 53 rd week in fiscal 2016 , along with a shift in product mix to more sales of products that carry higher per-unit selling prices , more than offset the impact of lower selling prices due to lower product costs and lower volumes sold on certain bulk commodity products . water treatment segment . water treatment segment sales increased $ 13.4 million , or 11.6 % , to $ 128.3 million for fiscal 2016. sales of bulk commodity products in the water treatment segment were approximately 16 % of sales in fiscal 2016 compared to 19 % in fiscal 2015. our locations acquired in fiscal 2015 and 2016 accounted for $ 12.6 million of the total increase in sales . also contributing to the year-over-year increase was an overall increase in sales volumes at our other locations , driven by the 53 rd week in fiscal 2016 , and higher sales volumes of specialty products , partially offset by lower volumes sold and lower selling prices on certain bulk commodity products . health and nutrition segment . story_separator_special_tag sales for our newly established health and nutrition segment were $ 33.9 million for the fourth quarter and full year of fiscal 2016. gross profit gross profit was $ 80.3 million , or 19.4 % of sales , for fiscal 2016 , an increase of $ 14.5 million from $ 65.8 million , or 18.1 % of sales , for fiscal 2015. our newly established health and nutrition segment accounted for $ 6.8 million of the increase , including an estimated $ 0.5 million related to the 53 rd week in fiscal 2016. including the health and nutrition segment , we estimate the total gross profit impact of the 53 rd week to be approximately $ 2.1 million of additional gross profit for the year . the lifo method of valuing inventory increased gross profit by $ 1.4 million for fiscal 2016 , while it decreased gross profit by $ 0.4 million for fiscal 2015. industrial segment . gross profit for the industrial segment was $ 38.0 million , or 15.1 % of sales , for fiscal 2016 , an increase of $ 4.3 million from $ 33.6 million , or 13.5 % of sales , for fiscal 2015. we estimate the gross profit impact of the 53 rd week in the industrial segment to be approximately $ 1.0 million of additional gross profit for the year . an increase in sales of specialized products that carry higher per-unit margins were partially offset by lower sales of bulk commodity products , which carry lower per-unit margins . the lifo method of valuing inventory increased gross profit in our industrial segment by $ 1.0 million in fiscal 2016 , while it decreased gross profit by $ 0.3 million in fiscal 2015. water treatment segment . gross profit for the water treatment segment increased $ 3.3 million to $ 35.5 million , or 27.6 % of sales , for fiscal 2016 , as compared to $ 32.2 million , or 28.0 % of sales , for fiscal 2015. the increase in gross profit dollars was largely driven by profits from our locations acquired in fiscal 2015 and 2016. we estimate the gross profit impact of the 53 rd week to be approximately $ 0.6 million of additional gross profit for the year . in addition , product margins at many of our other locations increased year over year on increased volumes , offset somewhat by increased operating expenses . the lifo method of valuing inventory increased gross profit by $ 0.4 million in fiscal 2016 , while it decreased gross profit by $ 0.1 million in fiscal 2015. health and nutrition segment . gross profit for our newly established health and nutrition segment was $ 6.8 million for the fourth quarter and full year of fiscal 2016. we estimate the gross profit impact of the 53 rd week to be approximately $ 0.5 million of additional gross profit for the year . inventories in this segment are valued using the fifo method . selling , general and administrative expenses sg & a expenses increased $ 13.7 million to $ 49.1 million , or 11.9 % of sales , for fiscal 2016 , as compared to $ 35.4 million , or 9.7 % of sales , for fiscal 2015. our newly established health and nutrition segment accounted for $ 7.7 million of the increase , 18 including $ 3.3 million in non-recurring costs directly related to the acquisition and $ 0.3 million related to the 53 rd week in fiscal 2016. sg & a expenses from our water treatment locations acquired in fiscal 2015 and 2016 accounted for $ 1.8 million of the increase . other drivers of the remaining expense increase are the addition of sales personnel in both our water treatment and industrial segments and added administrative positions to support our business growth needs , with an estimated $ 0.6 million of the increase attributable to the 53 rd week in fiscal 2016. operating income operating income was $ 31.2 million , or 7.5 % of sales , for fiscal 2016 , as compared to $ 30.4 million , or 8.4 % of sales , for fiscal 2015. operating income was negatively impacted by $ 3.3 million of non-recurring costs directly associated with the acquisition , which are included in our health and nutrition segment . operating income for the industrial segment increased by $ 2.0 million as a result of the gross profit and sg & a changes discussed above . operating income for the water treatment segment decreased $ 0.4 million , as increased sg & a expenses more than offset increases in gross profit as discussed above . interest ( expense ) income , net interest expense increased by $ 0.8 million for fiscal 2016 due to the interest costs on the debt added in fiscal 2016 to partially fund the stauber acquisition . income tax provision our effective income tax rate was 40.2 % for fiscal 2016 compared to 36.9 % for fiscal 2015. our effective tax rate for fiscal 2016 was negatively impacted by income tax expense of approximately $ 0.5 million associated with $ 1.4 million of stauber acquisition related expenditures which were not deductible for tax purposes and were recorded as discrete items during fiscal 2016. our effective tax rate for 2016 was also negatively impacted by $ 0.2 million related to a preliminary audit finding by a state income tax jurisdiction covering multiple years . the effective tax rate is generally impacted by projected levels of taxable income , permanent items , and state taxes . liquidity and capital resources cash provided by operating activities in fiscal 2017 was $ 44.9 million compared to $ 36.3 million in fiscal 2016 and $ 20.7 million in fiscal 2015 .
| sales for our health and nutrition segment were $ 116.1 million in fiscal 2017 , compared to $ 33.9 million for fiscal 2016 , as the prior year included only one quarter of activity due to the timing of the stauber acquisition . this compares to pro forma sales of $ 121.6 million for the comparable prior full-year period , which included the 53 rd week . gross profit gross profit was $ 98.1 million , or 20.3 % of sales , for fiscal 2017 , an increase of $ 17.8 million from $ 80.3 million , or 19.4 % of sales , for fiscal 2016 . the current year includes a full year of operating results for our health and nutrition segment as opposed to just one quarter of health and nutrition segment results in the prior year due to the timing of the stauber acquisition . we estimated the total gross profit impact of the 53 rd week in fiscal 2016 year to be approximately $ 2.1 million of additional gross profit in that year . the lifo method of valuing inventory increased gross profit by $ 2.7 million for fiscal 2017 , and increased gross profit by $ 1.4 million for fiscal 2016 . 16 industrial segment . gross profit for the industrial segment was $ 38.9 million , or 16.3 % of sales , for fiscal 2017 , an increase of $ 0.9 million from $ 38.0 million , or 15.1 % of sales , for fiscal 2016 . the lifo method of valuing inventory increased gross profit by $ 2.0 million in the current year and $ 1.0 million in the prior year . we estimated the gross profit impact of the 53 rd week in our industrial segment in fiscal 2016 to be approximately $ 1.0 million of additional gross profit in that year . despite lower sales volumes , driven largely by the 53 rd week in the prior year , gross profit dollars increased due to improved per-unit margins from certain of our specialized products , and the year-over-year impact from lifo . gross
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during the year ended december 31 , 2015 , the company incurred $ 8.6 million of related severance costs , consisting of $ 4.6 million in cash severance and approximately $ 4.0 million in non-cash stock compensation charges , which are included in the total merger , restructuring and transactions costs disclosed above . 2016 activity on june 20 , 2016 , the company announced the following leadership changes : ( 1 ) the resignation of mr. michael p. glimcher as the company 's chief executive officer and vice chairman of the board ; ( 2 ) the appointment of mr. louis g. conforti , a current board member , as interim chief executive officer ; ( 3 ) the resignation of mr. mark s. ordan as non-executive chairman of the board ; and ( 4 ) the resignation of mr. niles c. overly from the board . in july of 2016 , the company terminated some additional executive and non-executive personnel as part of an effort to reduce overhead costs . on october 6 , 2016 , the company announced that mr. conforti would serve as the company 's chief executive officer for a term ending december 31 , 2019 , subject to early termination clauses and automatic renewals pursuant to his employment agreement . in connection with and as part of the aforementioned management changes , the company recorded aggregate charges of $ 29.6 million during the year ended december 31 , 2016 , of which $ 25.5 million related to severance and restructuring-related costs , including $ 9.5 million of non-cash stock compensation for accelerated vesting of equity incentive awards , and $ 4.1 million related to fees and expenses incurred in connection with the company 's investigation of various strategic alternatives , which costs are included in merger , restructuring and transaction costs in the consolidated statements of operations and comprehensive income ( loss ) . during wpg inc. 's annual meeting of shareholders on august 30 , 2016 , the common shareholders approved a proposal to change wpg inc. 's name back to washington prime group inc. 2017 activity on september 28 , 2017 , mr. keric m. `` butch '' knerr , executive vice president and chief operating officer , informed the company of his resignation . mr. knerr 's final day of employment was october 13 , 2017. there were no severance payments or accelerated vesting of stock compensation benefits in connection with his resignation . the o'connor joint ventures the company has two joint ventures with o'connor mall partners , l.p. ( `` o'connor '' ) . the o'connor joint venture i on june 1 , 2015 , we completed a joint venture transaction with o'connor , an unaffiliated third party , with respect to the ownership and operation of five of the company 's enclosed retail properties and certain related out-parcels acquired in the merger , consisting of the following : the mall at johnson city located in johnson city , tennessee ; pearlridge center located in aiea , hawaii ; polaris fashion place® located in columbus , ohio ; scottsdale quarter® located in scottsdale , arizona ; and town center plaza ( which consists of town center plaza and the adjacent town center crossing ) located in leawood , kansas ( the `` o'connor joint venture i '' ) . the o'connor joint venture i was valued at approximately $ 1.625 billion , and we retained a 51 % non-controlling interest . the transaction generated net proceeds , after taking into consideration the assumption of debt and costs associated with the transaction , of approximately $ 432 million ( including $ 28.7 million for the partial reimbursement of the scottsdale quarter development costs ) , which was used to repay a portion of the bridge loan ( for definition , see `` financing and debt '' below ) . we deconsolidated the properties and recorded a gain in connection with this sale of $ 4.2 million , which is included in gain ( loss ) on disposition of interests in properties , net for the year ended december 31 , 2015 within the consolidated statements of operations and comprehensive income ( loss ) . we retained day to day management , leasing , and development responsibilities for the o'connor joint venture i . 41 during the year ended december 31 , 2016 , the o'connor joint venture i sold its 25 % indirect ownership interest in crescent-sdq iii venture , llc to unaffiliated third parties . the company received a cash distribution from the joint venture at closing of $ 4.4 million and recorded $ 0.3 million as our share of the joint venture 's gain , based on our pro-rata ownership interest in the o'connor joint venture i , which is recorded in income ( loss ) from unconsolidated entities on the consolidated statements of operations and comprehensive income ( loss ) . on march 2 , 2017 , the o'connor joint venture i acquired an additional section at pearlridge center for a gross purchase price of $ 70.0 million . pearlridge center is currently comprised of two distinct enclosed venues commonly referred to as uptown and downtown . the acquired section consists of approximately 153,000 square feet , which is part of uptown ( and referenced herein as pearlridge uptown ii ) , and is anchored by ross dress for less and tj maxx . subsequent to the purchase , the joint venture placed secured debt on the property ( see below for details ) . our share of the purchase price was funded by a combination of our share of the secured debt and availability on our credit facility . on march 30 , 2017 , the o'connor joint venture i closed on a $ 43.2 million non-recourse mortgage note payable with an eight year term and a fixed interest rate of 4.071 % secured by pearlridge uptown ii . the mortgage note payable requires monthly interest only payments until april 1 , 2019 , at which time monthly interest and principal payments are due until maturity . story_separator_special_tag our pro-rata share of the mortgage note payable issuance is $ 22.0 million . on march 29 , 2017 , the o'connor joint venture i closed on a $ 55.0 million non-recourse mortgage note payable with a ten year term and a fixed interest rate of 4.36 % secured by sections of scottsdale quarter® known as block k and block m. the mortgage note payable requires monthly interest only payments until may 1 , 2022 , at which time monthly interest and principal payments are due until maturity . our pro-rata share of the mortgage note payable issuance is $ 28.1 million . the o'connor joint venture ii during the year ended december 31 , 2017 , we completed an additional joint venture transaction with o'connor with respect to the ownership and operation of seven of the company 's retail properties and certain related outparcels , consisting of the following : the arboretum , located in austin , texas ; arbor hills , located in ann arbor , michigan ; classen curve and the triangle at classen curve , each located in oklahoma city , oklahoma and nichols hills plaza , located in nichols hills , oklahoma ( the `` oklahoma city properties , '' collectively ) ; gateway centers , located in austin , texas ; malibu lumber yard , located in malibu , california ; palms crossing i and ii , located in mcallen , texas and the shops at arbor walk , located in austin , texas ( the `` o'connor joint venture ii '' ) . the transaction valued the properties at $ 598.6 million before closing adjustments and debt assumptions . under the terms of the joint venture agreement , we retained a non-controlling 51 % interest in the o'connor joint venture ii and sold the remaining 49 % to o'connor . the transaction generated net proceeds to the company of approximately $ 138.9 million , after taking into consideration costs associated with the transaction and the assumption of debt ( including the new mortgage loans on the arboretum , gateway centers , and oklahoma city properties which closed prior to the joint venture transaction ; see `` financing and debt '' below for net proceeds to the company from the new mortgage loans ) , which we used to reduce the company 's debt as well as for general corporate purposes . we deconsolidated the properties included in the o'connor joint venture ii and recorded a gain in connection with this partial sale of $ 126.1 million , which is included in gain ( loss ) on disposition of interests in properties , net in the consolidated statements of operations and comprehensive income ( loss ) during the year then ended . the gain was recorded pursuant to accounting standards codification ( `` asc '' ) 360-20 and calculated based upon proceeds received , less 49 % of the book value of the deconsolidated net assets . our retained 51 % non-controlling equity method interest was valued at historical cost based upon the pro rata book value of the retained interest in the net assets . we retained management and leasing responsibilities of the properties , though our partner 's substantive participating rights over the decisions most important to the operations of the o'connor joint venture ii preclude our control and consolidation of this venture . in connection with the formation of this joint venture , we recorded transaction costs of approximately $ 6.4 million as part of our basis in this investment . outparcel sale on september 20 , 2017 , the company executed a purchase and sale agreement with an affiliate of four corners property trust , inc. ( `` fcpt '' ) to sell 41 restaurant outparcels located at 21 of the company 's enclosed retail properties and open air properties . on january 12 , 2018 , we completed the sale of the first tranche of restaurant outparcels which consisted of 10 restaurant outparcels , for an allocated purchase price of approximately $ 13.7 million . the net proceeds of approximately $ 13.5 million were used to fund future acquisitions and development and for general corporate purposes . the company expects to close on the second tranche in the second half of 2018 , subject to due diligence and closing conditions . 42 southgate mall on december 22 , 2017 the company executed a purchase agreement to acquire southgate mall , located in missoula , montana , for $ 58.0 million . due diligence was completed on february 21 , 2018 and the purchase is expected to be completed on or about april 20 , 2018. the purchase will be funded by a combination of proceeds from the transaction with fcpt ( see details under `` overview - basis of presentation - outparcel sale '' ) , the revolver and potentially the issuance of operating partnership units . the enclosed retail property contains approximately 632,000 square feet of gla and is anchored by a recently constructed amc theater , a new lucky 's market grocer that replaced a portion of a former sears , herberger 's , j.c. penney ( non-owned ) and dillard 's ( non-owned ) and is the dominant retail center in this secondary market , with no competitive destination retail product located within 130 miles . the cap rate on underwritten noi is approximately 10.4 % and will be accretive to the company 's earnings . impairment during the fourth quarter of 2017 , a major anchor tenant of rushmore mall , located in rapid city , south dakota , informed us of their intention to close their store at the property .
| on june 9 , 2016 , we transitioned merritt square mall , located in merritt island , florida , to the lender . on april 28 , 2016 , we transitioned chesapeake square , located in chesapeake , virginia , to the lender . on january 29 , 2016 , we completed the sale of forest mall and northlake mall . on june 1 , 2015 , we completed the transaction forming the o'connor joint venture i. on january 15 , 2015 , we acquired 23 properties in the merger . on january 13 , 2015 , we acquired canyon view marketplace , located in grand junction , colorado . year ended december 31 , 2017 vs. year ended december 31 , 2016 for the purposes of the following comparisons , the transactions listed above that occurred in the periods under comparison ( excluding the properties included in the o'connor joint venture ii and the discounted payoffs of mesa mall and southern hills mall , which are referred to as their respective capitalized terms ) are referred to as the `` property transactions , '' and `` comparable properties '' refers to the remaining properties we owned and operated throughout both years in the year-to-year comparisons . minimum rents decreased $ 56.4 million , primarily due to a $ 33.3 million decrease related to the property transactions and $ 23.6 million decrease related to the o'connor joint venture ii properties offset by a $ 0.5 million increase attributable to the comparable properties . overage rents decreased $ 3.8 million , primarily due to a $ 1.0 million decrease related to the property transactions , $ 1.3 million decrease related to the o'connor joint venture ii properties , and a $ 1.5 million decrease attributable to the comparable properties . tenant reimbursements decreased $ 28.2 million due to a $ 12.1 million decrease attributable to the property transactions , $ 8.0 million decrease related to the o'connor joint venture ii properties , and an $ 8.1 million decrease attributable to the comparable properties , primarily due to rent restructuring in leases for national retailers that filed bankruptcy in 2017 and 2016. other income increased $ 3.0 million , primarily due to a $ 2.2
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same store sales growth is driven by increases in transactions and average transaction size . transaction size increases are driven by price increases or favorable mix shift from either an increase in items purchased or shifts into higher priced items . adjusted ebitda . we define adjusted ebitda as net income before interest expense , net , income tax expense , and depreciation and amortization , with further adjustments for management fees and expense reimbursement , transaction costs , gains and losses on the disposal of assets , and stock-based compensation expense . adjusted ebitda may not be comparable to other similarly titled captions of other companies due to differences in methods of calculation . for a reconciliation of adjusted ebitda to net income and a further discussion of how we utilize this non-gaap financial measure , see “ selected historical consolidated financial and other data. ” the following table sets forth our key performance indicators for the fiscal years ended december 31 , 2016 , december 26 , 2015 and december 27 , 2014 ( in thousands , except unit data ) : replace_table_token_11_th key financial definitions revenue . our revenue is comprised of the collection of development fees , franchise fees , royalties , other fees associated with franchise and development rights , and sales of wings and other food and beverage products by our company-owned restaurants . the following is a brief description of our components of revenue : royalty revenue and franchise fees includes revenue we earn from our franchise business segment in the form of royalties , fees , and vendor contributions and rebates . royalties consist primarily of fees earned from franchisees equal to a percentage of gross franchise restaurant sales of all restaurants developed under the applicable franchise agreement . the majority of our franchise agreements require our franchise owners to pay us a royalty of 5.0 % of their gross sales net of discounts . development agreements entered into on or after july 1 , 2014 require our franchisees to pay us a royalty of 6.0 % of their gross sales net of discounts . franchise fees consist of initial development and franchise fees related to new restaurants , master license fees for international territories , fees to renew or extend franchise agreements and transfer fees . initial franchise fees are recognized upon the opening of a restaurant and are impacted by the number of new franchise store openings in a specified period . development and territory fees related to an individual restaurant are recognized upon the opening of each individual restaurant . royalty revenue and franchise fees also include revenue from vendor contributions and rebates that are attributable to system-wide volume purchases and are received for general marketing and other purposes . sales from company-owned restaurants are generated through sales of food and beverage at company-owned restaurants . cost of sales . cost of sales consists of direct food , beverage , paper goods , packaging , labor costs and other restaurant operating costs such as rent , restaurant maintenance costs and property insurance , at our company-owned restaurants . additionally , a portion of vendor rebates attributable to system-wide volumes purchases are recorded in cost of sales . the components of cost of sales are partially variable in nature and fluctuate with changes in sales volume , product mix , menu pricing and commodity costs . selling , general and administrative . sg & a costs consist of wages , benefits , franchise development expenses , other compensation , travel , marketing , accounting fees , legal fees , sponsor management fees and other expenses related to the infrastructure required to support our franchise and company-owned stores . depreciation and amortization . depreciation and amortization includes the depreciation of fixed assets , capitalized leasehold improvements and amortization of intangible assets . 45 interest expense . interest expense includes expenses related to borrowings under our senior secured credit facility and amortization of deferred debt issuance costs . income tax expense . income tax expense includes current and deferred federal tax expenses as well as state and local income taxes . the pre-ipo reorganization wingstop inc. was incorporated in delaware on march 18 , 2015. until the completion of the merger with wing stop holding corporation , which occurred on may 28 , 2015 , wingstop inc. was a direct wholly-owned subsidiary of wing stop holding corporation and had no material assets . as a result of the reorganization , the consolidated financial statements of wingstop inc. reflect the assets , liabilities and results of operations of wing stop holding corporation , but for historical periods , the consolidated financial statements are those of wing stop holding corporation . accordingly , the following discussion relates to the consolidated financial and other data of wing stop holding corporation as of and for the fiscal year ended december 27 , 2014 and relates to the consolidated financial and other data of wingstop inc. as of and for the fiscal years ended december 31 , 2016 and december 26 , 2015 following the reorganization . results of operations the following table presents the consolidated statement of operations for the past three fiscal years expressed as a percentage of revenue . replace_table_token_12_th ( * ) as a percentage of company-owned restaurant sales . exclusive of depreciation and amortization , shown separately . the percentages reflected have been subject to rounding adjustments . accordingly , figures expressed as percentages when aggregated may not be the arithmetic aggregation of the percentages that precede them . 46 year ended december 31 , 2016 compared to year ended december 26 , 2015 the following table sets forth information comparing the components of net income in fiscal year 2016 and fiscal year 2015 ( in thousands ) : replace_table_token_13_th ( 1 ) exclusive of depreciation and amortization , shown separately . total revenue . total revenue was $ 91.4 million in fiscal year 2016 , an increase of $ 13.4 million , or 17.2 % , compared to $ 78.0 million in the prior fiscal year . story_separator_special_tag royalty revenue and franchise fees . royalty revenue and franchise fees were $ 57.1 million in fiscal year 2016 , an increase of $ 10.4 million , or 22.2 % , compared to $ 46.7 million in the prior fiscal year . royalty revenue increased by $ 8.3 million primarily due to 157 franchise restaurant openings , domestic same store sales growth of 3.2 % , and approximately $ 0.9 million of additional revenue from the 53rd week . franchise fees increased by $ 0.7 million driven by 15 additional franchise restaurant openings in 2016 compared to restaurant openings in 2015 . other revenue increased $ 1.4 million primarily due to contributions received for our franchisee convention . the convention is held every 18 months , and there was no convention in 2015. company-owned restaurant sales . company-owned restaurant sales were $ 34.3 million in fiscal year 2016 , an increase of $ 3.0 million , or 9.6 % , compared to $ 31.3 million in the prior fiscal year . the increase is the result of company-owned domestic same store sales growth of 5.4 % , the addition of two company-owned restaurants during 2016 , and approximately $ 0.6 million of additional revenue from the 53rd week . cost of sales . cost of sales was $ 25.3 million in fiscal year 2016 , an increase of $ 3.1 million , or 13.9 % , compared to $ 22.2 million in the prior fiscal year . cost of sales as a percentage of company-owned restaurant sales was 73.8 % in fiscal year 2016 compared to 71.0 % in the prior fiscal year . 47 the table below presents the major components of cost of sales ( in thousands ) : replace_table_token_14_th food , beverage and packaging costs as a percentage of company-owned restaurant sales were 37.4 % in fiscal year 2016 compared to 36.8 % in the prior fiscal year . the increase is primarily due to a 4.4 % increase in commodities rates for bone-in chicken wings compared to the prior fiscal year and an increase in the average size of chicken wings . labor costs as a percentage of company-owned restaurant sales were 22.4 % in fiscal year 2016 compared to 20.8 % in the prior fiscal year . the increase as a percentage of company-owned restaurant sales is primarily due to investments in roster sizes and staffing to support the continued sales growth in our company-owned restaurants , as well as the ramp up of two company-owned restaurants that opened during 2016 as they achieve normal efficiency . other restaurant operating expenses as a percentage of company-owned restaurant sales were 16.8 % in fiscal year 2016 compared to 15.8 % in the prior fiscal year . the increase as a percentage of company-owned restaurant sales is primarily due to increased rent expense and pre-opening expenses associated with the opening of two company-owned restaurants . vendor rebates increased $ 0.2 million primarily due to contributions received from vendors during the second quarter of 2016 related to the franchisee convention . selling , general and administrative . sg & a expense was $ 33.8 million in fiscal year 2016 , an increase of $ 0.5 million , or 1.5 % , compared to $ 33.4 million in the prior fiscal year . the increase is primarily due to $ 1.1 million in expenses related to the franchisee convention , incremental costs of $ 0.6 million related to the 53rd week , and increases related to headcount additions and other recurring costs associated with being a public company incurred in the current fiscal year . these increases in sg & a are offset by a one-time fee of $ 3.3 million , paid in consideration for the termination of our management agreement with roark capital management in the prior fiscal year . depreciation and amortization . depreciation and amortization was $ 3.0 million in fiscal year 2016 , an increase of $ 0.3 million , or 12.2 % , compared to $ 2.7 million in the prior fiscal year . the increase in depreciation is primarily due to capital expenditures during the period . interest expense , net . interest expense was $ 4.4 million in fiscal year 2016 , an increase of $ 0.9 million , or 26.4 % , from $ 3.5 million in the prior fiscal year . the increase is primarily due to an increase in the principal amount of indebtedness and applicable interest rate related to the refinancing of our credit agreement in june 2016. income tax expense . income tax expense was $ 9.1 million in fiscal year 2016 , yielding an effective tax rate of 37.1 % , compared to an effective tax rate of 36.2 % in prior fiscal year . the increase in the rate is largely driven by an increase in the effective state rate , driven by a shift in state apportionment rates and total revenue mix . 48 story_separator_special_tag pt ; '' > in the prior fiscal year . the improvement is primarily due to the leveraging of fixed costs due to the company-owned domestic same store sales increase of 9.4 % and the refranchising of five restaurants with lower auvs than the remaining company-owned restaurants , which was partially offset by operating costs associated with our new pos system . vendor rebates decreased $ 0.4 million primarily due to a one-time reimbursement received during 2014 related to transition costs from the company 's change to a new distributor that offset expenses incurred due to the transition . selling , general and administrative . sg & a expense was $ 33.4 million in fiscal year 2015 , an increase of $ 7.3 million , or 28.2 % , compared to $ 26.0 million in the prior fiscal year . the increase in sg & a compare to the prior year is primarily due to a one-time fee paid of $ 3.3 million in consideration for the termination of our management agreement with roark capital management , as well as headcount additions and consulting/professional fees .
| % increase in commodities rates for bone-in chicken wings and investments in roster sizes and staffing to support the continued sales growth in our company-owned restaurants , as well as pre-opening costs and the ramp up of two company-owned restaurants that opened during 2016 as they achieve normal efficiency . the decrease is partially offset by the company-owned comparable same store sales increase of 5.4 % . 49 year ended december 26 , 2015 compared to year ended december 27 , 2014 the following table sets forth information comparing the components of net income in fiscal year 2015 and fiscal year 2014 ( in thousands ) . replace_table_token_16_th ( 1 ) exclusive of depreciation and amortization , shown separately . total revenue . total revenue was $ 78.0 million in fiscal year 2015 , an increase of $ 10.5 million , or 15.6 % , compared to $ 67.4 million in the prior fiscal year . royalty revenue and franchise fees . royalty revenue and franchise fees were $ 46.7 million in fiscal year 2015 , an increase of $ 8.7 million , or 22.8 % , compared to $ 38.0 million in the prior fiscal year . royalty revenue increased by $ 7.2 million primarily due to 142 franchise restaurant openings and domestic same store sales growth of 7.9 % in 2015 . franchise fees increased by $ 1.3 million driven by 40 additional franchise restaurant openings in 2015 compared to restaurant openings in 2014 . company-owned restaurant sales . company-owned restaurant sales were $ 31.3 million in fiscal year 2015 , an increase of $ 1.9 million , or 6.3 % , compared to $ 29.4 million in the prior fiscal year . the increase is the result of company-owned domestic same store sales growth of 9.4 % , which was partially offset by the refranchising of five corporate restaurants during the first quarter of 2014 . cost of sales . cost of
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48 on january 31 , 2013 , we completed a private offering which increased our total capital commitments to $ 1.5 billion ( $ 117.1 million from the adviser and its affiliates ) , the maximum agreed to with our investors . debt debt obligations consisted of the following as of december 31 , 2012 and 2011 : replace_table_token_15_th replace_table_token_16_th ( 1 ) the amount available considers any limitations related to the respective debt facilities ' borrowing bases . revolving credit facility ( suntrust ) on august 23 , 2012 , we entered into a senior secured revolving credit agreement ( the revolving credit facility ( suntrust ) ) . the parties to the revolving credit facility ( suntrust ) include the company , as borrower , the lenders from time to time parties thereto ( each a lender and collectively , the lenders ) and suntrust bank , as administrative agent . the revolving credit facility ( suntrust ) is guaranteed by tc lending , llc and certain domestic subsidiaries of the company that are formed or acquired by the company in the future ( collectively , the guarantors ) . proceeds from borrowings may be used for general corporate purposes , including the funding of portfolio investments . the maximum principal amount of the facility is $ 200 million , subject to availability under the borrowing base , which is based on the company 's portfolio investments and other outstanding indebtedness . maximum capacity may be increased to $ 300 million through the exercise by the borrower of an uncommitted accordion feature through which existing and new lenders may , at their option , agree to provide additional financing . the revolving credit facility ( suntrust ) includes a $ 30 million limit for swingline loans and a $ 20 million limit for letters of credit and is secured by a perfected first-priority interest in substantially the entire portfolio of investments held by the company and each guarantor . the availability period under the revolving credit facility ( suntrust ) will terminate on august 24 , 2015 ( the suntrust commitment termination date ) and it will mature on august 23 , 2016 ( the suntrust maturity date ) . during the period from the suntrust commitment termination date to the suntrust maturity date , the company will be obligated to make mandatory prepayments out of the proceeds of certain asset sales , and other recovery events and equity and debt issuances . we may borrow amounts in u.s. dollars or certain other permitted currencies . amounts drawn under the revolving credit facility ( suntrust ) , including amounts drawn in respect of letters of credit , will bear interest at 49 either libor plus a margin , or the prime rate plus a margin . we may elect either the libor or prime rate at the time of drawdown , and loans may be converted from one rate to another at any time , subject to certain conditions . we will also pay a fee of 0.50 % on undrawn amounts and , in respect of each undrawn letter of credit , a fee and interest rate equal to the then-applicable margin while the letter of credit is outstanding . the revolving credit facility ( suntrust ) includes customary covenants , including certain financial covenants related to asset coverage and liquidity and other maintenance covenants , as well as customary events of default . revolving credit facility ( natixis ) on may 8 , 2012 ( the natixis closing date ) , our wholly-owned subsidiary tpg sl spv , llc ( the subsidiary ) , a delaware limited liability company , entered into a revolving credit and security agreement ( the revolving credit facility ( natixis ) ) . parties to the agreement include tpg sl spv , llc , as borrower , and the lenders from time to time parties thereto , natixis , new york branch , as facility agent and the bank of new york mellon trust company , n.a. , as collateral agent . also on may 8 , 2012 , the company contributed certain investments to the subsidiary pursuant to the terms of a master sale and contribution agreement by and between the company and the subsidiary . no gain or loss was recognized as a result of the contribution . proceeds from the revolving credit facility ( natixis ) may be used to finance the acquisition of eligible assets by the subsidiary , including the purchase of such assets from the company . we retain a residual interest in assets contributed to or acquired by the subsidiary through our ownership of the subsidiary . the maximum principal amount of the facility is $ 100 million , subject to availability under the borrowing base , which is based on the amount of the subsidiary 's assets from time to time , and satisfaction of certain conditions , including an asset coverage test , an asset quality test and certain concentration limits . the agreement provides for a contribution and reinvestment period for up to 18 months after the natixis closing date ( the natixis commitment termination date ) . prior to the natixis commitment termination date , proceeds received by the subsidiary from interest , dividends , or fees on assets must be used to pay expenses and interest on outstanding borrowings , and the excess may be returned to the company , subject to certain conditions . proceeds received from principal on assets prior to the natixis commitment termination date must be used to make quarterly payments of principal on outstanding borrowings . following the natixis commitment termination date , proceeds received by the subsidiary from interest and principal on collateral assets must be used to make quarterly payments of principal on outstanding borrowings . proceeds received from interest and principal at the end of a reporting period that have not gone through a settlement process are considered to be restricted cash . story_separator_special_tag the revolving credit facility ( natixis ) will mature on may 8 , 2020. amounts drawn bear interest at libor plus a margin and the undrawn portion of the commitment bears an unutilized commitment fee of 0.75 % . the revolving credit facility ( natixis ) contains customary covenants , including certain maintenance covenants , and events of default . the revolving credit facility ( natixis ) is secured by a perfected first priority security interest in the assets of the subsidiary and on any payments received by the subsidiary in respect of such assets and , as such , are not available to pay the debts of the company . borrowings of the subsidiary are considered our borrowings for purposes of complying with the asset coverage requirements under the 1940 act . revolving credit facility ( dbtca ) on september 28 , 2011 , we entered into a revolving credit facility ( the initial dbtca revolving credit facility ) with deutsche bank trust company americas ( dbtca ) as administrative agent ( the administrative agent ) , and dbtca and certain of its affiliates as lenders . at closing , the maximum principal amount of the initial dtbca revolving credit facility was $ 150 million , subject to availability under the 50 borrowing base . on december 22 , 2011 , the initial dbtca revolving credit facility was amended and restated ( the revolving credit facility ( dbtca ) ) . under the revolving credit facility ( dbtca ) , the maximum principal amount was increased from $ 150 million to $ 250 million , including up to $ 75 million available for standby letters of credit , subject in each case to availability under a borrowing base which is based on unfunded capital commitments and outstanding indebtedness . the maximum principal amount of the revolving credit facility ( dbtca ) may be increased to up to $ 300 million upon request of the company within twelve months of closing and subject to payment of an additional fee . the option to increase the facility expired on september 28 , 2012. proceeds from the revolving credit facility ( dbtca ) may be used for investment activities , expenses , working capital requirements and general corporate purposes . the revolving credit facility ( dbtca ) matures upon the earlier of december 20 , 2013 , and 25 days prior to a qualifying initial public offering of the company . the revolving credit facility ( dbtca ) is secured by a perfected first priority security interest in the unfunded capital commitments of the company 's private investors , including assignment of the right to make capital calls , receive and apply capital contributions , enforce remedies and claims related thereto , and a pledge of the collateral account into which all capital calls flow . interest rates on obligations under the revolving credit facility ( dbtca ) are based on prevailing libor or prime lending rate plus an applicable margin . we may elect either the libor or prime rate at the time of draw-down , and loans may be converted from one rate to another at any time , subject to certain conditions . we also pay a fee of 0.375 % on undrawn amounts of the revolving credit facility . in respect of each letter of credit , we will pay a fee and a fixed rate while the letter of credit is outstanding . the revolving credit facility ( dbtca ) contains customary covenants on us and our subsidiaries , including requirements to deposit all capital call proceeds into a collateral account , restrict certain distributions , and restrict certain types and amounts of indebtedness . the revolving credit facility ( dbtca ) includes customary events of default . transfers of interests in the company by investors will require the prior consent of the administrative agent , which shall not be unreasonably withheld or delayed . such transfers may trigger mandatory prepayment obligations . as of december 31 , 2012 and 2011 , we were in compliance with the terms of our debt arrangements . we intend to continue to utilize our credit facilities to fund investments and for other general corporate purposes . off balance sheet arrangements information on our capital commitments from investors and commitments to fund investments is contained in note 7 to our consolidated financial statements for the year ended december 31 , 2012 , included in this annual report on form 10-k. contractual obligations a summary of our contractual payment obligations as of december 31 , 2012 , are as follows : replace_table_token_17_th 51 in addition to the contractual payment obligations in the table above , we also have commitments to fund investments . see note 7 to our consolidated financial statements for the year ended december 31 , 2012 , included in this annual report on form 10-k. current economic environment the u.s. capital markets have been experiencing extreme volatility and disruption for more than three years , and we believe that the u.s. economy has not fully recovered from a period of recession . disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities , resulting in illiquidity in parts of the capital markets . we believe these conditions may continue for a prolonged period of time or worsen in the future . a prolonged period of market illiquidity may have an adverse effect on our business , financial condition and results of operations . unfavorable economic conditions could also increase our portfolio companies ' funding costs , limit their access to the capital markets or result in a decision by lenders not to extend credit to them . these conditions could limit our investment originations , limit our ability to grow , negatively impact our operating results , and delay or prevent us from launching or completing an ipo . recent developments on january 31 , 2013 , the company concluded its private offerings by reaching $ 1.5 billion in committed capital .
| million , substantially all of which consisted of interest income . investment income from non-controlled , non-affiliated investments was $ 4.1 million while investment income from non-controlled , affiliated investments was $ 1.2 million . expenses our primary operating expenses include the payment of the management fee and , depending on our operating results , the incentive fee , expenses reimbursable under the administration agreement and the advisory agreement , and other direct expenses that we incur , such as compensation to our board and interest payable for borrowings . the management fee and incentive fee compensate our adviser for work in identifying , evaluating , negotiating , closing , monitoring , and realizing our investments . under the terms of the administration agreement , our adviser provides administrative services to us . these services include providing office space , equipment and office services , maintaining financial records , preparing reports to stockholders and reports filed with the sec , and managing the payment of expenses and the performance of administrative and professional services rendered by others . certain of these services are reimbursable to our adviser under the terms of the administration agreement . we bear all other costs and expenses of our operations and transactions . net expenses for the year ended december 31 , 2012 , were $ 22.9 million which consisted of $ 6.0 million of interest expense , $ 5.1 million in management fees ( net of waivers ) , $ 7.0 million in incentive fees , $ 2.9 million in professional fees , $ 0.3 million in directors ' fees , and $ 1.6 million in other general and administrative expenses and excise taxes . net expenses for the year ended december 31 , 2011 , were $ 6.8 million which consisted of $ 1.5 million of initial organization costs for which we were required to reimburse the adviser in accordance with the administration agreement , $ 0.8 million of interest expense , $ 1.6 million in management fees ( net of waivers ) , $ 0.3 million
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as of december 31 , 2017 , our rig fleet included 199 apex ® rigs . in connection with the development of horizontal shale and other unconventional resource plays , in the last five years we have added equipment to perform service intensive fracturing jobs . as of december 31 , 2017 , we had approximately 1.6 million horsepower in our pressure pumping fleet . in recent years , the industry-wide addition of new pressure pumping equipment to the marketplace and lower oil and natural gas prices have led to an excess supply of pressure pumping equipment in north america . we maintain a backlog of commitments for contract drilling revenues under term contracts , which we define as contracts with a fixed term of six months or more . our contract drilling backlog as of december 31 , 2017 and 2016 was $ 544 million and $ 417 million , respectively . approximately 19 % of the total contract drilling backlog at december 31 , 2017 is reasonably expected to remain after 2018. we generally calculate our backlog by multiplying the dayrate under our term drilling contracts by the number of days remaining under the contract . the calculation does not include any revenues related to other fees such as for mobilization , demobilization and customer reimbursables , nor does it include potential reductions in rates for unscheduled standby or during periods in which the rig is moving or incurring maintenance and repair time in excess of what is permitted under the drilling contract . in addition , our term drilling contracts are generally subject to termination by the customer on short notice and provide for an early termination payment to us in the event that the contract is terminated by the customer . for contracts that we have received an early termination notice , our backlog calculation includes the early termination rate , instead of the dayrate , for the period we expect to receive the lower rate . see “ item 1a . risk factors – our current backlog of contract drilling revenue may continue to decline and may not ultimately be realized , as fixed-term contracts may in certain instances be terminated without an early termination payment. ” our revenues , profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas . during periods of improved commodity prices , the capital spending budgets of oil and natural gas operators tend to expand , which generally results in increased demand for our services . conversely , in periods when these commodity prices deteriorate , the demand for our services generally weakens , and we experience downward pressure on pricing for our services . we are also highly impacted by operational risks , competition , the availability of excess equipment , labor issues , weather and various other factors that could materially adversely affect our business , financial condition , cash flows and results of operations . please see “ risk factors ” in item 1a of this report . for the three years ended december 31 , 2017 , our operating revenues consisted of the following ( dollars in thousands ) : replace_table_token_8_th generally , the revenues in our contract drilling segment are most impacted by two primary factors : our average number of rigs operating and our average revenue per operating day . during 2017 , our average number of rigs operating was 136 in the united states and two in canada , compared to 63 in the united states and two in canada in 2016 , and 120 in the united states and four in canada in 2015. our average rig revenue per operating day was $ 20,620 in 2017 , compared to $ 23,040 in 2016 and $ 25,560 in 2015 . 30 generally , the revenues in our pressure pumping segment are most impacted by our number of fracturing jobs and the size ( including whether or not we provide proppant and other materials ) of those jobs , which is reflected in our average revenue per fracturing job . we completed 622 fracturing jobs during 2017 compared to 352 fracturing jobs in 2016 and 610 fracturing jobs in 2015. our average revenue per fracturing job was $ 1.894 million in 2017 compared to $ 982,560 in 2016 and $ 1.118 million in 2015. for the three years ended december 31 , 2017 , our operating income ( loss ) consisted of the following ( dollars in thousands ) : replace_table_token_9_th discussion of our operating income ( loss ) follows in the “ results of operations ” section of management 's discussion and analysis of financial condition and results of operations . on december 22 , 2017 , significant u.s. tax law changes were enacted ( “ tax reform ” ) . tax reform reduces the u.s. federal corporate tax rate from 35 % to 21 % beginning in 2018 , requires companies to pay a one-time transition tax on foreign earnings that were previously tax deferred , creates new taxes on future foreign earnings , places a limitation on the tax deductibility of interest expense , accelerates the expensing of certain business assets , and reduces the amount of executive pay that will be tax deductible , among other changes . at december 31 , 2017 , we had not completed our accounting for the tax effects of the tax reform , however , in certain cases , we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax . for the items for which we were able to determine a reasonable estimate , we recognized a provisional amount in accordance with staff accounting bulletin ( sab ) 118 of approximately $ 219 million of tax benefit as a result of tax reform , which is included as a component of income tax expense from continuing operations . see note 12 of notes to consolidated financial statements contained in this report for additional information related to the impact of tax reform . story_separator_special_tag the improvement in demand for our services and the income tax rate change resulted in consolidated net income of $ 5.9 million for 2017 compared to a consolidated net loss of $ 319 million for 2016 and a consolidated net loss of $ 294 million for 2015. story_separator_special_tag style= '' font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > certain oil and gas properties . interest income increased due to our investment of the proceeds from our stock offering in the first quarter of 2017 prior to utilizing those proceeds to repay sse indebtedness . interest expense decreased primarily due to lower debt outstanding during 2017 compared to 2016 . comparison of the years ended december 31 , 2016 and 2015 the following tables summarize results of operations by business segment for the years ended december 31 , 2016 and 2015 : replace_table_token_16_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , amortization and impairment and selling , general and administrative expenses . average margin per operating day is defined as margin divided by operating days . the demand for our contract drilling services is impacted by the market price of oil and natural gas . the reactivation and construction of new land drilling rigs in the united states in recent years contributed to an excess capacity of land drilling rigs compared to demand . customer demand shifted away from mechanically powered drilling rigs to electric powered drilling rigs , reducing the utilization rates of our mechanically powered drilling rigs . the average market price of oil and natural gas for each of the fiscal quarters and full year in 2016 and 2015 follows : replace_table_token_17_th ( 1 ) the average oil price represents the average monthly wti spot price as reported by the united states energy information administration . ( 2 ) the average natural gas price represents the average monthly henry hub spot price as reported by the united states energy information administration . the decreases in revenues and direct operating costs primarily result from the decrease in the number of rigs operating . average revenue per operating day and average margin per operating day were higher in 2015 primarily due to higher average dayrates and early termination revenues of approximately $ 69.4 million . early termination revenues were approximately $ 24.6 million in 2016. depreciation , amortization and impairment expense for 2015 included a charge of $ 131 million related to the write-down of drilling equipment primarily related to mechanical rigs and spare mechanical rig components . there were no similar charges in 2016. capital expenditures were significantly lower as no new rigs were added to the fleet in 2016 and drilling activity was lower , which required less maintenance capital . 34 replace_table_token_18_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , amortization and impairment and selling , general and administrative expenses . average margin per total job is defined as margin divided by total jobs . margin as a percentage of revenues is defined as margin divided by revenues . revenues and direct operating costs decreased in 2016 as a result of declines in both activity and pricing . average revenue per fracturing job and average revenue per other job decreased due to market-related pricing constraints . average revenue per total job and average direct operating costs per total job increased as a result of a shift in the job mix toward fracturing jobs . the total number of jobs decreased as a result of the downturn in the oil and natural gas industry . lower selling , general and administrative expense in 2016 reflects lower personnel costs due to headcount reductions . depreciation , amortization and impairment expense for 2015 includes a charge of $ 22.0 million related to the write-down of pressure pumping equipment and closed facilities . there were no similar charges in 2016. in addition , all of the goodwill associated with our pressure pumping business was impaired during 2015. replace_table_token_19_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , depletion and impairment and selling , general and administrative expenses . revenues from other operations decreased as a result of lower production and lower oil prices which resulted in lower revenues from our oil and natural gas working interests . direct operating costs include a reduction in production taxes due to lower revenues . selling , general and administrative expense increased from 2015 as the 2016 results include costs related to our drilling technology service business which was acquired in september 2016. depreciation , depletion and impairment expense in 2016 includes approximately $ 2.8 million of oil and natural gas property impairments as compared to approximately $ 10.7 million of oil and natural gas property impairments in 2015 . 35 replace_table_token_20_th lower selling , general and administrative expense reflects lower personnel costs due to headcount reductions . other operating ( income ) expense , net includes net gains associated with the disposal of assets related to corporate strategy decisions of the executive management group . accordingly , the related gains or losses have been excluded from the results of specific segments . interest expense increased primarily due to lower capitalized interest , as we reduced our level of capital expenditures in 2016. in addition , we repaid the entire outstanding principal amount of our bank term loans . as a result , we expensed $ 1.4 million of previously unamortized debt issuance costs in 2016 related to these bank term loans .
| early termination revenue in 2017 was $ 4.9 million , compared to $ 24.6 million in 2016. average direct operating costs per operating day increased as a result of a reduction in the proportion of rigs on standby and an increase in rig reactivation expenses . capital expenditures increased due to upgrading rigs to super-spec capability , building a new rig , higher maintenance capital expenditures and other general property and equipment upgrades . replace_table_token_12_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , amortization and impairment and selling , general and administrative expenses . average margin per total job is defined as margin divided by total jobs . margin as a percentage of revenues is defined as margin divided by revenues . 32 revenues and direct operating costs in creased in 201 7 primarily due to a n in crease in the number and size of fracturing jobs . t he total number of jobs in creased as a result of the sse merger and a recovery in the oil and natural gas industry . average revenue per job increased due to improved pricing and an increase in the size of the jobs . average direct operating costs per total job increased primarily due to the increase in the size of the jo bs . selling , general and administrative expenses increased due to the increase in organizational size and activity as a result of the sse merger . the increase in capital expenditures was primarily due to higher maintenance capital expenditures as a result of higher activity and investments to reactivate frac spreads . replace_table_token_13_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation and amortization and selling , general and administrative expenses . our directional drilling segment originated with the october 11 , 2017 acquisition of ms directional , and consequently we have no results for the prior year in this segment . replace_table_token_14_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , depletion and impairment and selling , general and administrative expenses . revenues , direct operating
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the first example of this regulated controlled delivery is achieved by producing il-12 , a potent , naturally occurring anti-cancer protein , under the control of intrexon 's proprietary biological switch to turn on/off the therapeutic protein expression at the tumor site . we and intrexon refer to this switch as the rheoswitch therapeutic system ® or rts ® platform . our initial drug candidates being developed using the synthetic biology platform are ad-rts-il-12 + veledimex and dc-rts-il-12 + veledimex with a current focus on ad-rts-il-12 + veledimex . we have demonstrated that we are able to simultaneously express multiple effectors under control of the rts ® platform from the same construct . in mice , we have also shown that we are able to express multigenic dna constructs in an embedded , controlled bioreactor , by injecting into skeletal muscle and measuring the dna-coded proteins in the blood . furthermore , we have also demonstrated the ability to express these same three genes under rts ® platform control in mesenchymal stem cells , or mscs . more detailed descriptions of ad-rts-il-12 + veledimex , dc-rts-il-12 + veledimex , palifosfamide , darinaparsin and indibulin and our clinical development plans for each , are set forth in this report under the caption businessproduct candidates. 53 product candidates the following chart identifies our current synthetic biology product candidates and their stage of development , each of which are described in more detail below . synthetic biology programs : ad-rts-il-12 + veledimex . ad-rts-il-12 + veledimex is currently being tested in two phase 2 studies , the first for the treatment of metastatic melanoma , and the second for the treatment of unresectable recurrent or metastatic breast cancer . ad-rts-il-12 + veledimex is our lead drug candidate , which uses our gene delivery system to produce interleukin-12 , or il-12 , a potent , naturally occurring anti-cancer protein . interleukin-12 ( il-12 ) is a potent immunostimulatory cytokine which activates and recruits dendritic cells that facilitate the cross-priming of tumor antigen-specific t cells . intratumoral administration of ad-rts-il-12 + veledimex , which allows for adjustment of il-12 gene expression upon varying the dose of veledimex , is designed to reduce the toxicity elicited by systemic delivery of il-12 , and increase efficacy through high intratumoral expression . in march 2013 , we announced the initiation of a randomized , open label phase 2 clinical study of ad-rts-il-12 + veledimex to treat metastatic breast cancer . the two-part , multi-center u.s. study is enrolling patients with unresectable , recurrent or metastatic breast cancer who have visible lesions or lesions accessible by injection . the study is designed to assess the safety and efficacy of the therapeutic ad-rts-il-12 + veledimex . part one of this two-part study will consist of a safety assessment for ad-rts-il-12 + veledimex while part two will consist of an efficacy evaluation of the ad-rts-il-12 + veledimex . the primary endpoint of the study is rate of progression-free survival at 16 weeks . secondary endpoints include objective response rate , duration of response and evaluation of pharmacodynamic tumor markers . initiation of the clinical study was followed by the presentation of results , from a study in a breast cancer murine preclinical model , demonstrating the anti-tumor effects and tolerability of ad-rts-il-12 + veledimex . the data were presented at the american association for cancer research 2013 annual meeting in april . in may 2013 , we announced promising results from nonclinical and phase 1 studies in metastatic melanoma using ad-rts-il-12 + veledimex . in these studies , the controlled expression of il-12 , through a regulatable gene therapy strategy , was found to limit systemic toxicity while inducing biological and clinical activity . the findings were presented in an oral session at the 16th annual meeting of the american society of gene and cell therapy ( asgct ) . in june , updated results were presented at the 2013 american society for clinical oncology ( asco ) . ad-rts-il-12 + veledimex induce production of il-12 mrna in the tumor microenvironment ( switch 54 on ) . upon removal of veledimex , il-12 mrna levels return to baseline ( switch off ) . following treatment with ad-rts-il-12 + veledimex , increases in tils ( cd8+ , cd45ro+ ) were observed in the tumor microenvironment . clinical activity was observed in injected and non-injected lesions primarily at the higher doses of veledimex . inflammation , shrinkage , flattening , and depigmentation of lesions correlated with the elevated serum levels of ifn- g . ad-rts-hl-12 + veledimex therapy was generally well-tolerated and its safety profile is consistent with other immunotherapies . we reported the controlled local expression of il-12 as an immunotherapeutic treatment of glioma through the use of the rheoswitch therapeutic system ® ( rts ® ) at the october 2013 aacr-nci-eortc . veledimex brain penetration was demonstrated in normal mice and monkeys with intact blood brain barrier . treatment with ad-rts-il-12 + veledimex and dc-rts-il-12 + veledimex both demonstrated dose-related increase in survival in the mouse gl-261 glioma model with no adverse clinical signs observed . in december 2013 , we announced unanimous recombinant dna advisory committee ( rac ) approval for the initiation of a phase 1 study of ad-rts-il-12 + veledimex , an adenoviral vector engineered to express interleukin-12 under the control of veledimex , an oral activator , in subjects with recurrent or progressive high grade gliomas ( brain cancer ) . we are in discussions with the fda regarding this indication and anticipate initiation of a phase 1 clinical study in the first half of 2014. glioblastoma is by far the most frequent malignant glioma and is associated with a particularly aggressive course and dismal prognosis . the current standard of care is based in surgical resection to the maximum feasible extent , followed by radiotherapy and concomitant adjuvant temozolomide . such aggressive treatment , however , is associated with only modest improvements in survival . newly diagnosed glioblastoma patients have a median overall survival , or os , of 11-17 month . story_separator_special_tag also in december 2013 , we presented positive interim results from the ongoing phase 1/2 study of ad-rts-il-12 + veledimex in patients with advanced melanoma . the results from this multicenter study were presented at melanoma bridge 2013 conference at the session best abstracts on news in immunotherapy , an international conference co-sponsored by istituto nazionale tumori fondazione , sidra medical and research center , and the society for immunotherapy of cancer that is being held in naples , italy . in this study , 21 patients with unresectable , recurrent stage iii/iv melanoma have been treated with intratumoral injections of ad-rts-il-12 + veledimex and the oral activator veledimex . the purpose of the study is to evaluate the safety and tolerability of the ad-rts-il-12 + veledimex and veledimex therapy , determine tumor and immune response , and select the optimal dose and schedule of veledimex for future study . to date , expression of il-12 mrna in study subjects ' tumors was determined to be controlled by veledimex . in addition , upon stopping veledimex dosing , expression of the il-12 mrna returned to baseline levels , demonstrating the on and off control of intrexon corporation 's rheoswitch therapeutic system ® platform . in this dose range , results to date demonstrate that ad-rts-il-12 + veledimex has potent biologic activity , as measured by on-mechanism and on-target toxicity and response in injected and non-injected lesions . following treatment , 11 of 16 evaluable patients have demonstrated a response of stable disease or better on a per lesion basis . the most common severe adverse events ( saes ) were pyrexia , hypotension , mental status changes , and cytokine release syndrome . four of seven patients with saes had veledimex dosing stopped during cycle 1. three had saes during subsequent cycles , and stopped veledimex dosing at that time . importantly , all saes were reversed after veledimex dosing was stopped , demonstrating the on and off control of veledimex on gene expression . also in december 2013 , we announced preliminary results from the ongoing phase 2 clinical study of ad-rts-il-12 + veledimex in patients with unresectable recurrent or metastatic breast cancer . the findings were reported in a poster presentation at the san antonio breast cancer ( sabc ) symposium in san antonio , texas . this multicenter phase 2 study is designed to evaluate the safety and efficacy of ad-rts-il-12 + veledimex in subjects with recurrent/metastatic breast cancer with accessible tumor ( s ) . the primary endpoint of the study is rate of progression-free survival at 16 weeks . secondary objectives include objective response rate , duration of response and evaluation of pharmacodynamic tumor markers . six patients were evaluable for safety at the time of presentation . the most common severe adverse events ( saes ) were neutropenia , ast elevation and pyrexia . importantly , in the absence of disease progression , all saes were reversed after veledimex dosing was stopped , demonstrating the on and off control of veledimex on gene expression . preliminary monotherapy pfs rate 55 was reported for two patients to date , with one subject progressing at 12 weeks and a second at 16 weeks . recruitment for the phase 2 clinical trial is ongoing to refine the dose , schedule and optimal combination regimen . the company is advancing the ad-rts-il-12 + veledimex platform in melanoma , breast cancer and glioblastoma . we are in the process of finalizing clinical protocol designs that will lead to the initiation of phase 2 studies in the combination with standard of care , or soc , in the first half of 2014 for the treatment of metastatic melanoma and metastatic breast cancer . melanoma , breast cancer , and glioma ( detailed below ) represent significant market potentials with high unmet medical needs . the incidence of melanoma is 76,690 , breast cancer is 234,580 , and glioblastoma is 18,000 with the majority of patients needing other , currently non available therapies to treat the disease and improve outcomes . dc-rts-il-12 + veledimex . we historically completed enrollment in a phase 1 dose escalation study of dc-rts-il-12 + veledimex in the second quarter of 2012 in the united states . dc-rts-il-12 + veledimex employs intratumoral injection of modified dendritic cells from each patient and oral dosing of veledimex to turn on in vivo expression of il-12 . dc-rts-il-1 + veledimex 2 , through the rts ® platform , controls the timing and level of transgene expression . the rts ® technology functions as a gene switch for the regulated expression of human il-12 in the patients ' dendritic cells which are transduced with a replication incompetent adenoviral vector carrying the il-12 gene under the control of the rts ® platform . currently , there are no actively enrolling studies using dc-rts-il-12 + veledimex , as we have prioritized our clinical development efforts on ad-rts-il-12 + veledimex . earlier stage programs . at the october 2013 aarc-nci-eortc we also presented results showing systemic expression of three distinct immune effectors from a single rts ® regulated multigenic construct in mice , in vitro data demonstrating the potential use of mscs for tumor-targeted delivery of single or multiple rts ® regulated cancer immunotherapies , and data demonstrating functional single chain variable fragment-fc fusion proteins as an alternate approach to monoclonal antibodies which are more amenable for multi-genic therapies . we are actively pursuing several synthetic biology approaches , including gene delivery with human mscs and functional single chain variable fragment-fc fusion proteins and multigenic approaches in our discovery pipeline to address unmet medical needs in cancer that are expected to result in multiple inds planned through 2015. small molecule programs palifosfamide , zio-201 . the small molecule palifosfamide , or isophosphoramide mustard , is a proprietary active metabolite of the pro-drug ifosfamide . because palifosfamide is the stabilized active metabolite of ifosfamide and a distinct pharmaceutical composition without the acrolein or chloroacetaldehyde metabolites we believe that the administration of palifosfamide may be an effective and well-tolerated agent to treat cancer .
| the expenses for our phase 3 palifosfamide study in sts incurred by us to third parties were $ 11.3 million for the year ended december 31 , 2013 and $ 46.0 million from the project inception in july 2010 through december 31 , 2013. the expenses for our phase 3 palifosfamide study in sclc incurred by us to third parties were $ 3.6 million for the year ended december 31 , 2013 , and $ 14.4 million from the project inception in december 2011 through december 31 , 2013. our future research and development expenses in support of our current and future programs will be subject to numerous uncertainties in timing and cost to completion . we test potential products in numerous preclinical studies for safety , toxicology and efficacy . we may conduct multiple clinical trials for each product . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products or indications . completion of clinical trials may take several years or more , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product . it is not unusual for preclinical and clinical development of each of these types of products to require the expenditure of substantial resources . 58 we estimate that clinical trials of the type generally needed to secure new drug approval are typically completed over the following timelines : the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development , including , among others , the following : the number of clinical sites included in the trials ; the length of time required to enroll suitable patents ; the number of patients that ultimately participate in the trials ; the duration of patient follow-up to ensure the absence of long-term product-related adverse events ; and the efficacy and safety profile of the product . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our programs or when and to what extent we will receive cash inflows from the commercialization and sale of a product . our inability to complete our programs in a timely manner or our failure to enter into appropriate collaborative agreements could significantly increase our capital requirements and could adversely impact our
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in may 2019 , we received an additional $ 2.5 million under our term loan with svb and westriver , or our 2019 loan , and in october 2019 , we received an additional $ 5.0 million under our 2019 loan . in january 2020 , we entered into the sfj agreement pursuant to which sfj has agreed to provide us up to $ 120.0 million of funding to support the clinical development of pb2452 . in march 2020 , sfj paid us an initial $ 10.0 million . sfj will pay us an additional $ 80.0 million through cost reimbursements followed by six equal quarterly payments beginning with the quarter ending september 30 , 2020 through the quarter ending december 31 , 2021 , and up to an additional $ 30.0 million upon the achievement of specified clinical development milestones with respect to our ongoing phase 3 clinical trial of pb2452 . since our inception , we have incurred significant operating losses . our net loss was $ 39.2 million for the year ended december 31 , 2019. as of december 31 , 2019 , we had an accumulated deficit of $ 162.2 million . we expect to continue to incur significant expenses and operating losses for the foreseeable future . we anticipate that our expenses will increase substantially in connection with our ongoing activities , as we : continue our ongoing clinical trials of pb2452 and pb1046 , as well as initiate and complete additional clinical trials , as needed ; seek to expand our geographical reach through the sfj agreement and the corresponding clinical development support fees that we will incur ; pursue regulatory approvals for pb2452 as a reversal agent for the antiplatelet drug ticagrelor and pb1046 for the treatment of pah ; develop pb6440 for treatment-resistant hypertension ; seek to discover and develop additional clinical and preclinical product candidates ; scale up our clinical and regulatory capabilities ; 75 establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval , including pb2452 and pb1046 ; adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products ; maintain , expand and protect our intellectual property portfolio ; hire additional clinical , manufacturing and scientific personnel ; add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization efforts ; and incur additional legal , accounting and other expenses in operating as a public company . recent developments co-development agreement with sfj in january 2020 , we entered into the sfj agreement with sfj , pursuant to which sfj has agreed to pay us up to $ 120.0 million to support the clinical development of pb2452 . in march 2020 , sfj paid us an initial $ 10.0 million . sfj will fund $ 80.0 million of development expenses through the end of 2021 and up to an additional $ 30.0 million based on us meeting specific , pre-defined clinical milestones for pb2452 . during the term of the sfj agreement , we will have primary responsibility for clinical development and regulatory activities for pb2452 in the united states and the european union , while sfj will have primary responsibility for clinical development and regulatory activities for pb2452 in china and japan and will provide clinical trials operations support in the european union . refer to `` item 1. business '' under the subheading business - license , co-development and other agreements - co-development agreement for pb2452 with sfj pharmaceuticals in this annual report . pb6440 asset purchase agreement in january 2020 , we entered into an asset purchase agreement with viamet and selenity to acquire all of the assets and intellectual property rights related to pb6440 , a novel oral aldosterone synthase inhibitor , which we plan to develop for treatment-resistant hypertension . refer to `` item 1. business '' under the subheading business - license , co-development and other agreements - viamet asset purchase agreement in this annual report . commencement of pivotal phase 3 clinical trial for pb2452 we recently commenced our pivotal phase 3 clinical trial . based on feedback from the fda , we intend to submit a bla for potential accelerated approval based on an interim analysis of the first approximately 100 patients treated in our phase 3 trial , with approximately 50 patients with uncontrolled major or life-threatening bleeding and approximately 50 patients requiring urgent surgery or an invasive procedure . after we submit our bla with data from the first 100 patients , we intend to complete the phase 3 trial and establish a post-approval registry in accordance with fda requirements . financial overview components of operating results revenue grant revenue grant revenue is derived from government grants that support our efforts on specific research projects . we recognize grant revenue when there is reasonable assurance of compliance with the conditions of the grant and reasonable assurance that the grant revenue will be received . 76 revenue under collaborative agreement revenue under collaborative agreement is derived from an agreement with our collaboration partner , immunoforge co. , ltd. , or immunoforge . we have granted immunoforge a license to develop certain compound indications in exchange for an upfront license payment and event-based payments subject to immunoforge 's achievement of specified development , regulatory and sales-based milestones . in addition , we are entitled to royalties if products under the collaboration are commercialized . we recognize revenue for upfront amounts when the license is transferred to immunoforge . development milestones and other fees are recognized as revenue when it is probable that the amount will not result in a significant reversal of revenue in the future . sales-based milestones and royalties can not be recognized until the underlying sales occur . research and development expense research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates . we expense research and development costs as incurred . story_separator_special_tag 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 and supply scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial supply and potential commercial supply , including manufacturing validation batches ; clinical development support fees that we incur related to the sfj agreement ; outsourced professional scientific development services ; employee-related expenses , which include salaries , benefits and stock-based compensation ; expenses relating to regulatory activities ; and laboratory materials and supplies used to support our research activities . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect our research and development expense to increase significantly over the next several years as we increase personnel costs , including stock-based compensation , conduct our later-stage clinical trials for pb2452 and pb1046 , develop pb6440 , conduct other preclinical studies and clinical trials and prepare regulatory filings and , if we receive regulatory approval for one or more product candidates , prepare for commercialization efforts . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the remainder of the development of our product candidates , or when , if ever , material net cash inflows may commence from those candidates . this uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials , which vary significantly over the life of a project as a result of many factors , including : delays in regulators or institutional review boards authorizing us or our investigators to commence our clinical trials or in our ability to negotiate agreements with clinical trial sites or contract research organizations ; our ability to secure adequate supply of product candidates for our trials ; the number of clinical sites included in the trials ; the length of time required to enroll suitable patients ; the number of patients that ultimately participate in the trials ; the number of doses patients receive ; any side effects associated with our product candidates ; the duration of patient follow-up ; and the results of our clinical trials . 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 77 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 other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . product commercialization will take several years and millions of dollars in development costs . general and administrative expense general and administrative expense consists principally of salaries and related costs for personnel in executive and administrative functions , including stock-based compensation , travel expenses and recruiting expenses . other general and administrative expense includes professional fees for legal , accounting and tax-related services and insurance costs . we anticipate that our general and administrative expense will increase as we continue to operate as a public reporting company and continue to develop pb2452 , pb1046 , pb6440 and our future product candidates . we believe that these increases likely will include increased costs for director and officer liability insurance , costs related to the hiring of additional personnel and increased fees for outside consultants , lawyers and accountants . we also expect to incur increased costs to comply with corporate governance , internal controls , investor relations , disclosure and similar requirements applicable to public reporting companies . interest expense interest expense consists of interest expense on our convertible promissory notes and term loan . following the conversion of the convertible promissory notes into shares of redeemable convertible series d preferred stock in august 2018 , we no longer recognize interest on the convertible promissory notes . we recognize interest on our term loan with svb and westriver . change in fair value of warrant and derivative liabilities change in fair value of warrant and derivative liabilities reflects the revaluation at each reporting date of our redeemable convertible preferred stock warrants and the conversion option on our convertible promissory notes , respectively . following the conversion of our convertible promissory notes to preferred stock in august 2018 , the conversion of all outstanding shares of our preferred stock into common stock , and the corresponding conversion of all outstanding preferred stock warrants into common stock warrants , in connection with the closing of our ipo in october 2018 , we no longer remeasure the warrant liability or derivative liability for periods following the closing of the ipo . license , co-development and other agreements medimmune limited license agreement in november 2017 , we entered into the medimmune license with medimmune .
| million for the year ended december 31 , 2018. the increase of $ 6.3 million was primarily attributable to an increase in professional services related to consulting services and legal services , an increase in personnel expense due to additional headcount and additional expenses associated with being a public company . interest income interest income was $ 1.6 million for the year ended december 31 , 2019 , compared to $ 0.4 million for the year ended december 31 , 2018. the increase of $ 1.2 million was attributable to higher balances of cash and cash equivalents during 2019. interest expense interest expense was $ 1.1 million for the year ended december 31 , 2019 , compared to $ 3.9 million for the year ended december 31 , 2018. interest expense for the year ended december 31 , 2019 was attributable to interest on the 2019 loan . interest expense for the year ended december 31 , 2018 was primarily attributable to interest from borrowings pursuant to our convertible promissory notes , which were outstanding during 2018. these notes were converted into shares of redeemable convertible series d stock in august 2018. change in fair value of derivative liability 81 change in fair value of derivative liability resulted in no expense for the year ended december 31 , 2019 , compared to $ 0.7 million of expense for the year ended december 31 , 2018. the conversion option related to our convertible promissory notes was subject to remeasurement at each reporting period , with changes in fair value recorded in the statement of operations . the convertible promissory notes converted into redeemable convertible preferred stock in august 2018 upon the sale of the series d redeemable convertible preferred stock and , accordingly , we no longer remeasure the fair value of the derivative liability . liquidity and capital resources since our inception , we have not generated any revenue from product sales and have incurred net
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subsequent to the government-imposed shelter-in-place mandates and prohibitions on elective surgeries in response to covid-19 , revenues for the third quarter of 2020 were higher than our historical seasonality trends due to surgeries deferred in the second quarter of 2020 due to elective surgery restrictions being performed in the third and fourth quarters . for the years ended december 31 , 2020 and 2019 , approximately $ 12.8 million ( 60 % ) and $ 13.1 million ( 57 % ) of revenues were generated during the third and fourth quarters of 2020 and 2019 , respectively . we use this seasonality trend to assist us in enterprise-wide resource planning such as purchasing , product inventory logistics , and human capital management . retail and wholesale cases we believe our comprehensive selection of orthopedic implants and biologics products is pivotal to our ability to acquire new customers , increase sales to existing customers and increase overall sales volume , revenues , and profitability . we continue to review and evaluate our product lines , ensuring we maintain a high-quality and cost-effective selection of orthopedic implants and biologics . we measure sales volume based on medical procedures in which our products were sold and used ( each a case ) . we consider cases resulting from direct sales to hospitals and medical facilities to be retail cases and cases resulting from sales to third-parties , such as distributors , or sub-distributors , to be wholesale cases . some of our sales for wholesale cases are on a consignment basis with the third-party . ( see “ item 1. business ” for additional information ) . retail cases in our industry command higher revenue price points than wholesale cases . because retail cases involve direct sales to our end customers , we typically receive a higher gross profit margin due to the absence of any third party in the sales process . however , we may pay commissions to our full time or independent sales representatives with respect to retail sales increasing our commission expenses . retail cases generally generate substantially more gross profit than wholesale case transactions but are subject to commission expenses which we do not incur with respect to wholesale cases . 25 wholesale cases in our industry command lower revenue price-points than retail cases as the third-party reseller must build in its own profit margin . b ecause wholesale cases involve sales to third parties who sell our products to end customers , our profit margins are reduced for these cases due to the lower sales price . consequently , our wholesale cases generate substantially lower gross profit than our retail cases . our wholesale case business is highly dependent on minimum volume sales levels to generate revenues in excess of our fixed costs of revenues in order to achieve appropriate profitability . pricing pressures pricing pressure has increased in our industry due to ( i ) continuous consolidation among healthcare providers , ( ii ) trends toward managed care healthcare , ( iii ) increased government oversight of healthcare costs , and ( iv ) new laws and regulations that address healthcare reimbursement and pricing . pricing pressure , reductions in reimbursement levels or coverage , or other cost containment measures can significantly impact our business , future operating results and financial condition . to offset pricing pressure , we employ strategies to optimize revenue per case . during 2020 , we believe we were successful in minimizing the impact of pricing pressures as reflected with average revenue per case of $ 5,583 for 2020 and $ 4,228 for 2019. during 2020 , our strategy to emphasize our retail model proved successful as retail cases represented approximately 89 % of revenue , or an approximate 6 % increase over 2019. compensation initiatives we expect to continue to offer compensation and other valuable long-term incentives , such as equity incentives , to key distributors , executives , and employees as a means to expand our strategic partnerships and industry relationships . during 2020 , our board granted equity incentives to our scientific advisory board members ( sabs ) , key distributors , independent contractors and employees . ( s ee “ item 1 . business ” for additional information ) . 26 story_separator_special_tag > depreciation and amortization for the year ended december 31 , 2020 , our depreciation and amortization expense decreased to $ 104,143 from $ 107,073 for the year ended december 31 , 2019 , a decrease of $ 2,930. the decrease is primarily the result of an approximate ( a ) ( i ) $ 12,882 reduction in amortization of intangible assets which were fully amortized , such as noncompete agreements and customer relationships , acquired pursuant to the maxim acquisition ( see note 4 of our accompanying consolidated financial statements , entitled “ goodwill and intangible assets ” ) , offset , in part , by ( b ) ( i ) an approximate $ 9,952 increase in depreciation expense as a result of investment in it infrastructure such as additional and replacement user workstations . goodwill impairment during 2020 , we assessed the recoverability of the carrying value of our goodwill as a result of ( i ) the continuation of adverse economic and business trends , and ( ii ) revisions to our anticipated future operating results . there was no impairment of goodwill as of december 31 , 2020. for further information on goodwill impairment , please see note 2 of our accompanying financial statements , entitled “ significant accounting policies , goodwill and other intangible assets. ” change in fair value of contingent purchase consideration for the year ended december 31 , 2020 , we determined that the earnings thresholds , as detailed in the cpm acquisition agreement , were not met for payments under the earn-out ( “ earn-out ” ) . story_separator_special_tag therefore , based on our 2020 financial performance , we will make no payments to nc 143 for either the base earn-out or the bonus earn-out for 2020. as of december 31 , 2020 , the fair value of the earn-out liability was re-measured to fair value under the probability weighted income approach , as further explaine d in note 2 of our accompanying consolidated financial statements , entitled “ significant accounting policies , fair value measurements. ” as a result , the current fair value of the earn-out liability was increased by $ 290,635 , from $ 11,645,365 to $ 11,936,000. for more information on the change in the fair value of contingent purchase consideration , please see note 2 on our accompanying financial statements , entitled “ significant accounting policies , fair value measurements. ” 28 interest for the year ended december 31 , 2020 , our interest expense declined to $ 94,953 from $ 121,633 for the year ended december 31 , 2019 , which is a reduction of $ 26,680 , or approximately 22 % . this decline in interest expense is primarily attributable to ( a ) ( i ) an approximate $ 21,748 reduction in interest rates on our rloc , ( a ) ( ii ) an approximate $ 11,850 reduction due to lower average borrowings on our rloc , offset , in part , by ( b ) ( i ) $ 407 increase in interest expense related to the notes payable – related party notes , ( b ) ( ii ) $ 2,720 increase in interest expense related to the paycheck protection program loan ( “ ppp loan ” ) , and ( b ) ( iii ) $ 3,791 increase in interest related to the economic injury disaster loan ( “ eidl loan ” ) . tax for the year ended december 31 , 2020 , we recognized a tax expense of $ 18,993 , compared to $ 781,085 for the year ended december 31 , 2019. the tax expense recognized in 2019 is a result of recognition of a valuation allowance for deferred tax assets based on management 's determination that it is more likely than not that all or a portion of the deferred tax asset will not be realized . for additional information , please see note 11 of our accompanying consolidated financial statements , entitled “ income taxes. ” net loss for the year ended december 31 , 2020 , we had a net loss of $ 1,432,495 , compared to net loss of $ 3,316,495 for the year ended december 31 , 2019 , reflecting a reduction in our net loss of $ 1,884,000 , or approximately 57 % . the primary drivers for our reduction in net loss for the year ended december 31 , 2020 were ( a ) ( i ) a $ 1,566,736 increase in gross profit , ( a ) ( ii ) $ 1,924,418 reduction in selling , general , administrative , and other , ( a ) ( iii ) $ 932,203 reduction in goodwill impairment , ( a ) ( iv ) $ 762,092 reduction in income tax , ( a ) ( v ) $ 26,680 reduction in interest expense , and ( a ) ( vi ) $ 2,930 reduction in depreciation and amortization , offset , in part , by ( b ) ( i ) $ 2,226,799 increase in change in fair value of contingent purchase consideration , and ( b ) ( ii ) $ 1,104,260 increase in commissions . liquidity and capital resources cash flows a summary of our cash flows is as follows : replace_table_token_2_th net cash provided by/ ( used in ) operating activities our net cash provided by operating activities was $ 236,654 for year ended december 31 , 2020 compared to net cash used in operating activities of $ 4,739 for the year ended december 31 , 2019. the increase of $ 241,393 primarily resulted from : ( a ) ( i ) a $ 1,884,000 reduction in net loss , ( a ) ( ii ) a $ 827,623 reduction in account receivable , a $ 476,333 reduction in inventories , ( a ) ( iii ) a $ 443,803 increase in accounts payable , ( a ) ( iv ) a $ 25,944 reduction in prepaid expenses and other current assets ; offset , in part , by ( b ) ( i ) a $ 1,248,200 reduction in accrued expenses , ( b ) ( ii ) a $ 1,187,436 increase in long term accounts receivable , and ( b ) ( iii ) $ 980,674 in non-cash adjustments . net cash used in investing activities our net cash used in investing activities for the year ended december 31 , 2020 was $ 20,757 compared to $ 15,318 for the year ended december 31 , 2019. this increase of $ 5,439 was primarily driven by investment in information technology related to new and replacement user workstations . net cash provided by ( used in ) financing activities our net cash used in financing activities was $ 127,749 for the year ended december 31 , 2020 , compared to net cash provided by financing activities of $ 275,053 for the year ended december 31 , 2019. this decrease of $ 402,802 is primarily driven by ( a ) ( i ) 29 $ 1,114,202 reduction in net borrowings from our rloc ; offset in part , by ( b ) ( i ) $ 361,400 proceeds from the ppp , ( b ) ( ii ) $ 200,000 proceeds from notes payable – related parties , and ( b ) ( iii ) $ 150,000 in proceeds from eidl loan . liquidity our primary sources of liquidity are cash from our operations and our rloc with amegy bank . at december 31 , 2020 , our current assets exceeded our current liabilities by $ 5,372,651 ( our “ working capital ” ) , which included $ 1,187,458 in cash and cash equivalents . cash from our operations and net borrowings on our rloc supports our working capital needs .
| cost of revenues for the year ended december 31 , 2020 , our cost of revenues was $ 8,694,713 compared to $ 11,762,790 for the year ended december 31 , 2019 , which is a decrease of $ 3,068,077 , or approximately 26 % as a percentage of revenues , cost of revenues was approximately 41 % for the year ended december 31 , 2020 compared to 51 % for the year ended december 31 , 2019. as a percentage of revenues , this reduction was primarily driven by ( a ) ( i ) an approximate 7 % reduction in cost of revenues primarily driven by a reduction in case volume product mix , ( a ) ( ii ) an approximate 6 % decline in the inventory loss provision for slow-moving and obsolescence and inventory shrink ; offset in part by , ( b ) ( i ) an approximate 2 % increase in medical instruments purchased , and ( b ) ( ii ) approximately 1 % in net shipping expense , other supply chains related costs . 27 gross profit for the year ended december 31 , 2020 , our gross profit was $ 12,704,223 compared to $ 11,137,487 for the year ended december 31 , 2019 , representing an increase of $ 1,566,736 , or approximately 14 % . as a percentage of revenues , gross profit increased 10 % from approximately 49 % to approximately 59 % for the years ended december 31 , 2020 and 2019. as a percentage of revenues , the increase primarily resulted from those items discussed in cost of revenues . selling , general , administrative and other for the year ended december 31 , 2020 , our selling , general , administrative , and other expenses ( sg & a ) were $ 6,541,659 compared to sg & a of $ 8,466,077 for the year ended december 31 , 2019 , representing a decrease of $ 1,924,418 or 23 % . as a percentage of net revenues , sg & a accounted for approximately 31 % for the year ended december 31 , 2020 , and 37 % for the year ended december 31 , 2019. as a percentage of revenues , the reduction of approximately 6 % was primarily driven by : ( a ) ( i ) a $ 817,039 decline in leased staffing costs , ( a ) ( ii ) a $ 474,845 reduction in bad debt expense , ( a ) ( iii ) a $ 465,586 decline
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consequently , the financial information included here may not necessarily reflect iaa 's financial position , results of operations and cash flows in the future or what iaa 's financial position , results of operations and cash flows would have been had iaa been an independent , publicly traded company during the periods prior to the separation . 30 debt financing : in connection with the separation , we entered into a credit agreement on june 28 , 2019 with several banks and other financial institutions . we borrowed ( i ) an aggregate principal amount of $ 800 million under a seven-year senior secured term loan facility , and ( ii ) an aggregate principal of $ 225 million under a five-year revolving credit facility . in connection with the separation , on june 6 , 2019 , we also issued $ 500.0 million aggregate principal amount of 5.50 % senior notes due 2027 ( the `` notes '' ) . we used the net proceeds from the notes offering , together with borrowings under the term loan facility , to make a cash distribution to kar and to pay fees and expenses related to the separation and distribution . we used the remaining proceeds from the term loan facility for our ongoing working capital needs and general corporate purposes . acquisitions : on july 31 , 2019 , we acquired decision dynamics , inc. ( `` ddi '' ) , a leading electronic lien and title technology firm located in lexington , south carolina for $ 19.2 million which includes the fair value of contingent consideration of $ 2.5 million . in december 2017 , we acquired the assets of pois , inc. for approximately $ 0.9 million . pois provides loan payoff and lien release technology with a focus on helping insurance companies settle liens faster to improve cycle time/inventory turns . story_separator_special_tag significantly . we no longer participate in cash management and funding arrangements with kar . subsequent to the separation date , our principal source of liquidity consists of cash generated by operations , and our revolving credit facility ( as defined below ) provides another source of liquidity as needed . our internally generated cash flow will be used to invest in new products and services , fund capital expenditures and working capital requirements , and is expected to be adequate to service any future debt , and fund future acquisitions , if any . our ability to fund these capital needs will depend on our ongoing ability to generate cash from operations and to access borrowings under our revolving credit facility and the capital markets . we believe that our cash on hand , future cash from operations , borrowings available under our revolving credit facility and access to the debt and capital markets will provide adequate resources to fund our operating and financing needs for at least the next twelve months . working capital a substantial amount of our working capital is generated from the payments received for services provided . the majority of our working capital needs are short-term in nature , usually less than three months in duration . due to the decentralized nature of the business , payments for most vehicles purchased are received at each auction and branch . most of the financial institutions place a temporary hold on the availability of the funds deposited that generally can range up to two business days , resulting in cash in our accounts and on our balance sheet that is unavailable for use until it is made available by the various financial institutions . there are outstanding checks ( book overdrafts ) to sellers and vendors included in current liabilities . because a portion of these outstanding checks for operations in the united states are drawn upon bank accounts at financial institutions other than the financial institutions that hold the cash , we can not offset all the cash and the outstanding checks on our balance sheet . changes in working capital vary from quarter-to-quarter as a result of the timing of collections and disbursements of funds to consignors from auctions held near period end . approximately $ 13.9 million of available cash was held by our foreign subsidiaries at december 29 , 2019. if funds held by our foreign subsidiaries were to be repatriated , state and local income tax expense and foreign withholding tax expense would need to be recognized , net of any applicable foreign tax credits . summary of cash flows replace_table_token_13_th fiscal 2019 compared to fiscal 2018 net cash flow provided by operating activities in fiscal 2019 decreased by $ 7.0 million as compared to fiscal 2018. the decrease in operating cash flow was primarily attributable to changes in operating assets as a result of the timing of collections from customers and other parties , as well as a net decrease in non-cash item adjustments , partially offset by increased profitability . net cash used by investing activities was $ 84.9 million for fiscal 2019 as compared to $ 66.1 million for fiscal 2018. the increase in net cash used by investing activities was primarily due to the acquisition of ddi in the third quarter of fiscal 2019. net cash used by financing activities was $ 182.8 million in fiscal 2019 as compared to $ 195.1 million in fiscal 2018. the decrease in net cash used by financing activities was primarily attributable to net proceeds from the notes offering and our term loan facility ( as defined below ) , partially offset by dividends and distributions paid to kar prior to and at the time of the separation and a decrease in bank overdrafts during fiscal 2019 as a result of timing of disbursements of to our vendors . story_separator_special_tag 35 fiscal 2018 compared to fiscal 2017 cash flow provided by operating activities was $ 278.2 million for fiscal 2018 as compared to $ 201.3 million for fiscal 2017. the increase in operating cash flow was primarily attributable to increased profitability adjusted for non-cash items and changes in operating assets and liabilities as a result of the timing of collections and the disbursement of funds to consignors for auctions held near period-ends . net cash used by investing activities was $ 66.1 million for fiscal 2018 as compared to $ 55.1 million for fiscal 2017. the increase in net cash used by investing activities was primarily attributable to an increase in cash used for capital expenditures . net cash used by financing activities was $ 195.1 million in fiscal 2018 as compared to $ 155.8 million in fiscal 2017. the increase in net cash used by financing activities was primarily attributable to an increase in cash deemed to be remitted to kar . our outstanding indebtedness in connection with the separation , on june 28 , 2019 we entered into a credit agreement with jpmorgan chase bank , n.a. , as administrative agent , and the lenders party thereto from time to time ( the “ credit agreement ” ) , which provides for , among other things , a seven year senior secured term loan facility in an aggregate principal amount of $ 800 million ( the “ term loan facility ” ) and a five year revolving credit facility in an aggregate principal amount of $ 225 million ( the “ revolving credit facility ” ) . the revolving credit facility also includes a $ 50 million sub-limit for issuance of letters of credit and a $ 50 million sublimit for swing line loans , which can be borrowed on same-day notice . as of december 29 , 2019 , no amounts were outstanding under the revolving credit facility . we were in compliance with the covenants in the credit agreement at december 29 , 2019. see note 10 - debt in the notes to consolidated financial statements for additional information . during the third quarter of fiscal 2019 , the company repaid $ 12 million of its term loan facility , consisting of $ 2 million required principal payment and a $ 10 million optional principal pre-payment . during the fourth quarter of fiscal 2019 , the company made an optional principal pre-payment of $ 10 million on its term loan facility . as of december 29 , 2019 , $ 778 million was outstanding under the term loan facility . on june 6 , 2019 , we issued $ 500.0 million aggregate principal amount of 5.500 % senior notes due 2027. we must pay interest on the notes in cash on june 15 and december 15 of each year at a rate of 5.500 % per annum , with the first interest payment date being december 15 , 2019. the notes will mature on june 15 , 2027. the net proceeds from the notes offering , together with borrowings under our prior senior credit facility , were used to make a cash distribution to kar and to pay fees and expenses related to the separation . we were in compliance with the covenants in the indenture governing the notes at december 29 , 2019. see note 10 - debt in the notes to consolidated financial statements for additional information . prior to the separation date , we had intercompany debt with kar totaling $ 456.6 million . this debt , which was eliminated on the separation date , was comprised of three promissory notes , payable on demand , with a weighted average interest rate of 8.27 % . capital expenditures capital expenditures for the years ended december 29 , 2019 and december 30 , 2018 , were $ 68.5 million and $ 66.7 million , respectively . capital expenditures were funded primarily from internally generated funds . we continue to invest in our core information technology capabilities and capacity expansion . approximately half of our 2019 capital expenditures related to technology-based investments , including improvements in information technology systems and infrastructure . other capital expenditures were primarily attributable to improvements and expansion at our facilities . future capital expenditures could vary substantially based on capital project timing , the opening of new auction facilities , capital expenditures related to acquired businesses and the initiation of new information systems projects to support our business strategies . contractual obligations the table below sets forth a summary of our contractual obligations as of december 29 , 2019. some of the figures included in this table are based on management 's estimates and assumptions about these obligations , including their duration , the possibility of renewal and other factors . because these estimates and assumptions are necessarily subjective , the obligations we may actually pay in future periods could vary from those reflected in the table . the following summarizes our contractual cash obligations as of december 29 , 2019 ( in millions ) : 36 replace_table_token_14_th ( a ) interest payments on long-term debt are projected based on the contractual rates of the debt securities . interest rates for the variable rate term debt instruments were held constant at rates as of december 29 , 2019 . ( b ) operating leases are entered into in the normal course of business . we lease most of our auction facilities , as well as other property and equipment under operating leases . some lease agreements contain options to renew the lease or purchase the leased property . the amounts include the interest portion of the operating leases . future operating lease obligations would change if the renewal options were exercised and or if we entered into additional operating lease agreements . ( c ) we have entered into finance leases for furniture , fixtures , equipment and software . the amounts include the interest portion of the finance leases . future finance lease obligations would change if we entered into additional finance lease agreements .
| selling , general and administrative replace_table_token_6_th united states selling , general and administrative expenses for fiscal 2019 increased $ 19.4 million as compared to fiscal 2018 due to higher employee and severance related costs of $ 9.9 million , increases in costs related to being a standalone public company due to our spin-off from kar of $ 3.5 million , professional services of $ 1.8 million , additional costs related to the acquisition and integration of ddi of $ 1.5 million , and higher software maintenance amortization of $ 1.3 million . international selling , general and administrative expenses for fiscal 2019 decreased $ 0.8 million as compared to fiscal 2018 mainly due to a recovery of $ 0.9 million of the previously reserved accounts receivable . depreciation and amortization replace_table_token_7_th depreciation and amortization decreased $ 9.0 million as compared to fiscal 2018 primarily due to the derecognition of fixed assets associated with certain sale leaseback transactions related to the adoption of topic 842 in the first quarter of 2019. see note 1 - basis of presentation and nature of operations in the notes to consolidated financial statements for additional information . 32 interest expense . interest expense for fiscal 2019 increased $ 17.0 million as compared to fiscal 2018 due to a higher debt balance since the separation date . income taxes . the effective tax rate for fiscal 2019 was 26.3 % as compared to 25.4 % for fiscal 2018. fiscal 2019 effective tax rate was negatively impacted by 0.9 % primarily due to adjustments of $ 0.6 million to our deferred taxes related to our spin-off from kar and other discrete items . fiscal 2018 compared to fiscal 2017 the table below presents consolidated statements of income for the periods indicated and the dollar change and percentage change between periods . replace_table_token_8_th * exclusive of depreciation and amortization revenue replace_table_token_9_th revenues for fiscal 2018 increased $ 107.6 million as compared to fiscal 2017. the increase in revenue was due to
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waivers and refunds were not material to the consolidated financial statements in 2020 or 2019. customers may purchase delivery services from carriers through our mailing and shipping solutions . when funds are transferred directly from customers to the carrier , these funds are not recognized as revenue . we also provide mailing and shipping services for which the cost of postage or delivery is included in the cost of the service and , therefore , is recognized as service revenue . service revenue increased 35 % to $ 705.5 million in 2020 from $ 523.5 million in 2019. the increase in service revenue was driven by a 7.2 % increase in our average service revenue per paid customer ( service revenue arpu ) and a 25.7 % increase in our annual average paid customers . the increase in our service revenue arpu in 2020 was primarily attributable to the growth in our shipping business where we have the ability to better monetize shipping volume as compared to monthly flat rate subscription fees , a portion of which we believe is due to the impact of increased shipping volumes related to shelter in place orders . product revenue increased 18 % to $ 24.3 million in 2020 from $ 20.5 million in 2019. product revenue is primarily driven by label sales , such as netstamps , which are used for mailing . the increase in product revenue was not material to the consolidated financial statements . insurance revenue increased 24 % to $ 16.3 million in 2020 from $ 13.1 million in 2019. the increase in insurance revenue was not material to the consolidated financial statements . customized postage revenue decreased 19 % to $ 11.9 million in 2020 from $ 14.7 million in 2019. the decrease in customized postage revenue was primarily attributable to the elimination of the program by the united states postage service effective june 16 , 2020 , partially offset by a particular television marketing campaign for which we committed to donate the associated profits to charity , which occurred prior to the program 's elimination . 47 tabl e of contents cost of revenue the following table shows cost of revenues and cost of revenues as a percentage of associated revenue for the periods indicated ( in thousands except percentage ) : replace_table_token_7_th cost of service revenue principally consists of the cost of customer service , certain promotional expenses , system operating costs , credit card processing fees , vendor costs and expenses , and customer misprints that do not qualify for reimbursement from the usps . cost of product revenue principally consists of the cost of products sold through our supplies stores and the related costs of shipping and handling . cost of customized postage revenue principally consists of the face value of postage , customer service , image review costs , and printing and fulfillment costs . cost of service revenue increased 17 % to $ 161.0 million in 2020 from $ 137.7 million in 2019. the increase was primarily attributable to higher system operating and customer service costs to support our growing business . cost of service revenue as a percent of service revenue decreased from 26 % in 2019 to 23 % in 2020. the decrease in cost of service revenue as a percent of service revenue was due to the increase in higher margin shipping related service revenue as described above . cost of product revenue increased 23 % to $ 7.8 million in 2020 from $ 6.3 million in 2019. the increase was not material to the consolidated financial statements . cost of product revenue as a percent of product revenue increased from 31 % in 2019 to 32 % in 2020. the increase was not material to the consolidated financial statements . cost of customized postage revenue decreased 10 % to $ 10.0 million in 2020 from $ 11.2 million in 2019. the decrease in cost of customized postage revenue was primarily attributable to the decrease in customized postage revenue as described above . cost of customized postage revenue as a percent of customized postage revenue increased from 76 % in 2019 to 84 % in 2020. the increase was primarily attributable to a particular television marketing campaign described above , resulting in lower margins . since october 1 , 2018 , our insurance revenue represents the amount we receive from customers net of the costs paid to our insurance providers . accordingly , we do not present any cost of insurance revenue . 48 tabl e of contents income ( loss ) from operations by segment the following table sets forth income ( loss ) from operations and the resulting percentage change by segment for the year ended december 31 , 2020 and december 31 , 2019 . ( in thousands , except percentage ) : replace_table_token_8_th our stamps.com segment income from operations increased by 95.6 % to $ 205.9 million in the year ended december 31 , 2020 from $ 105.2 million in the year ended december 31 , 2019. the increase in our segment income from operations for the year ended december 31 , 2020 was primarily due to the 34 % increase in total revenue from the stamps.com operating segment for the year ended december 31 , 2020 which was primarily attributable to the growth in our shipping business a portion of which we believe is due to the impact of increased shipping volumes related to shelter in place orders , partially offset by the following items described further in the preceding or following sections : ( a ) the increase in discretionary and sales volume-based partner marketing spend ; ( b ) the increase in cost of service revenue primarily attributable to higher system operating and customer service costs to support our growing business ; ( c ) the increase in research and development headcount-related expenses including stock-based compensation ; and ( d ) the increase in sales and marketing headcount-related expenses including stock-based compensation . story_separator_special_tag our metapack segment loss from operations decreased to $ 7.7 million in the year ended december 31 , 2020 from $ 11.7 million in the year ended december 31 , 2019. the change in metapack segment loss from operations in the year ended december 31 , 2020 was primarily due to the 18 % increase in total revenue from the metapack operating segment for the year ended december 31 , 2020 which was primarily attributable to the growth in our shipping business , a portion of which we believe is due to the impact of increased shipping volumes related to shelter in place orders . consolidated operating expenses the following table outlines the components of our operating expense and their respective percentages of total revenues for the periods indicated ( in thousands except percentage ) : replace_table_token_9_th sales and marketing sales and marketing expense principally consists of spending to acquire new customers and compensation and related expenses for personnel engaged in sales , marketing , and business development activities . our sales and marketing programs include direct sales , customer referral programs , customer re-marketing efforts , direct mail , online advertising , partnerships , telemarketing , and traditional advertising . 49 tabl e of contents sales and marketing expense increased 24 % to $ 166.7 million in 2020 from $ 134.2 million in 2019. the increase was primarily attributable to an increase in discretionary and sales volume-based partner marketing spend of $ 25.7 million and a net increase in headcount-related expenses including stock-based compensation of $ 8.2 million . these increases were partially offset by a net decrease in travel expenses of $ 2.2 million . sales and marketing expense as a percent of total revenue was 22 % in 2020 and 23 % in 2019. the decrease in sales and marketing expense as a percent of total revenue was primarily attributable to increased total revenue in excess of increased sales and marketing expense . research and development research and development expense principally consists of compensation for personnel involved in the development of our services , depreciation of equipment and software , and expenditures for consulting services and third party software . research and development expense increased 22 % to $ 95.6 million in 2020 from $ 78.0 million in 2019. the increase was primarily attributable to a net increase in headcount-related expenses including stock-based compensation of $ 15.0 million and an increase in related facilities expense of $ 1.2 million . research and development expense as a percent of total revenue was approximately 13 % in 2020 and 14 % in 2019. research and development expense as a percentage of total revenue decreased primarily due to increased total revenue in excess of increased research and development expense . general and administrative general and administrative expense principally consists of compensation and related costs for executive and administrative personnel ; fees for legal and other professional services ; depreciation of equipment , software , and building used for general corporate purposes ; and amortization of intangible assets . general and administrative expense increased 7 % to $ 118.7 million in 2020 from $ 110.8 million in 2019. the increase was attributable to general increases in various operating expenses . general and administrative expense as a percent of total revenue was approximately 16 % in 2020 and 19 % in 2019. general and administrative expense as a percentage of total revenue decreased primarily due to increased revenue in excess of increased general and administrative expense . foreign currency exchange gain ( loss ) , net foreign currency transaction gains and losses are included in foreign currency exchange gain ( loss ) , net . the foreign currency exchange losses , net of $ 470,000 in 2020 and $ 506,000 in 2019 were not material to the consolidated financial statements . interest income and other income interest income and other income primarily consists of interest income from cash and cash equivalents . interest income and other income decreased to $ 68,000 in 2020 from $ 205,000 in 2019. interest income and other income is not material to the consolidated financial statements . interest expense interest expense consists of interest expense from the debt under our credit facility and the associated accretion of debt issuance costs . interest expense was $ 1.1 million in 2020 compared to $ 2.5 million in 2019. interest expense in 2019 was affected primarily by higher outstanding debt balances under our credit facility . see note 7 – “ debt ” in our notes to consolidated financial statements for further discussion . provision for income taxes our income tax expense was $ 18.0 million and $ 31.5 million for the year ended december 31 , 2020 and december 31 , 2019 , respectively . income taxes expected at the us federal statutory income tax rate of 21 percent differ from the reported income tax expense primarily as a result of permanent tax adjustments for non-deductible 50 tabl e of contents expenses , state taxes , and tax benefits from exercises of stock-based awards and research and development tax credits . see note 10 – “ income taxes ” in our notes to consolidated financial statements for further discussion . as of december 31 , 2020 and 2019 , we had net deferred tax assets of approximately $ 18.9 million and $ 15.6 million , respectively . we evaluated the appropriateness of our deferred tax assets and related valuation allowance in accordance with asc topic no . 740 , income taxes based on all available positive and negative evidence , including our recent earnings trend and expected future income . trend analysis the strong increases in e-commerce based consumption in response to the covid-19 pandemic have contributed to meaningful financial benefits to the company in 2020. despite those financial benefits , there is substantial uncertainty in 2021 from the myriad of macroeconomic factors associated with the ongoing pandemic , and the resulting effect on global e-commerce . as such , for 2021 we are not at this time providing specific guidance .
| 45 tabl e of contents the following table sets forth the number of paid customers in the period for our mailing and shipping business ( in thousands ) : replace_table_token_4_th the following table sets forth the change in paid customers and arpu for our mailing and shipping business ( in thousands except arpu and percentage ) : replace_table_token_5_th the number of paid customers increased by 25.7 % in the year ended december 31 , 2020 compared to the year ended december 31 , 2019 primarily as a result of our customer acquisition efforts which we believe were positively impacted by shelter in place orders . our arpu increased by 6.5 % in the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase was primarily attributable to the growth in our shipping business where we have the ability to better monetize shipping volume as compared to monthly flat rate subscription fees , a portion of which we believe is due to the impact of increased shipping volumes related to shelter in place orders . revenue by product the following table shows our components of revenues and their respective percentages of total revenue for the periods indicated ( in thousands except percentage ) : replace_table_token_6_th our revenue is derived primarily from five sources : ( 1 ) service and transaction related revenues from our mailing services , our multi-carrier shipping services , and our mailing and shipping integrations ; ( 2 ) product revenue from the direct sale of consumables and supplies through our supplies stores ; ( 3 ) package insurance revenue from our branded insurance offerings ; ( 4 ) customized postage revenue from the sale of customized postage labels ; and ( 5 ) other revenue , consisting of advertising revenue derived from advertising programs with our existing customers . other revenue was not material to our consolidated financial statements in the years ended december 31 , 2020 and december 31 , 2019 . 46 tabl e of contents service revenue is recognized over time for each month that customers have access to our platform or at a point in time when assets are transferred to the customer . we earn service revenue from our mailing and shipping operations in several different ways : ( 1 ) customers may pay us a monthly fee , based on a subscription plan which may be waived or refunded for certain customers , for which we provide them access to our platform , in which case revenue is earned over the period of time that the customers have access to
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per mmbtu . on december 29 , 2017 , the west texas intermediate posted price for crude oil was $ 60.46 per bbl and the henry hub spot market price of natural gas was $ 3.69 per mmbtu . lower prices may not only decrease our revenues , but also potentially the amount of oil and natural gas that our operators can produce economically . lower oil and natural gas prices may also result in a reduction in the borrowing base under our credit agreement , which may be redetermined at the discretion of our lenders . principal components of our cost structure production and ad valorem taxes production taxes are paid on produced oil and natural gas based on a percentage of revenues from products sold at fixed rates established by federal , state or local taxing authorities . where available , we benefit from tax credits and exemptions in our various taxing jurisdictions . we are also subject to ad valorem taxes in the counties where our production is located . ad valorem taxes are generally based on the valuation of our oil and gas properties . general and administrative in connection with the closing of the ipo , our general partner and diamondback entered into the first amended and restated agreement of limited partnership , dated as of june 23 , 2014. the partnership agreement requires us to reimburse our general partner for all direct and indirect expenses incurred or paid on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection with operating our business . the partnership agreement does not set a limit on the amount of expenses for which our general partner and its affiliates may be reimbursed . these expenses include salary , bonus , incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates . our general partner is entitled to determine the expenses that are allocable to us . depreciation , depletion and amortization under the full cost accounting method , we capitalize costs within a cost center and then systematically expense those costs on a units of production basis based on proved oil and natural gas reserve quantities . we calculate depletion on all capitalized costs , other than the cost of investments in unproved properties and major development projects for which proved reserves can not yet be assigned , less accumulated amortization . 46 income tax expense we are organized as a pass-through entity for income tax purposes . as a result , our partners are responsible for federal income taxes on their share of our taxable income . we are subject to the texas margin tax . diamondback does not expect any texas margin tax to be due for the years ended december 31 , 2017 , 2016 and 2015 . 47 story_separator_special_tag style= '' line-height:120 % ; text-align : center ; font-size:10pt ; '' > 50 liquidity and capital resources overview our primary sources of liquidity have been cash flows from operations and equity and debt financings , including borrowings under our credit agreement , and our primary uses of cash have been , and are expected to continue to be , to pay distributions to our unitholders and for replacement and growth capital expenditures , including the acquisition of oil and natural gas properties . our ability to generate cash is subject to a number of factors , some of which are beyond our control , including commodity prices , weather and general economic , financial , competitive , legislative , regulatory and other factors . in 2018 , we believe cash flows from operations and availability under our credit agreement will provide sufficient liquidity to manage our cash needs and contractual obligations and to fund expected capital expenditures . we continually monitor market conditions and may consider issuing more equity or taking on debt if we believe conditions to be favorable . our partnership agreement does not require us to distribute any of the cash we generate from operations . we believe , however , that it is in the best interests of our unitholders if we distribute a substantial portion of the cash we generate from operations . the board of directors of our general partner has adopted a policy to distribute an amount equal to the available cash we generate each quarter to our unitholders . cash distributions are made to the common unitholders of record on the applicable record date , generally within 60 days after the end of each quarter . available cash for each quarter is determined by the board of directors of our general partner following the end of such quarter . available cash for each quarter generally equals adjusted ebitda reduced for cash needed for debt service and other contractual obligations and fixed charges and reserves for future operating or capital needs that the board of directors of our general partner deems necessary or appropriate , if any . the following table presents cash distributions approved by the board of directors of our general partner for the periods presented . replace_table_token_10_th * the q4 2017 distribution is payable on february 26 , 2018 to unitholders of record at the close of business on february 19 , 2018 . based on the common units held by diamondback on february 6 , 2018 , the q4 2017 distribution payable to diamondback on february 26 , 2018 will be approximately $ 33.6 million . our credit agreement on july 8 , 2014 , we entered into a secured revolving credit agreement with wells fargo , as administrative agent , and wells fargo securities , as sole book runner and lead arranger . story_separator_special_tag the credit agreement , as amended , provides for a revolving credit facility in the maximum credit amount of $ 2.0 billion and a borrowing base based on our oil and natural gas reserves and other factors ( the “ borrowing base ” ) of $ 400.0 million , subject to scheduled semi-annual and other elective borrowing base redeterminations . the borrowing base is scheduled to be re-determined semi-annually with effective dates of may 1st and november 1st . in addition , we may request up to three additional redeterminations of the borrowing base during any 12-month period . as of december 31 , 2017 , the borrowing base was set at $ 400.0 million , and we had $ 93.5 million of outstanding borrowings and $ 306.5 million available for future borrowings under our revolving credit facility . 51 the outstanding borrowings under the credit agreement bear interest at a per annum rate elected by us that is equal to an alternate base rate ( which is equal to the greatest of the prime rate , the federal funds effective rate plus 0.50 % and 3 -month libor plus 1.0 % ) or libor , in each case plus the applicable margin . the applicable margin ranges from 0.75 % to 1.75 % per annum in the case of the alternate base rate and from 1.75 % to 2.75 % per annum in the case of libor , in each case depending on the amount of loans and letters of credit outstanding in relation to the commitment , which is defined as the lesser of the maximum credit amount and the borrowing base . we are obligated to pay a quarterly commitment fee ranging from 0.375 % to 0.500 % per year on the unused portion of the commitment , which fee is also dependent on the amount of loans and letters of credit outstanding in relation to the commitment . loan principal may be optionally repaid from time to time without premium or penalty ( other than customary libor breakage ) , and is required to be repaid ( a ) to the extent the loan amount exceeds the commitment or the borrowing base , whether due to a borrowing base redetermination or otherwise ( in some cases subject to a cure period ) , ( b ) in an amount equal to the net cash proceeds from the sale of property when a borrowing base deficiency or event of default exists under the credit agreement and ( c ) at the maturity date of november 1 , 2022. the loan is secured by substantially all of our and our subsidiary 's assets . the credit agreement contains various affirmative , negative and financial maintenance covenants . these covenants , among other things , limit additional indebtedness , additional liens , sales of assets , mergers and consolidations , dividends and distributions , transactions with affiliates and entering into certain swap agreements and require the maintenance of the financial ratios described below . financial covenant required ratio ratio of total debt to ebitdax not greater than 4.0 to 1.0 ratio of current assets to liabilities , as defined in the credit agreement not less than 1.0 to 1.0 the covenant prohibiting additional indebtedness allows for the issuance of unsecured debt of up to $ 400.0 million in the form of senior unsecured notes and , in connection with any such issuance , the reduction of the borrowing base by 25 % of the stated principal amount of each such issuance . a borrowing base reduction in connection with such issuance may require a portion of the outstanding principal of the loan to be repaid . as of december 31 , 2017 , we were in compliance with all financial covenants under our credit agreement . the lenders may accelerate all of the indebtedness under our revolving credit facility upon the occurrence and during the continuance of any event of default . the credit agreement contains customary events of default , including non-payment , breach of covenants , materially incorrect representations , cross-default , bankruptcy and change of control . with certain specified exceptions , the terms and provisions of our credit agreement generally may be amended with the consent of the lenders holding a majority of the outstanding loans or commitments to lend . cash flows the following table presents our cash flows for the period indicated . replace_table_token_11_th operating activities our operating cash flow is sensitive to many variables , the most significant of which are the volatility of prices for oil and natural gas and the volume of oil and natural gas sold by our producers . prices for these commodities are determined primarily by prevailing market conditions . regional and worldwide economic activity , weather and other substantially variable factors influence market conditions for these products . these factors are beyond our control and are difficult to predict . 52 investing activities the purchase of oil and natural gas interests accounted for the majority of our cash outlays for investing activities . net cash used in investing activities was $ 344.1 million , $ 205.7 million and $ 43.9 million during the years ended december 31 , 2017 , 2016 and 2015 , respectively , related to acquisitions of royalty interests . financing activities net cash provided by financing activities was $ 219.8 million during the year ended december 31 , 2017 , primarily related to aggregate net proceeds of $ 380.0 million from our public offerings of common units in january and july 2017 , partially offset by $ 130.9 million of distributions to our unitholders and $ 27.0 million of net repayments under our revolving credit agreement during 2017. net cash provided by financing activities was $ 145.8 million during the year ended december 31 , 2016 , primarily related to $ 86.0 million of net borrowings under our revolving credit agreement and net proceeds of $ 125.0 million from our public offering of common units partially offset by $ 64.8 million of distributions to our unitholders during 2016. net cash
| we had no lease bonus income for the year ended december 31 , 2015 . impairment of oil and gas properties . during the years ended december 31 , 2016 and 2015 , we recorded impairments of oil and gas properties of $ 47.5 million and $ 3.4 million , respectively , as a result of the significant decline in commodity prices . no impairment was recorded for the year ended december 31 , 2017 . 49 general and administrative expenses for the years ended december 31 , 2017 , 2016 and 2015 , we incurred general and administrative expenses of $ 6.3 million , $ 5.2 million and $ 5.8 million , respectively . the general and administrative expenses primarily reflect costs associated with us being a publicly traded limited partnership , unit-based compensation , the amounts reimbursed to our general partner under our partnership agreement and amounts incurred under our advisory services agreement . for the year ended december 31 , 2017 , the general partner received reimbursements from us of $ 2.5 million . for the year ended december 31 , 2016 , the general partner did no t receive any reimbursements from us . for the year ended december 31 , 2015 , the general partner did not receive any reimbursements from us other than the $ 4,000 outstanding at december 31 , 2014. net interest expense net interest expense for the years ended december 31 , 2017 , 2016 and 2015 was $ 3.2 million , $ 2.5 million and $ 1.1 million , respectively . the increase of $ 0.7 million in net interest expense for the year ended december 31 , 2017 as compared to 2016 was due to a higher average interest rate and increased average level of outstanding borrowings . the increase of $ 1.3 million in net interest expense for the year ended december 31 , 2016 as compared to 2015 was primarily
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significant delays or reductions in appropriations ; long-term funding under a continuing resolution ; an extended debt ceiling breach or government shutdown ; and or future budget and program decisions , among other items , may negatively impact our business and programs and could have a material adverse effect on our financial position , results of operations and or cash flows . current reporting segments we operate in two reportable segments . the kgs reportable segment is comprised of an aggregation of kgs operating segments , including microwave electronic products , satellite communications , training systems , modular systems , and defense and rocket support services . the us reportable segment consists of our unmanned aerial , unmanned ground and unmanned seaborne system businesses . our kgs and us segments provide products , solutions and services for mission critical national security programs . kgs and us customers primarily include national security related agencies , the dod , intelligence agencies and classified agencies , and to a lesser degree , international government agencies and domestic and international commercial customers . we organize our business segments based primarily on the nature of the products , solutions and services offered . for additional information regarding our reportable segments , see note 13 of the notes to consolidated financial statements . from a customer and solutions perspective , we view our business as an integrated whole , leveraging skills and assets wherever possible . discontinued operations on june 11 , 2018 , we completed the sale of all the issued and outstanding capital stock of pss to buyer for a purchase price of $ 69 million in cash , subject to a closing net working capital adjustment . 38 we currently expect to receive approximately $ 70 million of aggregate net cash proceeds from the transaction , after taking into account amounts to be paid by us pursuant to a negotiated transaction services agreement between us and the buyer , receipt of approximately $ 7.0 million in net working capital retained by the company , and associated transaction fees and expenses , excluding the impact of the final settlement and determination of the closing net working capital adjustment . we are currently in a dispute with the buyer regarding the closing net working capital adjustment . the amount in dispute is approximately $ 8 million . we currently expect that the net working capital retained by the company will be collected by the first half of 2019 once certain legacy projects are completed and the project close-out process has been completed . the company currently expects to recognize a net break-even on the sale of the public safety & security business once the aggregate net proceeds described above have been collected excluding the impact of the final settlement and determination of the closing net working capital adjustment . any changes or adjustments to the expected net proceeds will be reflected in future periods . for additional information regarding discontinued operations , see note 8 of the notes to consolidated financial statements contained within this annual report . key financial statement concepts as of december 30 , 2018 , we consider the following factors to be important in understanding our financial statements . kgs ' and us ' business with the u.s. government and prime contractors is generally performed under fixed-price , cost reimbursable , or time and materials contracts . cost reimbursable contracts for the u.s. government provide for reimbursement of costs plus the payment of a fee . some cost reimbursable contracts include incentive fees that are awarded based on performance on the contract . under time and materials contracts , we are reimbursed for labor hours at negotiated hourly billing rates and reimbursed for travel and other direct expenses at actual costs plus applied general and administrative expenses . effective january 1 , 2018 , we adopted the requirements of asc 606 , utilizing the modified retrospective method as discussed in note 1 of the notes to consolidated financial statements contained within this annual report the reported results for 2018 reflect the application of asc 606 guidance while the reported results for periods prior to january 1 , 2018 were prepared under the guidance of financial accounting standards board ( “ fasb ” ) asc 605 , revenue recognition ( “ asc 605 ” ) . the adoption of asc 606 represents a change in accounting principle . in accordance with asc 606 , revenue is recognized when a customer obtains control of promised services and products . the amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these services and products . prior to the adoption of asc 606 , we recognized the majority of our revenues using the percentage-of-completion method of accounting . based on the nature of products provided or services performed , revenue was recorded as costs were incurred ( the “ percentage-of-completion cost-to-cost method ” ) or as units were delivered ( the “ percentage-of-completion units-of-delivery method ” ) . for the majority of contracts , the customer obtains control or receives benefits as work is performed on the contract . as a result , under asc 606 revenue is recognized over a period of time utilizing the percentage-of-completion cost-to-cost method . this change generally results in an acceleration of revenue for contracts that were historically accounted for using the percentage-of-completion units-of-delivery method as revenues are now recognized earlier in the performance period as costs are incurred rather than as the products are delivered . we consider the following factors when determining if collection of a receivable is reasonably assured : comprehensive collection history ; results of our communications with customers ; the current financial position of the customer ; and the relevant economic conditions in the customer 's country . if we have had no prior experience with the customer , we may review reports from various credit organizations to ensure that the customer has a history of paying its creditors in a reliable and effective manner . story_separator_special_tag if the financial condition of our customers were to deteriorate and adversely affect their financial ability to make payments , additional allowances would be required . additionally , on certain contracts whereby we perform services for a prime/general contractor , a specified percentage of the invoiced trade accounts receivable may be retained by the customer until we complete the project . we periodically review all retainages for collectability and record allowances for doubtful accounts when deemed appropriate , based on our assessment of the associated risks . we monitor our policies and procedures with respect to our contracts on a regular basis to ensure consistent application under similar terms and conditions as well as compliance with all applicable government regulations . in addition , costs incurred and allocated to contracts with the u.s. government are routinely audited by the dcaa . we manage and assess the performance of our businesses based on our performance on individual contracts and programs obtained generally from government organizations with consideration given to our “ critical accounting principles and estimates ” discussed below . due to the federal acquisition regulation rules that govern our business , most types of costs 39 are allowable , and we do not focus on individual cost groupings ( such as cost of sales or general and administrative costs ) as much as we do on total contract costs , which are a key factor in determining contract operating income . as a result , in evaluating our operating performance , we look primarily at changes in sales and service revenues and operating income , including the effects of significant changes in operating income . changes in contract estimates are reviewed on a contract-by-contract basis and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision in accordance with accounting principles generally accepted in the u.s. ( “ gaap ” ) . significant management judgments and estimates , including the estimated costs to complete the project , which determine the project 's percentage complete , must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of our revenue for any period if management makes different judgments or utilizes different estimates . story_separator_special_tag makes different judgments or utilizes different estimates . during the reporting periods contained herein , we did experience revenue and margin adjustments on certain projects based on the aforementioned factors , but the effect of such adjustments , both positive and negative , when evaluated in total were determined to be immaterial to our consolidated financial statements . cost of revenues . cost of revenues increased to $ 448.3 million for the year ended december 30 , 2018 , from $ 445.7 million for the year ended december 31 , 2017 . the $ 2.6 million increase in cost of revenues was primarily a result of increased revenue discussed above . gross margin percentage increased to 27.5 % for the year ended december 30 , 2018 , compared to 26.1 % for the year ended december 31 , 2017 . margins on services increased to 31.3 % for the year ended december 30 , 2018 from 29.9 % for the year ended december 31 , 2017 , due primarily to a more favorable mix of revenues including the company 's de-emphasis of lower margin opportunities . margins on product sales increased for the year ended december 30 , 2018 , as compared to december 31 , 2017 to 25.6 % from 24.3 % , respectively , primarily as a result of a change in the mix of products sold including the company 's de-emphasis of lower margin opportunities . margins in the kgs segment increased to 29.1 % for the year ended december 30 , 2018 from 27.5 % for the year ended december 31 , 2017 , primarily due to a more favorable mix of products produced including the company 's de-emphasis of lower margin opportunities . margins in the us segment increased to 21.3 % for the year ended december 30 , 2018 from 20.5 % for the year ended december 31 , 2017 , primarily due to a more favorable mix of products produced and shipped in the year ended december 30 , 2018 , the migration from development to production on certain platforms and the leverage on the overhead and manufacturing base due to the increase in production volumes and a de-emphasis of lower margin opportunities . selling , general and administrative expenses ( sg & a ) . sg & a decreased $ 7.5 million to $ 119.8 million for the year ended december 30 , 2018 , from $ 127.3 million for the year ended december 31 , 2017 . the decrease was primarily the result of cost reduction actions taken by the company and the reduction of amortization of intangibles as a result of them being fully amortized in 2018. as a percentage of revenues , sg & a decreased to 19.4 % for the year ended december 30 , 2018 from 21.1 % for the year ended december 31 , 2017 . excluding amortization of intangibles of $ 5.9 million for the year ended december 30 , 2018 , and amortization of intangibles of $ 10.4 million for the year ended december 31 , 2017 , sg & a decreased as a percentage of revenues to 18.4 % from 19.4 % for the year ended december 30 , 2018 and december 31 , 2017 , respectively . internal research and development ( ir & d ) expenses . ir & d expenses decreased to $ 15.6 million for the year ended december 30 , 2018 from $ 17.8 million for the year ended december 31 , 2017 . as a percentage of revenues , ir & d decreased to 2.5 % of revenues for the year ended december 30 , 2018 from 3.0 % of revenues for the year ended december 31 , 2017 .
| increased revenues of $ 11.2 million in our us segment resulted from the approximately $ 24.0 million impact from the acceleration in revenue recognition resulting from the implementation of asc 606 that was positively affected by recent contract awards for our aerial target products , with approximately $ 11.3 million attributable to the afsat lot 14 award of approximately $ 27 million in 2018 , which is recorded under the percentage-of-completion cost-to-cost method as compared to the percentage-of-completion units-of-delivery method under asc 605. in addition , work performed to manufacture firejet high performance unmanned aerial systems under the recent awards from the u.s. army and the swedish defence materiel administration are both now also recognized using the percentage-of-completion cost-to-cost method method versus the percentage-of-completion units-of-delivery method under asc 605. these increases were partially offset by reductions related to work completed under our initial contract with the diux and certain foreign governments . product sales increased $ 11.8 million to $ 417.3 million for the year ended december 30 , 2018 from $ 405.5 million for the year ended december 31 , 2017 , primarily as a result of a $ 30.0 million impact from the acceleration in revenue recognition resulting from the implementation of asc 606 , that was positively affected by an increase in production activity in our us segment under the percentage-of-completion cost-to-cost method method versus the percentage-of-completion units-of-delivery method under asc 605. as a percentage of total revenue , product sales were 67.5 % for the year ended december 30 , 2018 , as compared to 67.2 % for the year ended december 31 , 2017 . service revenues increased by $ 2.9 million to $ 200.7 million for the year ended december 30 , 2018 , from $ 197.8 million for the year ended december 31 , 2017 . 40 as described in our “ critical accounting principles and estimates ” below and in the notes to consolidated financial statements contained within this annual report , prior to the adoption of asc 606 , we recognized the majority of our revenues using the percentage-of-completion method of accounting . based on the nature of products provided or services performed , revenue was recorded as costs were incurred ( the “ percentage-of-completion cost-to-cost method ” ) or as units were delivered ( the “ percentage-of-completion units-of-delivery method ” ) . for the majority of contracts , the customer obtains control or receives benefits as work is performed on the contract . as a result , under asc 606 revenue is recognized over a period of time utilizing the percentage-of-completion cost-to-cost method . this change generally results in an acceleration of revenue for
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foreign currency exchange rate fluctuations reflect the difference between the current period results as reported compared to the current period results recalculated using the foreign currency exchange rates in effect for the comparable prior period . while operating revenues adjusted for the impact of foreign currency fluctuations includes asset-based fees that have been adjusted for the impact of foreign currency fluctuations , the underlying aum , which is the primary component of asset-based fees , is not adjusted for foreign currency fluctuations . approximately two-thirds of the aum are invested in securities denominated in currencies other than the u.s. dollar , and accordingly , any such impact is excluded from the disclosed foreign currency adjusted variances . revenues our revenues are characterized by type , which broadly reflects the nature of how they are recognized or earned . our revenue types are recurring subscription , asset-based fees and non-recurring revenues . we also group our revenues by segment and provide the revenue type within each segment . see part 1 , item 1 . “ business—our operating segments ” above for additional details on the products and services that we offer . recurring subscription revenues represent fees earned from clients primarily under renewable contracts or agreements and are recognized in most cases ratably over the term of the license or service pursuant to the contract terms . the contracts state the terms under which these fees are to be calculated . the fees are recognized as we provide the product and service to the client over the license period and are generally billed in advance , prior to the license start date . asset-based fees represent fees earned on the aum linked to our indexes from independent third-party sources or the most recently reported information provided by the client . asset-based fees also include revenues related to futures and options contracts linked to our indexes , which are primarily based on trading volumes . non-recurring revenues primarily represent fees earned on products and services where we do not have renewal contracts and primarily include revenues for providing historical data , certain implementation services and other special client requests . effective january 1 , 2018 , msci adopted the new revenue standard as set forth under asc subtopic 606-10 , “ revenue from contracts with customers. ” see note 1 , “ introduction and basis of presentation— significant accounting policies — revenue recognition , ” of the notes to the consolidated financial statements included herein for further information on our revenue recognition policy . 41 operating expenses we group our operating expenses into the following activity categories : cost of revenues ; selling and marketing ; research and development ( “ r & d ” ) ; general and administrative ( “ g & a ” ) ; amortization of intangible assets ; and depreciation and amortization of property , equipment and leasehold improvements . costs are assigned to these activity categories based on the nature of the expense or , when not directly attributable , an estimate is allocated based on the type of effort involved . cost of revenues cost of revenues consists of costs related to the production and servicing of our products and services and primarily includes related information technology costs , including data center , platform and infrastructure costs ; costs to acquire , produce and maintain market data information ; costs of research to support and maintain existing products ; costs of product management teams ; costs of client service and consultant teams to support customer needs ; as well as other support costs directly attributable to the cost of revenues including certain human resources , finance and legal costs . selling and marketing selling and marketing expenses consist of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales force and marketing teams , as well as costs incurred in other groups associated with acquiring new business , including product management , research , technology and sales operations . research and development r & d expenses consist of costs to develop new or enhance existing products and the costs to develop new or improved technology and service platforms for the delivery of our products and services and primarily include the costs of development , research , product management , project management and the technology support associated with these efforts . general and administrative g & a expenses consist of costs primarily related to finance operations , human resources , office of the ceo , legal , corporate technology , corporate development and certain other administrative costs that are not directly attributed , but are instead allocated , to a product or service . amortization of intangible assets amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and internal capitalized software projects . intangibles arising from past acquisitions consist of customer relationships , trademarks and trade names , technology and software , proprietary processes and data and non-competition agreements . we amortize definite-lived intangible assets over their estimated useful lives . definite-lived intangible assets are tested for impairment when impairment indicators are present , and , if impaired , written down to fair value based on either discounted cash flows or appraised values . we have no indefinite-lived intangible assets . 42 depreciation and amortization of property , equipment and leasehold improvements this category consists of expenses related to depreciating or amortizing the cost of furniture and fixtures , computer and related equipment and leasehold improvements over the estimated useful life of the assets . other expense ( income ) , net this category consists primarily of interest we pay on our outstanding indebtedness , interest we collect on cash and short-term investments , foreign currency exchange rate gains and losses as well as other non-operating income and expense items . story_separator_special_tag non-gaap financial measures adjusted ebitda “ adjusted ebitda , ” a measure used by management to assess operating performance , is defined as net income before ( 1 ) provision for income taxes , ( 2 ) other expense ( income ) , net , ( 3 ) depreciation and amortization of property , equipment and leasehold improvements , ( 4 ) amortization of intangible assets and , at times , ( 5 ) certain other transactions or adjustments . “ adjusted ebitda expenses , ” a measure used by management to assess operating performance , is defined as operating expenses less depreciation and amortization of property , equipment and leasehold improvements and amortization of intangible assets and , at times , certain other transactions or adjustments . adjusted ebitda and adjusted ebitda expenses are believed to be meaningful measures of the operating performance of the company because they adjust for significant one-time , unusual or non-recurring items as well as eliminate the accounting effects of capital spending and acquisitions that do not directly affect what management considers to be the company 's core operating performance in the period . all companies do not calculate adjusted ebitda and adjusted ebitda expenses in the same way . these measures can differ significantly from company to company depending on , among other things , long-term strategic decisions regarding capital structure , the tax jurisdictions in which companies operate and capital investments . accordingly , the company 's computation of the adjusted ebitda and adjusted ebitda expenses measures may not be comparable to similarly titled measures computed by other companies . run rate run rate is a key operating metric and is important because an increase or decrease in our run rate ultimately impacts our operating revenues over time . at the end of any period , we generally have subscription and investment product license agreements in place for a large portion of total revenues for the following 12 months . we measure the fees related to these agreements and refer to this as “ run rate. ” see “ — operating metrics — run rate ” below for additional information on the calculation of this metric . subscription sales subscription sales is a key operating metric and is important because new subscription sales increase our run rate and ultimately our operating revenues over time . see “ — operating metrics — subscription sales ” below for additional information . retention rate another key operating metric is retention rate which is important because subscription cancellations decrease our run rate and ultimately our operating revenues over time . see “ — operating metrics — retention rate ” below for additional information on the calculation of this metric . 43 critical accounting policies and estimates our consolidated financial statements are prepared in accordance with gaap . these accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements , as well as the reported amounts of revenues and expenses during the periods presented . we believe the estimates and judgments upon which we rely are reasonable based upon information available to us at the time these estimates and judgments are made . to the extent there are material differences between these estimates and actual results , our consolidated financial statements will be affected . see note 1 , “ introduction and basis of presentation— significant accounting policies , ” and note 2 , “ recent accounting standards updates , ” of the notes to the consolidated financial statements included herein for a listing of our accounting policies . factors affecting the comparability of results divestitures on august 1 , 2016 , we completed the divestiture of our real estate occupiers business , which was included as a component of the all other segment through the date of divestiture . the value of the disposed assets and liabilities and the resulting gain on disposal were not material to the company . on april 9 , 2018 , we completed the divestiture of fea for $ 21.0 million in cash , which resulted in a gain of $ 10.6 million . fea was included as a component of the analytics segment through the date of divestiture . the results of operations from fea were not material to the company . on october 12 , 2018 , we completed the divestiture of investorforce and received $ 62.8 million in cash , subject to a working capital adjustment , which resulted in a gain of $ 46.6 million . investorforce was included as a component of the analytics segment through the date of divestiture . the results of operations from investorforce were not material to the company . share repurchases the board of directors has approved a stock repurchase program for the purchase of the company 's common stock . see note 9 , “ shareholders ' equity ( deficit ) , ” of the notes to consolidated financial statements included herein for additional information on our stock repurchase program . for the year ended december 31 , 2016 , the company repurchased approximately 10.3 million shares at an average price of $ 73.71 per share for a total value of $ 759.4 million pursuant to open market repurchases . for the year ended december 31 , 2017 , the company repurchased approximately 1.6 million shares at an average price of $ 87.96 per share for a total value of $ 136.9 million pursuant to open market repurchases . for the year ended december 31 , 2018 , the company repurchased approximately 6.2 million shares at an average price of $ 148.34 per share for a total value of $ 925.0 million pursuant to open market repurchases .
| the impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible . index segment adjusted ebitda expenses increased 15.7 % to $ 227.6 million for the year ended december 31 , 2018 compared to $ 196.7 million for the year ended december 31 , 2017 , reflecting higher expenses across all expense activity categories to fund current and future revenue growth . adjusting for the impact of foreign currency exchange rate fluctuations , adjusted ebitda expenses would have increased 15.4 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . 52 analytics segment the following table presents the results for the analytics segment for the years indicated : replace_table_token_16_th analytics segment revenues increased 4.7 % to $ 479.9 million for the year ended december 31 , 2018 compared to $ 458.3 million for the year ended december 31 , 2017 , primarily driven by growth in both equity and multi-asset class analytics products , partially offset by declines in energy and commodity analytics products , resulting from the fea divestiture , and declines from the divestiture of investorforce . adjusting for foreign currency exchange rate fluctuations , analytics segment revenues would have increased 4.6 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. adjusting for foreign currency exchange rate fluctuations and excluding the impact of the divestiture of investorforce and fea , analytics segment revenues would have increased 7.0 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. analytics segment adjusted ebitda expenses increased 1.1 % to $ 336.3 million for the year ended december 31 , 2018 compared to $ 332.6 million for the year ended december 31 , 2017 , primarily reflecting higher expenses across the g & a and r & d expense activity categories . adjusting for the impact of foreign currency exchange rate fluctuations , adjusted ebitda expenses would have increased 0.9 % for the year ended december 31 , 2018 compared to
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delaware online , part of the usa today network , shared news of record high flu cases in the state and how st. francis healthcare , located in wilmington , de , is managing to address the need to control this highly infectious and aggressive flu strain through the use of our steramist bit technology . in march and may 2017 , we raised through a private placement transaction gross proceeds of $ 6,000,000. we issued senior callable convertible promissory notes ( “ the notes ” ) in two tranches of $ 5,300,000 and $ 700,000 , respectively , which originally were scheduled to mature on august 31 , 2018 and november 8 , 2018 , respectively , unless earlier redeemed , repurchased or converted . in february and march 2018 , we and the holders of the notes extended the maturity date of the $ 5,300,000 principal amount of notes to april 1 , 2019 and the $ 700,000 principal amount of notes to june 8 , 2019. the notes are convertible at any time by the holder into common stock at a conversion price of $ 0.54 per share . we may redeem the notes at any time prior to maturity at a price equal to 100 % of the outstanding principal amount of the notes to be redeemed , plus accrued and unpaid interest as of the redemption date . interest on the notes is payable semi-annually in cash on february 28 and august 31 of each year at a rate of 4 percent per annum . in addition , we issued three-year warrants to purchase up to an aggregate of 999,998 shares of common stock at an exercise price of $ 0.69 per share . currently , we are using the proceeds from the private placement for research and development , international product registration , expansion of our internal sales force , marketing , public relations , expansions of our epa label and for working capital and general corporate purposes . in 2016 , we filed a lawsuit against astro pak corporation ( “ astro pak ” ) and its wholly-owned subsidiary , sixlog corporation ( “ sixlog ” ) , in california federal court for infringing our united states patent nos . 6,969,487 and 7,008,592 and violating our intellectual property rights by , among other things , indicating that our technology and patents were proprietary to sixlog and marketing our patented equipment with sixlog labels . in july 2017 , we settled the above-mentioned litigation , pursuant to which astro pak and sixlog acknowledged that we are the sole owner of ionized hydrogen peroxide decontamination and sterilization technology , patents , and products , which we market under the brands binary ionization technology® ( bit ) and steramist . astro pak and sixlog agreed to cease their prior conduct and pay us a cash settlement . astro pak also agreed to assign its ihp mark to us , complementing our existing trademark and trade name protection . finally , astro pak and sixlog agreed to remove from their website ( s ) or take steps to remove any assertions or suggestions that they own or developed ionized hydrogen peroxide technology or patents , or that they provide any ionized hydrogen peroxide products or services . in august 2017 , we announced the hiring of a new sales director to assist in the development of our business in the life science markets and added 26 additional sales representatives to our life sciences division . we currently provide our technology to five of the largest pharmaceutical companies in the world and anticipate continued growth in the life science market , as well as expansion into more of our existing clients ' facilities in 2018 due , in part , to the expansion of our sales force . in october 2017 , we entered into a distribution agreement with protak , a united kingdom-based company that manufacturers enzyme indicators for hydrogen peroxide decontamination performance validation . pursuant to the agreement , we will distribute protak 's enzyme indicators as well as use the product in our service engagements . this enzyme indicator is designed to assist end users in obtaining a quicker validation time . we believe that our new relationship with protak will further develop our opportunities in the life science market and increase customer satisfaction on service engagements . 18 in november 2017 , we were awarded a group purchasing agreement by premier , which operates a leading gpo , and in february 2018 , we were onboarded and added to the list of approved suppliers with premier . we believe this award will provide us with another opportunity to further penetrate the hospital-healthcare market . we are actively seeking to enter into additional gpo agreements to facilitate further growth in the domestic hospital-healthcare markets . during 2017 , we continued to expand our customer base in the hospital-healthcare market and added independent sales representatives to further bolster our sales presence . in november 2017 , we also received notice that our product registration of steramist in canada was finalized . we anticipate this will facilitate additional growth in international revenue in the hospital-healthcare , life science and remediation markets . we also expect the canadian registration will help expand our tsn or service network in the canadian remediation market . in december 2017 , we entered into an equipment purchase agreement with pfizer manufacturing belgium . the equipment purchase agreement governs the terms and conditions of the sale of equipment and any services provided between tomi and pfizer manufacturing belgium . domestically , our revenue for the years ended december 31 , 2017 and 2016 was $ 3,495,000 and $ 4,012,000 , respectively . the decrease for the year ended december 31 , 2017 was due primarily to product mix in our tsn sales and restructuring of our internal infrastructure . internationally , our revenue for the years ended december 31 , 2017 and 2016 was $ 1,499,000 and $ 2,331,000 , respectively . story_separator_special_tag while regulatory and product registrations have slowed our anticipated growth in asia and europe , we continue to make strides in the registration process , which we anticipate will position us to generate additional revenue in those regions . for the year ended december 31 , 2017 , we registered our steramist bit technology in 10 key countries throughout europe . in march 2018 , steramist bit technology was registered with the taiwan environmental protection agency . in addition , during 2017 , we continued our growth in international markets by entering into multiple distribution and sales representation agreements in the united kingdom , chile , brazil and portugal . in november 2017 , we entered into a distribution agreement with westbury decontamination ltd. , a united kingdom-based company that operates in the decontamination and sterilization markets . we have also made substantial progress with our patent and trademark applications in various countries in asia in order to protect our trademark and intellectual property rights in such markets . during 2017 , we continued to add new customers in the life science markets , who have engaged us to perform service work . our service revenue increased by 45 % in 2017 and we expect continued growth in 2018. in order to meet the growing demand for our services , we transferred approximately $ 324,000 in machinery from our inventory into fixed assets . the additional machinery carried in our fixed assets will allow us to provide our tsn members with more rental equipment and should allow us to take on more high-level decontamination service engagements in the near future . critical accounting policies and estimates 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 united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the estimation process requires assumptions to be made about future events and conditions , and as such , is inherently subjective and uncertain . actual results could differ materially from our estimates . the sec defines critical accounting policies as those that are , in management 's view , most important to the portrayal of our financial condition and results of operations and most demanding of our judgment . we consider the following policies to be critical to an understanding of our consolidated financial statements and the uncertainties associated with the complex judgments made by us that could impact our results of operations , financial position and cash flows . revenue recognition we recognize revenue when : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) service has been rendered or delivery has occurred ; ( 3 ) the selling price is fixed and determinable ; and ( 4 ) collectability is reasonably assured . determination of criteria ( 3 ) and ( 4 ) is based on management 's judgment regarding the fixed nature of the selling prices of the services rendered or products delivered and the collectability of those amounts . provisions for discounts to customers , and allowance , and other adjustments will be provided for in the same period the related sales are recorded . 19 fair value measurement the authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . market participants are buyers and sellers in the principal market that are ( i ) independent , ( ii ) knowledgeable , ( iii ) able to transact and ( iv ) willing to transact . the guidance describes a fair value hierarchy based on the levels of inputs , of which the first two are considered observable and the last unobservable , that may be used to measure fair value , which are the following : level 1 : quoted prices in active markets for identical assets or liabilities . level 2 : inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities . level 3 : unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities . our financial instruments include cash and cash equivalents , accounts receivable , accounts payable , accrued expenses and convertible debt . all these items were determined to be level 1 fair value measurements . the carrying amounts of cash and equivalents , accounts receivable , accounts payable and accrued expenses approximated fair value because of the short maturity of these instruments . the recorded value of convertible debt approximates its fair value as the terms and rates approximate market rates . cash and cash equivalents for purposes of the statement of cash flows , cash and cash equivalents includes cash on hand held at financial institutions and other liquid investments with original maturities of three months or less . at times , these deposits may be in excess of insured limits . accounts receivable our accounts receivable are typically from credit worthy customers or , for certain international customers , are supported by pre-payments . for those customers to whom we extend credit , we perform periodic evaluations of them and maintain allowances for potential credit losses as deemed necessary . we have a policy of reserving for doubtful accounts based on our best estimate of the amount of potential credit losses in existing accounts receivable .
| 23 professional fees professional fees for the year ended december 31 , 2017 were approximately $ 877,000 , as compared to $ 517,000 for the prior year , representing an increase of approximately $ 360,000 , or 70 % . the increase is attributable to increased efforts to protect and strengthen our intellectual property and the lawsuit with astro pak , which we settled in july 2017. professional fees are comprised primarily of legal , accounting and financial consulting fees . depreciation and amortization depreciation and amortization was approximately $ 607,000 and $ 586,000 for the years ended december 31 , 2017 and 2016 , respectively , representing an increase of $ 21,000 , or 4 % . the increase in depreciation expense is attributable to additional fixed assets acquired in 2017 and 2016. selling expenses selling expenses for the year ended december 31 , 2017 were approximately $ 1,256,000 , as compared to $ 1,513,000 for the year ended december 31 , 2016 , representing a decrease of approximately $ 257,000 or 17 % . the decrease in selling expenses is attributable to lower sales volume for the year ended december 31 , 2017 and a reduced number of employees as compared to the prior year . selling expenses represent selling salaries and wages , trade show fees , commissions and marketing expenses . research and development research and development expenses for the year ended december 31 , 2017 were approximately $ 454,000 , as compared to $ 184,000 for the year ended december 31 , 2016 , representing an increase of approximately $ 270,000 , or 147 % . the primary reason for the increase was attributable to current and ongoing studies and testing in connection with our product related to quicker hospital terminal cleans . research and development expenses mainly include costs incurred in generating and supporting research on improving , extending and applying our patents in the field of mechanical cleaning and decontamination . consulting fees consulting fees for the year ended december 31 , 2017 were approximately $ 211,000 , as compared to $ 307,000 for the year ended december 31 , 2016 , representing a
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% , and international revenue increased by $ 75.4 million , or 12.3 % , primarily as a result of higher sales of our premium robots . fiscal periods we operate and report using a 52-53 week fiscal year ending on the saturday closest to december 31. accordingly , our fiscal quarters will end on the saturday that falls closest to the last day of the third month of each quarter . the fiscal year ended january 2 , 2021 ( `` fiscal 2020 '' ) was a 53-week fiscal year . the fiscal years ended december 28 , 2019 ( `` fiscal 2019 '' ) and december 29 , 2018 ( `` fiscal 2018 '' ) were 52-week fiscal years . use of non-gaap financial measures in addition to our results determined in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) , we report non-gaap financial measures in our quarterly and annual earnings releases , investor presentations and other investor communications . we use these non-gaap financial measures to evaluate and analyze our core operating performance , trends and to develop short-term and long-term operational plans . our non-gaap financial measures reflect adjustments based on the following items . these non-gaap financial measures should not be considered a substitute for , or superior to , financial measures calculated in accordance with gaap , and the financial results calculated in accordance with gaap and reconciliations from these results should be carefully evaluated . amortization of acquired intangible assets : amortization of acquired intangible assets consists of amortization of intangible assets including completed technology , customer relationships , and reacquired distribution rights acquired in connection with business combinations . amortization charges for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions . tariff refunds : irobot was granted a section 301 list 3 tariff exclusion in april 2020 , which temporarily eliminates tariffs on the company 's products imported from china until december 31 , 2020 and entitles the company to a refund of all related tariffs previously paid since september 2018. we exclude the refunds for tariff costs expensed during fiscals 2018 and 2019 from our fiscal 2020 non-gaap measures because those tariff refunds associated with tariff costs incurred in the past have no impact to our current period earnings . net merger , acquisition and divestiture ( income ) expense : net merger , acquisition and divestiture ( income ) expense primarily consists of transaction fees , professional fees , and transition and integration costs directly associated with mergers , acquisitions and divestitures . it also includes business combination adjustments after the measurement period has ended . stock-based compensation : stock-based compensation is a non-cash charge relating to stock-based awards . ip litigation expense , net : ip litigation expense , net relates to legal costs incurred to litigate patent , trademark , copyright and false advertising infringements , or to oppose or defend against interparty actions related to intellectual property . any settlement payment or proceeds resulting from these infringements are included or netted against the costs . gain/loss on strategic investments : gain/loss on strategic investments includes fair value adjustments , realized gains and losses on the sales of these investments and losses on the impairment of these investments . restructuring and other : restructuring charges are related to one-time actions associated with workforce reductions , including severance costs , certain professional fees and other costs directly associated with resource realignments tied to strategic initiatives or changes in business conditions . income tax adjustments : income tax adjustments include the tax effect of the non-gaap adjustments , calculated using the appropriate statutory tax rate for each adjustment . we reassess the need for any valuation allowance recorded based on the non-gaap profitability and have eliminated the effect of the valuation allowance recorded in the u.s. jurisdiction . we also exclude certain tax items that are not reflective of income tax expense incurred as a result of current period earnings . these certain tax items include , among other non-recurring tax items , impacts from the tax cuts and jobs act of 2017 and stock-based compensation windfalls/shortfalls . we exclude these items from our non-gaap measures to facilitate an evaluation of our current operating performance and comparisons to our past operating performance . these items may vary significantly in magnitude or timing and do not necessarily reflect anticipated future operating activities . in addition , we believe that providing these non-gaap measures affords investors a view of our operating results that may be more easily compared with our peer companies . 28 the following table reconciles gross profit , operating income , net income and net income per share on a gaap and non-gaap basis for the fiscal years ended january 2 , 2021 , december 28 , 2019 and december 29 , 2018 : replace_table_token_2_th critical accounting policies and estimates the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenue and expenses . these estimates and judgments , include but are not limited to , revenue recognition including performance obligations , variable consideration and other obligations such as product returns and incentives ; allowance for credit losses ; product warranties ; valuation of goodwill and acquired intangible assets ; valuation of non-marketable equity investments ; evaluating loss contingencies ; accounting for stock-based compensation including performance-based assessments ; and accounting for income taxes and related valuation allowances . we base these estimates and judgments on historical experience , market participant fair value considerations , projected future cash flows and various other factors that we believe are reasonable under the circumstances . actual results may differ from our estimates . we believe that of our significant accounting policies , which are described in the notes to our consolidated financial statements , the following accounting policies involve a greater degree of judgment and complexity . story_separator_special_tag accordingly , we believe 29 that the following accounting policies are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . revenue recognition we primarily derive our revenue from the sale of consumer robots and accessories . we sell products directly to consumers through online stores and indirectly through resellers and distributors . revenue is recognized upon transfer of control of promised products or services to customers , generally as title and risk of loss pass , in an amount that reflects the consideration we expect to receive in exchange for those products or services . revenue is recognized only to the extent that it is probable that a significant reversal of revenue will not occur and when collection is considered probable . taxes collected from customers , which are subsequently remitted to governmental authorities , are excluded from revenue . shipping and handling expenses are considered fulfillment activities and are expensed as incurred . our consumer robots are highly dependent on , and interrelated with , the embedded software and can not function without the software . as such , the consumer robots are accounted for as a single performance obligation , and the revenue is recognized at a point in time when the control is transferred to distributors , resellers or directly to end customers through online stores . for certain consumer robots with wi-fi capability ( `` connected robots '' ) , each sale represents an arrangement with multiple promises consisting of the robot , downloadable free app , cloud services and potential future unspecified software upgrades . we have determined that the app , cloud services and potential future unspecified software upgrades represent one promised service to the customer to enhance the functionality and interaction with the robot ( referred to collectively as `` cloud services '' ) . for contracts that contain multiple performance obligations , the transaction price is allocated to each performance obligation based on a relative standalone selling price ( `` ssp '' ) . we estimate ssp for items that are not sold separately , using market data if available or analysis of the cost of providing the products or services plus a reasonable margin . the transaction price allocated to the robots is recognized as revenue at a point in time when control is transferred and when collection is considered probable . the transaction price allocated to the cloud services is deferred and recognized on a straight-line basis over the estimated term of the cloud services . for contracts with a duration of greater than one year , the transaction price allocated to performance obligations that are unsatisfied as of january 2 , 2021 and december 28 , 2019 was $ 11.5 million and $ 4.0 million , respectively . we do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less . our products generally carry a one-year or two-year limited warranty that promises customers that delivered products are as specified . we do not consider these assurance-type warranties as a separate performance obligation and therefore , we account for such warranties under asc 460 , `` guarantees . '' during the fourth quarter of 2020 , we began offering our customers the option to purchase an extended warranty for a fee . amounts paid for the extended warranty plans are deferred and recognized as revenue on a straight-line basis over the service period . we provide limited rights of returns for direct-to-consumer sales generated through our on-line stores and certain resellers and distributors . we record an allowance for product returns based on specific terms and conditions included in the customer agreements or based on historical experience and our expectation of future returns . in addition , we may provide other credits or incentives , which are accounted for as variable consideration when estimating the amount of revenue to recognize . where appropriate , these estimates take into consideration relevant factors such as our historical experience , current contractual requirements , specific known market events and trends and forecasted inventory level in the channels . overall , these reserves reflect our best estimates , and the actual amounts of consideration ultimately received may differ from our estimates . returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available . as of january 2 , 2021 , we had reserves for product returns of $ 64.3 million and other credits and incentives of $ 142.2 million . as of december 28 , 2019 , we had reserves for product returns of $ 55.2 million and other credits and incentives of $ 134.0 million . revenue recognized during the years ended january 2 , 2021 and december 28 , 2019 related to performance obligations satisfied in a prior period was not material . 30 credit losses we are exposed to credit losses primarily through sales of our products . we assess each customer 's ability to pay by conducting a credit review which includes consideration of established credit ratings or an internal assessment of the customer 's creditworthiness based on an analysis of their financial information when a credit rating is not available . we monitor the credit exposure through active review of customer balances . our expected loss methodology for accounts receivable is developed through consideration of factors including , but not limited to , historical collection experience , current customer credit ratings , current and future economic and market conditions and age of the receivable . although we historically have not experienced significant credit losses as it relates to trade accounts receivable , the covid-19 pandemic has caused uncertainty in some customer accounts . we recorded our estimate of credit losses , resulting in an increase to the reserve and bad debt expense , of $ 3.6 million during the fiscal year ended january 2 , 2021. as of january 2 , 2021 and december 28 , 2019 , we had an allowance for credit losses of $ 4.8 million and $ 1.2
| million , or 23.4 % , while international revenue increased $ 75.4 million , or 12.3 % , as compared to fiscal 2019. the international revenue growth was driven by increases in revenue from japan and emea of 20 % and 8 % , respectively , compared to 2019. year ended december 28 , 2019 as compared to the year ended december 29 , 2018 revenue increased 11.1 % to $ 1,214.0 million in fiscal 2019 from $ 1,092.6 million in fiscal 2018. the $ 121.4 million increase in revenue was driven by an increase in average selling price of 5.4 % . the increase in average selling price was primarily driven by the launch of our new products during the second half of fiscal 2018 and throughout 2019. total robots shipped in fiscal 2019 increased 10.0 % to approximately 5.0 million units compared to approximately 4.5 million units in fiscal 2018. in fiscal 2019 , domestic revenue increased $ 42.6 million , or 7.6 % , and international revenue increased $ 78.8 million , or 14.8 % , compared to fiscal 2018. the international revenue growth was driven primarily by increases in revenue from japan and emea of 21 % and 15 % , respectively , compared to fiscal 2018. cost of product revenue cost of product revenue consists of product cost , including costs of our contract manufacturers for production , freight , import duties , tariffs , logistics and fulfillment costs , manufacturing and tooling equipment depreciation and warranty cost . we outsource the manufacture of our products to contract manufacturers in southern china and added manufacturing capacity in malaysia during november 2019. while labor costs in these regions traditionally have been favorable compared to labor costs elsewhere in the world , including the united states , they have been increasing for the last few years . in addition , because our purchase contract with our contract manufacturers in china and malaysia are typically denominated in u.s. dollars , changes in currency
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in addition , during the third fiscal quarter of 2010 , we entered into a contract to sell our springfield , missouri manufacturing facility and recorded $ 3.4 million of asset impairment to adjust the carrying value of the facility to fair value less costs to sell . we completed the sale transaction in december 2010 and recognized a loss of approximately $ 0.9 million . in the fourth fiscal quarter of 2010 , we recorded impairment of approximately $ 3.9 million to reduce the carrying amounts of certain real estate to estimated fair value less costs to sell . interest expense , net interest expense , net increased by $ 7.5 million , or 11.9 % , to $ 70.6 million for fiscal year 2010 compared to $ 63.1 million for fiscal year 2009. the increase in interest expense was driven primarily by higher average interest rates in 2010 compared to 2009 as a result of our july 2009 refinancing , which included the issuance of our 10.5 % senior secured notes . to a lesser extent , the increase in interest expense was driven by an increase in average outstanding borrowings year over year . foreign currency exchange loss ( gain ) , net we recognized a net foreign currency exchange loss of $ 2.2 million for fiscal year 2010 compared to a net gain of $ 2.6 million for fiscal year 2009. the fluctuation was primarily the exchange rate impact on our united kingdom subsidiary 's financial statements driven by their u.s. dollar intercompany payable , which resulted in a net loss in 2010 compared to a net gain in 2009. to a lesser extent , the net foreign currency exchange loss for 2010 reflects the net loss on our forward contracts that we use to hedge the net foreign currency exposure in each our foreign subsidiaries . 18 gain from bargain purchase we recognized a bargain purchase gain of approximately $ 1.7 million on our march 31 , 2010 acquisition , which represents the excess of the fair value of the assets acquired , net of liabilities assumed , over the acquisition consideration of $ 24 million . income tax provision ( benefit ) income tax provision was $ 1.9 million for fiscal year 2010 compared to an income tax benefit of $ 6.3 million for fiscal year 2009. the 2010 income tax provision primarily reflects income tax expense from foreign jurisdictions with a minimal offsetting domestic income tax benefit resulting from pension activity included in other comprehensive income . in the united states , we are in a net operating loss carryforward position and our deferred income tax assets are subject to a full valuation allowance ; therefore , any loss before income taxes does not generate a corresponding income tax benefit . the benefit in 2009 includes a $ 5.1 million adjustment made during the first fiscal quarter of 2009 to correct an error in our previously reported deferred tax liabilities . if the adjustment had been recorded in the corresponding prior period financial statements , it would have increased ( decreased ) income tax provision by approximately $ 0.7 million , $ 2.4 million and $ ( 8.0 ) million in fiscal years 2008 , 2007 and 2006 , respectively , and increased other comprehensive income by $ 0.2 million in fiscal year 2008. excluding the $ 5.1 million adjustment , the remaining income tax benefit in 2009 of approximately $ 1.2 million reflects a u.s. tax benefit relating to current year pension activity included in other comprehensive income and the acceleration of taxable temporary differences associated with the goodwill impairment charge related to our europe reporting unit , partially offset by income tax provision related to our foreign entities . fiscal year 2009 compared to fiscal year 2008 net sales net sales decreased by $ 344.4 million , or 18.6 % , to $ 1,502.6 million for fiscal year 2009 compared to $ 1,847.0 million for fiscal year 2008. the decrease in net sales reflects a 16.3 % decrease in sales volume , a 2.1 % decrease resulting from foreign currency fluctuations and a slight decrease in average realized sales price compared to the prior year . lower sales volumes resulted from the continued softness in demand across the industry , competition in the marketplace and our strategic initiatives . approximately half of the decrease in sales volume reflects our decision to de-emphasize specified product categories , such as straws and stirrers , which are high-volume commodity products , and other strategic decisions made during 2008 and 2007 to improve commercial arrangements and to exit certain unfavorable relationships . the other half of the decrease reflects the continuing global economic recession , which resulted in a significant contraction in the market for our products and an increasingly competitive marketplace . the slight decrease in average realized sales price reflects lower pricing during 2009 , as a result of lower raw material costs and consumer demand , which were in part due to the impact of the global economic recession . the impact of lower pricing was partially offset by a favorable shift in our product mix . gross profit gross profit decreased by $ 41.4 million , or 16.7 % , to $ 206.4 million for fiscal year 2009 from $ 247.8 million for fiscal year 2008. gross profit declined by approximately $ 80 million as a result of lower sales and production volume for our u.s. operations , by approximately $ 14 million due to the results of our international subsidiaries , which decline was partially driven by foreign currency fluctuations , and by $ 4 million in connection with the resolution of a contractual dispute during the first quarter of 2009. the decline in gross profit was partially offset by lower operating costs for our u.s. operations of approximately $ 32 million , driven by the benefit of a consolidated manufacturing footprint ( net of related consolidation costs ) and lower distribution costs , and an increase of approximately $ 25 million in the difference between story_separator_special_tag sales prices and raw material costs for our u.s. operations , mostly realized during the first half of the year due to the lag in timing between the decline in raw material costs and the subsequent decrease in sales prices . as noted above , gross profit includes costs related to the consolidation of our production facilities , which were approximately $ 12 million in 2009 and $ 15 million in 2008. in both years , these consolidation costs included equipment transfers , ramp-down costs at the closing facilities and start-up expenses at the receiving plants . in 2008 , the consolidation costs also included severance at the closing facilities . gross margin , or gross profit as a percentage of net sales , was 13.7 % in 2009 versus 13.4 % in 2008. the increase in gross margin was primarily driven by a favorable shift in product mix , and to a lesser extent , an increase in the difference between sales prices and raw material costs . 19 selling , general and administrative expenses selling , general and administrative expenses decreased $ 9.5 million , or 6.0 % , to $ 150.1 million in fiscal year 2009 compared to $ 159.6 million in fiscal year 2008. the decrease primarily reflects an approximately $ 11.0 million reduction in employee-related costs resulting from cost-savings measures implemented in december 2008 and continuing through 2009 , and a reduction of approximately $ 1.5 million in intangible asset amortization expense . the decrease in selling , general and administrative expenses was partially offset by a $ 1.6 million increase in management advisory fees paid to scc holding company and vestar . no fees were incurred in 2008 due to december 2008 amendments to our management agreements . in addition , fiscal year 2008 selling , general and administrative expenses included $ 3.1 million of earnest money forfeited to us and recognized as a reduction of expense as a result of the termination of a sale agreement related to vacant real estate located in chicago , illinois . as a percentage of net sales , selling , general and administrative expenses were 10.0 % for fiscal year 2009 versus 8.6 % for fiscal year 2008. impairment of goodwill we tested goodwill for impairment at least annually , as of the end of october , or sooner if a triggering event that suggested possible impairment of the value of our goodwill occurred . during the third quarter of 2009 , despite increasing sales in the first and second quarters and the implementation of programs intended to reduce costs and gain manufacturing efficiencies , our europe reporting unit continued to incur declining margins and lower operating results . these results were in part due to increased competition , a decline in the european economy and higher input costs , such as resin and electricity , which we were unable to pass along through further price increases . we considered this combination of factors to be evidence of a permanent change in the long-term prospects of our european business . as a result , we became uncertain as to whether our european reporting unit 's estimated fair value was substantially in excess of its carrying value and determined that there was a risk that the reporting unit would fail step one of the impairment test . accordingly , we concluded that sufficient indicators existed to perform an interim goodwill impairment analysis of our europe reporting unit . step one of the impairment test was performed as of september 27 , 2009. we estimated the fair value of the reporting unit based on the present value of expected future cash flows , assuming a discount rate of 14 % and a terminal value growth rate of 3 % , and determined that the fair value was less than the carrying value . we consequently performed step two of the impairment test to calculate the amount of impairment , and concluded that the goodwill of our europe reporting unit was fully impaired . accordingly , we recorded a goodwill impairment charge of approximately $ 17.2 million for the thirteen weeks ended september 27 , 2009. after this charge , there is no remaining goodwill on our consolidated balance sheet . loss on asset disposals loss on asset disposals was $ 9.0 million for fiscal year 2009 compared to $ 22.6 million for fiscal year 2008. the 2009 loss reflects the disposal of production equipment in connection with plant closures and consolidation , and includes corrections made during the third and fourth fiscal quarters of 2009 to record approximately $ 5.8 million of equipment retirements that should have been recorded in prior periods . we determined these adjustments were immaterial to our current and prior period consolidated financial statements . during 2010 , we continued to refine the controls related to our asset disposal process . the loss during the prior-year period primarily reflects the disposal of non-core assets , including the sale of our dairy packaging machinery and equipment in march 2008. interest expense , net interest expense , net increased $ 1.5 million , or 2.4 % , to $ 63.1 million for fiscal year 2009 compared to $ 61.6 million for fiscal year 2008. higher interest expense is primarily attributable to higher average interest rates compared to the prior year period due to our refinancing transaction in july 2009 , partially offset by lower outstanding debt , mainly due to prepayments of the term loan under our first lien credit facility . reclassification of unrealized losses on cash flow hedges to interest expense we reclassified $ 9.1 million of unrealized losses on our cash flow hedges to interest expense in connection with our july 2009 refinancing . see further discussion under liquidity and capital resources below . we had previously accounted for our interest rate swap agreements as cash flow hedges of the variable-rate interest payments on our first lien term loan borrowings .
| the acquisition also resulted in an increase in our selling , general and administrative expenses primarily due to costs to close the acquired administrative office , and severance costs related to the consolidation of selling , general and administrative functions , which we completed during the third quarter of 2010. optimization of manufacturing footprint . we believe that our capital expenditures over the past two years have increased our efficiency and provided the opportunity to be more productive within a smaller manufacturing footprint . accordingly , on may 6 , 2010 , our board of directors committed to a plan to close our manufacturing facilities in owings mills , maryland ; north andover , massachusetts ; and springfield , missouri . we closed our springfield facility during the first quarter of 2011 and expect to complete the remaining two closures by the end of 2011. over the life of the plan , we expect to incur costs in the range of $ 111 to $ 126 million . of these costs , approximately $ 25 to $ 29 million are expected to be cash expenditures , including anticipated severance payments and equipment relocation and related costs . the other costs included in the range consist of pension plan curtailment loss , a charge attributable to lease payments that we will remain obligated to make in periods after the related closure , asset impairment charges , and accelerated depreciation for certain property , plant and equipment that will not be used after the facilities are closed , as follows ( in millions ) : replace_table_token_3_th excluding the asset impairment , all of the amounts incurred to date are reflected in cost of goods sold . the asset impairment charges of approximately $ 17 million include $ 13.2 million related to equipment that we no longer expect to utilize in our operations and $ 3.4 million to adjust the carrying value of our springfield property to fair value less costs to sell . plant closure and consolidation costs included in cost of goods sold increased by $ 42 million to $ 54 million in 2010 compared to $ 12 million in 2009. the increase significantly affected our gross profit for 2010 , which decreased by $ 63 million from 2009. excluding
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as the frequency or volume of the repayments which trigger these prepayment premiums and prepayment gains ( losses ) may fluctuate significantly from period to period , the associated interest income recorded may also fluctuate significantly from period to period . interest and fee income is recorded on the accrual basis to the extent we expect to collect such amounts . in addition , we also generate dividend income on preferred equity securities , common equity securities and llc interests in accordance with our revenue recognition policies . expenses our primary operating expenses include the payment of fees to mc advisors under the investment advisory and management agreement ( management and incentive fees ) , and the payment of fees to monroe capital management advisors , llc ( mc management ) for our allocable portion of overhead and other expenses under the administration agreement and other operating costs . see note 6 to our consolidated financial statements and related party transactions below for additional information on our investment advisory and management agreement and administration agreement . our expenses also include interest expense on our revolving credit facility , our sba-guaranteed debentures and our secured borrowings . we bear all other out-of-pocket costs and expenses of our operations and transactions . net gain ( loss ) on investments and secured borrowings we recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized . we record current period changes in fair value of investments and secured borrowings within net change in unrealized appreciation ( depreciation ) on investments and net change in unrealized ( appreciation ) depreciation on secured borrowings , respectively , in the consolidated statements of operations . portfolio and investment activity during the year ended december 31 , 2016 , we invested $ 105.2 million in 21 new portfolio companies and $ 42.6 million in 16 existing portfolio companies and had $ 81.4 million in aggregate amount of sales and principal repayments , resulting in net investments of $ 66.4 million for the year . during the year ended december 31 , 2015 , we invested $ 144.8 million in 24 new portfolio companies and $ 48.8 million in 16 existing portfolio companies and had $ 88.4 million in aggregate amount of sales and principal repayments , resulting in net investments of $ 105.2 million for the year . during the year ended december 31 , 2014 , we invested $ 120.4 million in 25 new portfolio companies and $ 11.8 million in six existing portfolio companies and had $ 107.1 million in aggregate amount of sales and principal repayments , resulting in net investments of $ 25.1 million for the year . 67 the following tables show the composition of the investment portfolio ( in thousands ) and associated yield data : replace_table_token_11_th replace_table_token_12_th ( 1 ) based upon the par value of our debt investments and the cost basis of our preferred equity investments . the shift in portfolio composition from december 31 , 2015 primarily reflects our investment of a substantial portion of the capital from our public offering during the year ended december 31 , 2016 into senior secured loan assets . the decline in effective rate reflects the general market yield pressure on new loans originated and acquired during the year ended december 31 , 2016 and the shift in portfolio mix toward senior secured loans . additionally , the placement of our investments in tpp operating inc. and answers corporation on non-accrual status during the year ended december 31 , 2016 contributed to the decline in effective rates . the following table shows the portfolio composition by industry grouping at fair value ( dollars in thousands ) : replace_table_token_13_th 68 replace_table_token_14_th portfolio asset quality mc advisors ' portfolio management staff closely monitors all credits , with senior portfolio managers covering agented and more complex investments . mc advisors segregates our capital markets investments by industry . the mc advisors ' monitoring process and projections developed by monroe capital both have daily , weekly , monthly and quarterly components and related reports , each to evaluate performance against historical , budget and underwriting expectations . mc advisors ' analysts will monitor performance using standard industry software tools to provide consistent disclosure of performance . mc advisors also monitors our investment exposure using a proprietary trend analysis tool . when necessary , mc advisors will update our internal risk ratings , borrowing base criteria and covenant compliance reports . as part of the monitoring process , mc advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal proprietary system that uses the categories listed below , which we refer to as mc advisors ' investment performance rating . for any investment rated in grades 3 , 4 or 5 , mc advisors will increase its monitoring intensity and prepare regular updates for the investment committee , summarizing current operating results and material impending events and suggesting recommended actions . mc advisors monitors and , when appropriate , changes the investment ratings assigned to each investment in our portfolio . in connection with our valuation process , mc advisors reviews these investment ratings on a quarterly basis , and our board of directors ( the board ) reviews and affirms such ratings . a definition of the rating system follows : investment performance risk rating summary description grade 1 includes investments exhibiting the least amount of risk in our portfolio . the issuer is performing above expectations or the issuer 's operating trends and risk factors are generally positive . grade 2 includes investments exhibiting an acceptable level of risk that is similar to the risk at the time of origination . the issuer is generally performing as expected or the risk factors are neutral to positive . grade 3 includes investments performing below expectations and indicates that the investment 's risk has increased somewhat since origination . story_separator_special_tag the issuer may be out of compliance with debt covenants ; however , scheduled loan payments are generally not past due . grade 4 includes an issuer performing materially below expectations and indicates that the issuer 's risk has increased materially since origination . in addition to the issuer being generally out of compliance with debt covenants , scheduled loan payments may be past due ( but generally not more than six months past due ) . for grade 4 investments , we intend to increase monitoring of the issuer . 69 investment performance risk rating story_separator_special_tag border-top : 1pt white solid ; border-bottom : 1pt white solid ; border-right : 1pt white solid ; border-left : 1pt white solid ; padding-top : 9pt ; padding-bottom : 9pt ; padding-right : 3pt ; padding-left:6pt ; margin-top:6pt ; margin-right : 0pt ; margin-left:0pt ; margin-bottom:6pt '' > sba-guaranteed debentures . we had $ 31.0 million available for additional borrowings on our revolving credit facility and $ 63.5 million in available sba-guaranteed debentures . see borrowings below for additional information . cash flows for the year ended december 31 , 2016 , we experienced a net decrease in cash and restricted cash of $ 5.5 million . during the same period we used $ 51.9 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the same year , we generated $ 46.3 million from financing activities , principally from net proceeds from our capital raises during the period , net borrowings on our revolving credit facility and sba-guaranteed debenture borrowings , partially offset by distributions to stockholders and decreases in secured borrowings . for the year ended december 31 , 2015 , we experienced a net increase in cash and restricted cash of $ 8.1 million . during the same period we used $ 82.7 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the same period , we generated $ 90.8 million from financing activities , principally from net proceeds from our capital raises during the period , net borrowings on our revolving credit facility and sba-guaranteed debenture borrowings , partially offset by distributions to stockholders and decreases in secured borrowings . for the year ended december 31 , 2014 , we experienced a net decrease in cash and restricted cash of $ 8.9 million . during the same period we used $ 11.5 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the same period , we generated $ 2.6 million from financing activities , principally from net borrowings on our revolving credit facility and sba-guaranteed debenture borrowings , partially offset by distributions to stockholders , repurchases of our common stock and decreases in secured borrowings . capital resources as a bdc , we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes . we intend to generate additional cash primarily from future offerings of securities , future borrowings and cash flows from operations , including income earned from investments in our portfolio companies . on both a short-term and long-term basis , our primary use of funds will be to invest in portfolio companies and make cash distributions to our stockholders . as a bdc , we are generally not permitted to issue and sell our common stock at a price below net asset value per share . we may , however , sell our common stock , or warrants , options or rights to acquire our common stock , at a price below the then-current net asset value per share of our common stock if our board , including independent directors , determines that such sale is in the best interests of us and our stockholders , and if our stockholders approved such sales . on july 14 , 2016 , our stockholders voted to allow us to sell or otherwise issue common stock at a price below net asset value per share for a period of one year , subject to certain limitations . as of december 31 , 2016 and 2015 , we had 16,581,869 and 13,008,007 shares outstanding , respectively . on june 24 , 2015 , our stockholders approved a proposal to authorize us to issue warrants , options or rights to subscribe to , convert to , or purchase our common stock in one or more offerings . this is a standing authorization and does not require annual re-approval by our stockholders . stock issuances : on february 6 , 2015 , we entered into an at-the-market ( atm ) securities offering program with mlv & co. llc and jmp securities llc through which we may sell , by means of atm offerings from time to time , up to $ 50.0 million of our common stock . during the year ended december 31 , 2015 , we sold 672,597 shares at an average price of $ 14.88 per share for gross proceeds of $ 10.0 million under the atm program . aggregate underwriters ' discounts and commissions were $ 0.2 million and offering costs were $ 0.08 million , resulting in net proceeds of approximately $ 9.8 million . on april 20 , 2015 , we closed a public offering of 2,450,000 shares of its common stock at a public offering price of $ 14.85 per share , raising approximately $ 36.4 million in gross proceeds . on may 18 , 2015 , 73 we sold an additional 367,500 shares of our common stock , at a public offering price of $ 14.85 per share , raising approximately $ 5.5 million in gross proceeds pursuant to the underwriters ' exercise of the over-allotment option .
| the following table shows the distribution of our investments on the 1 to 5 investment performance rating scale as of december 31 , 2016 ( dollars in thousands ) : replace_table_token_15_th the following table shows the distribution of our investments on the 1 to 5 investment performance rating scale as of december 31 , 2015 ( dollars in thousands ) : replace_table_token_16_th 70 results of operations operating results are as follows ( dollars in thousands ) : replace_table_token_17_th investment income the composition of our investment income was as follows ( dollars in thousands ) : replace_table_token_18_th the increase in investment income of $ 8.1 million during the year ended december 31 , 2016 is primarily due to an increase in average outstanding loan balances and increases in dividend income , partially offset by declines in the effective yield on the investment portfolio . the increase in investment income of $ 7.0 million during the year ended december 31 , 2015 is primarily due to an increase in average outstanding loan balances . operating expenses the composition of our operating expenses was as follows ( dollars in thousands ) : replace_table_token_19_th 71 the composition of our interest and other debt financing expenses was as follows ( dollars in thousands ) : replace_table_token_20_th the increase in expenses of $ 4.4 million during the year ended december 31 , 2016 is primarily due to an increase in base management fees and incentive fees primarily due to the growth in invested assets . increases in interest expense also contributed to the increase in expenses during the year ended december 31 , 2016 as a result of additional borrowings ( including sba-guaranteed debenture borrowings ) required to support the growth of the portfolio . the increase in expenses of $ 3.3 million during the year ended december 31 , 2015 is primarily due to an increase in base management fees due to the growth in invested assets and increased incentive fees resulting from improvement in performance . increases in interest expense also contributed to the increase in expenses during the year ended december 31 , 2015 as a result of additional borrowings ( including sba-guaranteed debentures ) required to support the growth of the portfolio . net realized
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the decline in asia gross margin was primarily due to the effects of a higher volume of fulfillment sales in fiscal 2014. with respect to regional mix , the asia region contributed 39.9 % of em sales in fiscal 2014 from 38.0 % in fiscal 2013 , attributable to higher growth rates in asia including the impact of an increase in fulfillment sales . ts gross profit margin remained flat year over year , with improvements in the emea region being offset by a decline in the americas . consolidated gross profit in fiscal 2013 was $ 2.98 billion , a decrease of $ 70.8 million , or 2.3 % , from fiscal 2012. gross profit margin of 11.7 % decreased 17 basis points over fiscal 2012. em gross profit margin declined 52 basis points year over year primarily related to declines in gross margins in the emea region and a higher mix of sales from the asia region . the decline in emea gross margin was primarily due to the effects of market pressures associated with relatively short product lead times . with respect to regional mix , the asia region contributed 38.0 % of em sales in fiscal 2013 from 33.8 % in fiscal 2012 , attributable to higher growth rates in asia , the effects of the acquisition of internix , inc. in japan , and lower growth rates in the western regions . ts gross profit margin improved 24 basis points year over year , primarily driven by the americas and emea regions offset by a decrease in asia . selling , general and administrative expenses selling , general and administrative expenses ( “ sg & a expenses ” ) were $ 2.34 billion in fiscal 2014 , an increase of $ 136.8 million , or 6.2 % , from fiscal 2013. this increase consisted primarily of an increase of approximately $ 138.0 million related to expenses from businesses acquired , and to a lesser extent from an approximately $ 18.0 million increase related to the translation impact of changes in foreign currency exchange rates . these increases were partially offset by a decrease related to recent restructuring and cost reduction actions net of sg & a expense increases related to inflation . in fiscal 2014 , sg & a expenses as a percentage of sales were 8.5 % and as a percentage of gross profit were 72.6 % as compared with 8.7 % and 74.0 % , respectively , in fiscal 2013 . sg & a expenses as a percentage of gross profit at em decreased 241 basis points year over year due primarily to the benefits of recent restructuring and cost savings actions and from an increase in gross profit , partially offset by increases associated with recently acquired businesses that were not fully integrated for the entire fiscal 2014 and the effects of inflation and other factors . sg & a expenses as a percentage of gross profit at ts decreased 15 basis points from fiscal 2013 due primarily to the benefits of recent restructuring and costs savings actions and the increase in gross profit , partially offset by the increases associated with recently acquired businesses and the effects of inflation and other factors . sg & a expenses were $ 2.20 billion in fiscal 2013 , an increase of $ 111.5 million , or 5.3 % , from fiscal 2012. this increase consisted of an increase of approximately $ 184.4 million related to expenses from businesses acquired and the effects of inflation and other factors , which increased the company 's sg & a expenses by an estimated $ 61.0 million . these increases were partially offset by a decrease of approximately $ 100.0 million related to recent restructuring and cost reduction actions and a decrease of approximately $ 33.9 million related to the translation impact of changes in foreign currency exchange rates . in fiscal 2013 , sg & a expenses as a percentage of sales were 8.7 % and as a percentage of gross profit were 74.0 % as compared with 8.1 % and 68.6 % , respectively , in fiscal 2012 . sg & a expenses as a percentage of gross profit at em increased 522 basis points year over year , primarily due to the effects of recent acquisitions as the related cost savings had not yet been fully attained and due to declines in 22 total gross profit dollars relative to operating expenses . sg & a expenses as a percentage of gross profit at ts increased 346 basis points year over year due primarily to the effects of the decrease in sales as previously described and , to a lesser extent , the effects of recent acquisitions as certain cost synergies had not yet been attained . restructuring , integration and other expenses during fiscal 2014 , the company took certain actions in an effort to reduce future operating costs including activities necessary to achieve planned synergies from recently acquired businesses . in addition , the company incurred integration and other costs primarily associated with acquired or divested businesses and for the consolidation of facilities . as a result , during fiscal 2014 the company recorded restructuring , integration and other expenses of $ 94.6 million . restructuring expenses of $ 65.7 million consisted of $ 53.3 million for severance , $ 11.6 million for facility exit costs and asset impairments , and $ 0.9 million for other restructuring expenses . integration and other costs including acquisition costs were $ 20.5 million and $ 8.8 million , respectively . the company also recorded a net benefit of $ 0.3 million for changes in estimates for restructuring liabilities established in prior years . the after tax impact of restructuring , integration , and other expenses was $ 70.8 million and $ 0.50 per share on a diluted basis . story_separator_special_tag severance expense recorded in fiscal 2014 related to the reduction , or planned reduction , of over 1,100 employees , primarily in operations , sales and business support functions , in connection with cost reduction actions taken in both operating groups , including reductions in recently acquired or integrated businesses . facility exit costs primarily consisted of liabilities for remaining lease obligations and the impairment of long-lived assets for facilities and information technology systems the company ceased using . other restructuring costs related primarily to other miscellaneous restructuring and exit costs . of the $ 65.7 million in restructuring expenses recorded during fiscal 2014 , $ 41.3 million related to em , $ 23.1 million related to ts and $ 1.3 million related to corporate business support functions . during the fourth quarter of fiscal 2014 , the company incurred restructuring expenses related to certain actions intended to achieve planned synergies from recent acquisitions and to reduce future operating costs . the company also incurred integration and other costs primarily related to costs associated with recently acquired businesses and restructuring related actions . as a result , the company recorded restructuring , integration and other expenses of $ 28.0 million during the quarter , including restructuring costs of $ 19.6 million , integration costs of $ 8.1 million , other costs of $ 1.9 million and a benefit for changes in estimates for costs associated with previous restructuring actions of $ 1.6 million . the tax-effected impact of restructuring , integration and other expenses for the fourth quarter of fiscal 2014 was $ 20.9 million and $ 0.15 per share on a diluted basis . when all such restructuring actions are substantially complete , which is expected to occur by the second quarter of fiscal 2015 , the company expects to realize approximately $ 30.0 million to $ 35.0 million in annualized operating cost benefits . when realized , the annualized cost savings are expected to benefit the em operating group by approximately $ 10.0 million and the ts operating group by approximately $ 20.0 million to $ 25.0 million . integration costs are primarily related to the integration of acquired businesses , integration of regional business units and incremental costs incurred as part of the consolidation , relocation and closure of warehouse and office facilities . integration costs include consulting costs for information technology system and business operation integration assistance , facility moving costs , legal fees , travel , meeting , marketing and communication costs that are incrementally incurred as a result of such integration activities . also included in integration costs are incremental salary costs specific to integration , consolidation and closure activities . other costs consists primarily of professional fees incurred for acquisitions , additional costs incurred for businesses divested or exited in current or prior periods , any ongoing facilities operating costs associated with the consolidation , relocation and closure of facilities once such facilities have been vacated or substantially vacated , and other miscellaneous costs that relate to restructuring , integration and other expenses . integration and other costs in fiscal 2014 were comprised of many different costs , none of which were individually material . during fiscal 2013 , the company took certain restructuring actions to reduce costs in both operating groups in response to then current market conditions and incurred acquisition and integration costs primarily associated with recently acquired businesses . as a result , the company recorded restructuring , integration and other expenses of $ 149.5 million . restructuring expenses of $ 120.0 million consisted of $ 73.3 million for severance , $ 34.4 million for facility exit costs and asset impairments , and $ 12.3 million for other restructuring expenses . integration costs were $ 35.7 million and other costs were a net benefit of $ 3.2 million . the company also recorded a benefit of $ 3.1 million for changes in estimates for restructuring liabilities established in prior years . the after tax impact of restructuring , integration , and other expenses was $ 116.4 million and $ 0.83 per share on a diluted basis . during fiscal 2012 , the company took certain restructuring actions to reduce costs in both operating groups in response to then current market conditions and incurred acquisition and integration costs primarily associated with recently acquired businesses . as a result , the company recorded restructuring , integration and other expenses of $ 73.6 million . restructuring expenses of $ 50.3 million consisted of $ 33.2 million for severance , $ 12.0 million for facility exit costs and asset impairments , and $ 5.1 million for 23 other restructuring expenses . integration costs and other costs primarily associated with acquisitions were $ 9.4 million and $ 17.2 million , respectively . the company also recorded a benefit of $ 3.3 million for changes in estimates for restructuring liabilities established in prior years . the after tax impact of restructuring , integration and other expenses was $ 53.0 million and $ 0.35 per share on a diluted basis . see note 17 , `` restructuring , integration and other expenses '' to the company 's consolidated financial statements included in this annual report on form 10-k for additional information related to restructuring , integration and other expenses . operating income during fiscal 2014 , the company had operating income of $ 789.9 million , representing a 26.2 % increase as compared with fiscal 2013 operating income of $ 626.0 million . consolidated operating income margin was 2.9 % as compared with 2.5 % in fiscal 2013. both years included restructuring , integration and other expenses and the amortization of intangible assets .
| ts operating income margin remained flat year over year at 2.9 % , with improvements at ts asia being offset by declines in the western regions . three-year analysis of sales : by operating group and geography replace_table_token_9_th sales items impacting year-over-year sales comparisons during the past three fiscal years , the company acquired several businesses impacting both operating groups , as presented in the following table . to facilitate more meaningful year-over-year comparisons , the discussions that follow include organic sales as well as sales on a reported basis . 19 replace_table_token_10_th ( 1 ) represents the approximate annual sales for the acquired businesses ' most recent fiscal year prior to acquisition by avnet and based upon average foreign currency exchange rates for such fiscal year . 20 fiscal 2014 comparison to fiscal 2013 the table below provides the comparison of reported fiscal 2014 and 2013 sales for the company and its operating groups to organic sales ( as defined earlier in this md & a ) to allow readers to better assess and understand the company 's sales performance by operating group . organic sales includes the effects of a divestiture of a small business in ts asia in december 2012 and the exit of a small business in em americas in april 2013 that generated combined annual sales of approximately $ 20.0 million . replace_table_token_11_th ( 1 ) to adjust reported sales for the impact of certain operations transferred from em to ts at the beginning of fiscal 2014. consolidated sales for fiscal 2014 were $ 27.50 billion , an increase of 8.0 % , or $ 2.04 billion , from fiscal 2013 consolidated sales of $ 25.46 billion . organic sales ( as defined earlier in this md & a ) increased 5.2 % year over year and increased 4.8 % in constant currency . the organic sales increase was primarily due to organic growth at em as discussed further below . em sales of $ 16.54 billion for fiscal 2014
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enrollment in both trials has been completed and preliminary data from the open label phase 1b segment were reported in 2016 and 2017. in the phase 1b segments of these two trials , we treated 51 patients with over 250 cycles of trilaciclib and chemotherapy . there were no episodes of febrile neutropenia – one of the most common adverse consequences of these chemotherapy regimens . further , there were no drug-related serious adverse events reported during the phase 1b segments of these two trials . there were some adverse events reported involving fatigue and cytopenias , but those adverse events were less severe and less frequent than those generally reported in trials involving the use of chemotherapy alone . based on these encouraging preliminary data , we advanced both sclc trials into the randomized , placebo-controlled , double-blind phase 2 segment . enrollment in the first-line sclc phase 2 trial was completed in the second quarter of 2017 and positive multilineage myeloprotection results were reported in march 2018 , with additional data reported at the european society for medical oncology ( esmo ) 2018 congress and published in annals of oncology in 2019. enrollment in the second-/third-line sclc phase 2 trial was completed in the second quarter of 2018 , with positive multilineage myeloprotection data reported in the fourth quarter of 2018 and full data presented at an oral session at the american society of clinical oncology ( asco ) 2019 annual meeting . these data were also published in advances in therapy ( hart et al . ) in 2020. our third trial in sclc was initiated in 2017 , as part of our non-exclusive collaboration with genentech , with the goal of exploring the use of trilaciclib in combination with chemotherapy and a checkpoint inhibitor . the trial was a randomized , placebo-controlled , double-blind phase 2 trial of trilaciclib in combination with tecentriq® ( atezolizumab ) /carboplatin/etoposide in first-line sclc patients . we completed enrollment in february 2018 and reported positive multilineage myeloprotection data in november 2018. additional data , including myeloprotection and anti-tumor efficacy findings ( as measured by overall survival , or “ os ” ) , were reported at the 2019 esmo congress . and featured in a concurrent publication in the lancet oncology all three sclc trials demonstrated that trilaciclib , when added to standard of care chemotherapy or chemotherapy/checkpoint inhibitor regimens , decreases the incidence of clinically significant chemotherapy-induced myelosuppression . the fda granted breakthrough therapy designation for trilaciclib based on myeloprotection data from our three randomized , double-blind , placebo-controlled sclc clinical trials , as well as safety data collected across all completed and ongoing clinical trials . the breakthrough therapy program is designed to expedite development and review of drugs intended for serious or life-threatening conditions . in august 2020 , the fda accepted our new drug application ( nda ) for trilaciclib in sclc , granting priority review with a prescription drug user fee act ( pdufa ) action date of february 15 , 2021. discussions with european regulatory authorities have indicated existing data is sufficient to support a marketing authorization application ( maa ) to the european medicines agency ( ema ) for trilaciclib for myeloprotection in sclc , which we plan to pursue in collaboration with a partner . on february 12 , 2021 , cosela was approved by the fda to decrease the incidence of chemotherapy-induced myelosuppression in adult patients when administered prior to a platinum/etoposide-containing regimen or topotecan-containing regimen for extensive-stage small cell lung cancer ( es-sclc ) . we expect cosela to be commercially available through g1 's specialty pharmacy partner network in early march . cosela is administered intravenously as a 30-minute infusion completed within 4 hours prior to the start of chemotherapy and is the first and only fda-approved therapy that helps proactively deliver multilineage myeloprotection to patients with extensive-stage small cell lung cancer being treated with chemotherapy . the approval of cosela is based on data from three randomized , placebo-controlled trials that showed patients receiving cosela prior to chemotherapy had clinically meaningful and statistically significant reduction in the duration and severity of neutropenia , reduction of red blood cell transfusions , as well as improvements in other myeloprotection measures , compared to patients receiving chemotherapy without cosela . in june 2020 , we entered into a three-year co-promotion agreement for cosela ( trilaciclib ) in the united states and puerto rico with boehringer ingelheim . the agreement is limited to support for sclc . under the terms of the agreement , we will book revenue in the united states and puerto rico and retain development and commercialization rights to trilaciclib . we will lead marketing , market access and medical engagement initiatives ; boehringer ingelheim will lead sales force engagements . in august 2020 , we entered into an exclusive license agreement with nanjing simcere dongyuan pharmaceutical co. , ltd ( “ simcere ” ) for development and commercialization rights for trilaciclib in all indications in greater china ( mainland china , hong kong , macau and taiwan ) . under the terms of the agreement , we received an upfront payment of $ 14.0 million and will be eligible to receive up to $ 156.0 million in development and commercial milestone payments . simcere will also pay us tiered low double-digit royalties on annual net sales of trilaciclib in greater china . as part of the agreement , simcere will participate in global clinical trials of trilaciclib and the companies will be responsible for all development and commercialization costs in their respective territories . we are also executing on our tumor-agnostic strategy to evaluate the potential benefits of trilaciclib to patients with other tumors that are treated with chemotherapy . we have two on-going trials : a pivotal 1l colorectal cancer ( crc ) study and a phase 2 neoadjuvant breast cancer ( i-spy 2 ) . story_separator_special_tag we intend to initiate a pivotal study in mtnbc ( including 1l and 2l patients ) and have two additional phase 2 studies : a 2l/3l non-small cell lung cancer ( nsclc ) trial in post-checkpoint patients and a 1l bladder cancer trial with chemotherapy and a checkpoint inhibitor . these studies across treatment settings and tumor types will evaluate trilaciclib 's dual benefits in both multi-lineage myeloprotection and anti-tumor efficacy . 72 pivotal 1l colorectal cancer ( crc ) we enrolled the first patient in a randomized , placebo-controlled registrational trial of trilaciclib in colorectal cancer ( crc ) in the first quarter of 2021. crc is a large indication commonly treated with 5-fu-based chemotherapy . we have extensive preclinical research demonstrating myeloprotection and potential efficacy in 5-fu-based regimens with trilaciclib . our ongoing 1l crc trial is with folfoxiri , which is the most efficacious chemo regimen in this tumor but is also highly myelosuppressive . by reducing the toxicity of folfoxiri , we believe we will significantly expand its use in crc and potentially improve overall survival . 1l/2l metastatic triple-negative breast cancer ( mtnbc ) in 2017 , we initiated a randomized phase 2 trial of trilaciclib in patients with first-/second-/third-line metastatic triple-negative breast cancer ( mtnbc ) receiving gemcitabine and carboplatin . enrollment was completed in the second quarter of 2018. at the 2018 sabcs , we presented preliminary trilaciclib data demonstrating improvement in progression-free survival ( pfs ) . in september 2019 , we presented updated data demonstrating significant improvement in os ( preliminary ) . though the trial did not meet the primary myeloprotection endpoints , patients receiving trilaciclib were able to receive approximately 50 % more cycles of chemotherapy , without additional hematological toxicity . these data were presented at the 2019 esmo congress and were concurrently published in the lancet oncology . updated safety and efficacy data from this trial were presented at the 2020 sabcs . data included that compared to gc alone ( group 1 ) , os was improved in both trilaciclib arms ( groups 2 and 3 ) ( group 2 : hr=0.31 , p=0.0016 ; group 3 : hr=0.40 , p=0.0004 ) . median os was 12.6 months in group 1 , not reached for group 2 , and 17.8 months in group 3. the median os for groups 2 and 3 combined was 19.8 months ( hr=0.37 , p < 0.0001 ) . os findings in patients receiving trilaciclib were consistent with previously-reported data from this trial . the median os for gc alone ( group 1 , 12.6 months ) was consistent with the previous trial findings and historical data . patients with both pd-l1-positive and pd-l1-negative tumors treated with trilaciclib and gc demonstrated improvement in os compared to patients receiving gc alone , with the pd-l1-positive subset achieving statistically significant improvement . further , data from t cell clonality analyses suggest that administering trilaciclib prior to chemotherapy enhanced immune system function . these compelling phase 2 data supported the potential effectiveness of trilaciclib in mtnbc . we expect to initiate a randomized , placebo-controlled registrational trial in in 1l patients and 2l post-checkpoint patients with mtnbc in the first half of 2021. tnbc is a difficult and aggressive tumor to treat with many new therapies only effective in certain subpopulations phase 2 neoadjuvant breast cancer ( i-spy 2 ) in january 2020 , we announced that trilaciclib will be included in a new randomized , investigational treatment arm for the ongoing i-spy 2 trial for neoadjuvant treatment of locally advanced breast cancer . the trial , initiated in the second quarter of 2020 and run by the non-profit quantum leap healthcare collaborative , is designed to rapidly screen promising experimental treatments and identify those most effective in specific patient subgroups based on molecular characteristics ( biomarker signatures ) . this trial will generate myeloprotection and anti-tumor efficacy data across the different subtypes of breast cancer . 2l/3l non-small cell lung cancer ( nsclc ) evaluating trilaciclib in 2l/3l nsclc ( post-checkpoint setting ) will provide us with meaningful data in an area of high unmet with a large patient population . nsclc is a known immunogenic tumor which may provide trilaciclib an opportunity to increase anti-tumor efficacy through its distinct mechanism even after checkpoint inhibitors have failed . there is also a high complementary commercial fit with our initial sclc indication . 1l bladder cancer we intend to initiate a 1l bladder cancer trial in the first half of 2021 with chemotherapy and a checkpoint inhibitor . there is a strong rationale to evaluate trilaciclib in 1l bladder cancer : ( 1 ) bladder is a known immunogenic tumor proven to be responsive to chemotherapy ; ( 2 ) the most common chemotherapy regimen used in 1l bladder is gemcitabine and platinum , which is similar to the chemotherapy regimen in our tnbc study ( gemcitabine and carboplatin ) where we showed significant os benefits ; and ( 3 ) we have observed synergistic benefits combining trilaciclib with checkpoints . rintodestrant : our differentiated oral serd rintodestrant is an oral serd which we plan to initially develop as a monotherapy and in combination with cdk4/6 inhibitors , initially ibrance® ( palbociclib ) , for the treatment of er+ , her2- breast cancer . based on compelling preclinical efficacy and safety data , we filed an investigational new drug application ( ind ) with the fda in the fourth quarter of 2017. in 2018 , we initiated a phase 1b ( dose escalation/dose expansion ) clinical trial in er+ , her2- breast cancer . preliminary data from the phase 1 portion of 73 this trial were presented at the 2019 esmo congress , showing that rintodestrant was well tolerated and demonstrated evidence of anti-tumor activity in heavily pre-treated patients . the mature monotherapy data were presented at the 2020 sabcs , confirming the safety and efficacy results of the preliminary analysis .
| the following table summarizes our research and development expenses allocated to trilaciclib , rintodestrant , lerociclib , and unallocated research and development expenses for the periods indicated : replace_table_token_5_th general and administrative general and administrative expenses were $ 68.5 million for the year ended december 31 , 2020 as compared to $ 40.0 million for the year ended december 31 , 2019. the increase of $ 28.5 million , or 71 % , was due to an increase of $ 6.8 million in personnel related costs due to increased headcount , of which $ 1.7 million related to non-cash stock compensation expense , an increase of $ 15.8 million in pre-commercialization activities , an increase of $ 2.0 million in medical affairs costs related to trilaciclib , an increase of $ 0.8 million in information technology systems and related expenses , and an increase of $ 3.1 million professional services , insurance , and other administrative costs . total other income ( expense ) , net total other income , net was $ ( 1.4 ) million for the year ended december 31 , 2020 as compared to $ 6.6 million for the year ended december 31 , 2019. the decrease in income of $ 8.0 million was primarily driven by a lower balance of money market funds due to cash used in operating activities and changes in interest rates during the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , interest expense on loan payable , and loss on disposal of fixed assets . income tax expense income tax expense was $ 1.4 million for the year ended december 31 , 2020 as compared to $ 0 for the year ended december 31 , 2019. the increase was related to the foreign withholding taxes incurred as a result of the upfront payment received from the simcere license agreement entered into in 2020 . 81 comparison of the year ended december 31 , 2019 and december 31 , 2018 replace_table_token_6_th revenue revenue was $ 0 for the years ended
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partially offsetting these charges were $ 160 million of asset gains , primarily relating to selling our interest in nfr energy at the end of 2012. excluding these items , our operating results improved as a result of increased demand for our services and products due to increased drilling activity in oil- and liquids-rich shale plays and increased well-servicing activity in the u.s. and canada . this increase in activity has more than offset the drop in demand from gas-related plays . during 2011 , operating results improved as compared to 2010 primarily due to the incremental revenue and positive operating results from the addition of our completion services operating segment beginning in september 2010 , increased drilling activity in oil- and liquids-rich shale plays in our drilling operations in both our u.s. lower 48 land and canada drilling business units and increased well-servicing activity in the u.s. and canada . however , our operating results and activity levels were negatively impacted in our u.s. offshore operations in response to uncertainty in the regulatory environment in the gulf of mexico , our alaskan operations due to key customers ' spending constraints , and in saudi arabia due to downtime and reduced rates on several jackup rigs . our income from continuing operations during 2011 was negatively impacted by $ 198.1 million in impairments and other charges , $ 100 million of which related to a provision for a contingent liability that existed on december 31 , 2011 for a potential termination payment to our former chief executive officer , which was not paid . see note 3 for further discussion . the remaining $ 98.1 million was comprised of a provision for retirement of long-lived assets recorded by multiple operating segments . this related to the decommissioning and retirement of assets previously utilized in our u.s. lower 48 land drilling , international and u.s. production services operations and the amounts are reflected in the impairments and other charges line in our consolidated statements of income ( loss ) . 33 the following tables set forth certain information with respect to our reportable segments and rig activity : replace_table_token_15_th 34 replace_table_token_16_th 35 ( 1 ) all periods present the operating activities of our wholly owned oil and gas businesses in the united states , canada and colombia , our equity interests in joint ventures in canada and colombia and our aircraft logistics operations in canada as discontinued operations . ( 2 ) includes our drilling technology and top drive manufacturing , directional drilling , rig instrumentation and software , and construction services . these services represent our other companies that are not aggregated into a reportable operating segment . ( 3 ) includes earnings ( losses ) , net from unconsolidated affiliates , accounted for using the equity method , of $ ( 3.1 ) million and $ 14.6 million for the years ended december 31 , 2011 and 2010 , respectively . ( 4 ) includes earnings ( losses ) , net from unconsolidated affiliates , accounted for using the equity method , of $ .5 million for the year ended december 31 , 2012 . ( 5 ) represents the elimination of inter-segment transactions and earnings ( losses ) , net from the u.s. unconsolidated oil and gas joint venture , accounted for using the equity method until sold in december 2012 , of $ ( 301.8 ) million , $ 59.7 million and $ 18.7 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . ( 6 ) adjusted income ( loss ) derived from operating activities is computed by subtracting the sum of direct costs , general and administrative expenses , depreciation and amortization and earnings ( losses ) from the u.s. oil and gas joint venture from the sum of operating revenues and earnings ( losses ) from unconsolidated affiliates . these amounts should not be used as a substitute for the amounts reported in accordance with gaap . however , management evaluates the performance of our business units and the consolidated company based on several criteria , including adjusted income ( loss ) derived from operating activities , because it believes that these financial measures accurately reflect our ongoing profitability . a reconciliation of this non-gaap measure to income ( loss ) from continuing operations before income taxes , which is a gaap measure , is provided in the above table . ( 7 ) represents the elimination of inter-segment transactions and unallocated corporate expenses . ( 8 ) number is so large that it is meaningless . ( 9 ) excludes well-servicing rigs , which are measured in rig hours . includes our equivalent percentage ownership of rigs owned by unconsolidated affiliates . rig years represent a measure of the number of equivalent rigs operating during a given period . for example , one rig operating 182.5 days during a 365-day period represents 0.5 rig years . ( 10 ) international rig years includes our equivalent percentage ownership of rigs owned by unconsolidated affiliates , which totaled 2.5 years , 2.1 years and 2.2 years in years 2012 , 2011 and 2010 , respectively . ( 11 ) rig hours represents the number of hours that our well-servicing rig fleet operated during the year . 36 story_separator_special_tag roman '' size= '' 2 '' style= '' font-size:10.0pt ; font-weight : bold ; '' > assets held for sale replace_table_token_25_th oil and gas during 2010 , we began marketing our oil and gas assets in canada and colombia , including our then 49.7 % and 50.0 % ownership interests in remora and smvp , respectively , and we reclassified the assets to assets held for sale . in 2011 , we reclassified the carrying value of our wholly owned u.s. oil and gas assets to assets held for sale . the carrying value of our assets held for sale as of december 31 , 2012 and 2011 , represents the lower of carrying value or fair value less costs to sell . story_separator_special_tag we continue to market these properties at prices that are reasonable compared to current fair value . also , at december 31 , 2012 , we have deferred tax assets of approximately $ 106 million , which are included in long-term deferred income taxes in our consolidated balance sheet , associated with our oil and gas operations in canada . we have contracts with pipeline companies to pay specified fees based on committed volumes for gas transport and processing . at december 31 , 2012 , our undiscounted contractual commitments for such contracts approximate $ 339.6 million . at december 31 , 2012 , we have liabilities of $ 206 million , $ 69 million of which are classified as current and are included in accrued liabilities . these amounts represent our best estimate of the fair value of the excess capacity of the pipeline commitments calculated using a discounted cash flow model ( a level 3 measurement ) , when considering our disposal plan , current production levels , natural gas prices and expected utilization of the pipeline over the remaining contractual term . decreases in actual production or natural gas prices could result in future charges related to excess capacity of the pipeline . during 2011 , we evaluated production levels , natural gas prices and market conditions , and determined our production flowing to pipelines and processing plants did not meet the volumes required under the contracts . accordingly at december 31 , 2011 , we recorded liabilities of $ 125 million , $ 71 million was classified as current and included in accrued liabilities . in 2011 , we sold some of our wholly owned oil and gas assets in colombia to an unrelated party . we received proceeds of $ 89.2 million from this sale and recognized a gain of approximately $ 39.6 million . additionally during 2011 , remora completed sales of its oil and gas assets and made cash distributions to us in the amount of $ 143.0 million . at december 31 , 2012 and 2011 , our oil and gas assets held for sale included a receivable of approximately $ 4.1 million and $ 13.7 million , respectively , representing a final distribution to us upon dissolution of this joint venture . in 2011 , we sold our 25 % working interest in the cat canyon and west cat canyon fields in santa barbara county , california to an unrelated party and received proceeds of approximately $ 71.6 million . also , the equity owners of smvp dissolved the partnership and a proportionate share of the assets and liabilities were conveyed to us in exchange for our ownership interest . in 2012 , we sold our remaining wholly owned oil and gas business in colombia and sold some of our u.s. wholly owned oil and gas assets in the fayetteville shale , floyd shale , and barnett shale areas as well as properties primarily in texas , louisiana and utah . we received cumulative cash receipts of $ 104.5 million from these third parties during 2012. other rig services during 2011 , we determined that one of our canadian subsidiaries that provides logistics services for onshore drilling using helicopter and fixed-wing aircraft met the accounting criteria of assets held for sale . based on quoted market prices , the carrying value of these assets at december 31 , 2012 and 2011 represent fair value less costs to sell . 41 discontinued operations the operating results from the assets discussed above for all periods presented are retroactively presented and accounted for as discontinued operations in the accompanying audited consolidated statements of income ( loss ) . our condensed statements of income ( loss ) from discontinued operations for each operating segment were as follows : replace_table_token_26_th oil and gas ( 1 ) includes approximately $ 83 million of equity in earnings during 2011 for our proportionate share of remora 's net income , inclusive of the gains recognized for asset sales during 2011 . ( 2 ) includes adjustments during 2012 to increase our pipeline contractual commitments by $ 128.1 million and other gains and losses related to the sale of our wholly owned oil and gas-centered assets . ( 3 ) includes impairments during 2011 of $ 255.0 million to write down the carrying value of our wholly owned oil and gas-centered assets , including $ 27.2 million related to an oil and gas financing receivable that was deemed uncollectible . ( 4 ) includes impairments during 2010 of $ 192.2 million related to our wholly owned oil and gas assets . of this total , $ 137.8 million represented writedowns to the carrying value of some acreage in the united states , which we did not have future plans to develop due to sustained low natural gas prices , and certain exploratory wells in colombia , which we determined were uneconomical to develop in the foreseeable future . the remaining $ 54.3 million related to impairment of an oil and gas financing receivable and was determined using discounted cash flow models , a level 3 measurement , and involved assumptions based on estimated cash flows for proved and probable reserves , undeveloped acreage value , and current and expected natural gas prices . other rig services ( 5 ) includes $ 7.8 million and $ 7.9 million , respectively , of impairment ( a level 3 measurement ) in 2012 and 2011 to our aircraft and logistics assets as a result of the continued downturn in the oil and gas industry in canada . additional discussion of our policy pertaining to the calculations of our annual impairment tests , including any impairment of goodwill , is set forth in critical accounting estimates below in this section and in note 2 summary of significant accounting policies in part ii , item 8 . financial statements and supplementary data . additional information relating to discontinued operations is provided in notes 4 discontinued operations and our schedule of supplemental information on oil and gas exploration and production activities in part ii , item 8 .
| adjusted income derived from operating activities decreased from 2010 to 2011 primarily due to lower utilization for the mods ® rigs and supersundowner tm platform rigs . drilling permits have been subject to a lengthy and stringent safety and environmental review process since the gulf of mexico blowout in mid-2010 . 37 alaska . the results of operations for this segment were as follows : replace_table_token_19_th the increases in operating results from 2011 to 2012 were due to higher average dayrates and increased drilling activity , driven primarily by an overall increase in winter exploration activity in the first and second quarters of 2012 , as well as increased camp activity and margins . the decreases in operating results from 2010 to 2011 were primarily due to lower average dayrates and drilling activity . while drilling activity levels decreased significantly during 2010 , operating results decreased only slightly due to the acceleration of recognized deferred revenues from a significant contract that terminated . canada . the results of operations for this segment were as follows : replace_table_token_20_th operating revenues decreased slightly from 2011 to 2012 primarily as a result of decreases in drilling and well-servicing activity , partially offset by increased drilling dayrates . adjusted income derived from operating activities increased from 2011 to 2012 due to these higher dayrates , which offset the decreases in drilling and well-servicing activities . the current natural gas oversupply in north america , and resulting low natural gas prices , decreased customer demand for gas drilling and well-servicing activity in 2012. reduced natural gas drilling activity was largely offset by increased demand in oil exploration in 2012. strong oil prices caused growth in oil drilling activity and increased drilling dayrates , with more demand for larger rigs required to drill long-reach horizontal wells in the shale plays and the oil sands . direct costs and general and adminstrative expenses for 2012 were in-line with 2011 costs . operating results increased from 2010 to 2011 primarily as a result of increases in drilling and well-servicing activity
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we additionally believe that a number of our target growth markets are underserved by highly amenitized institutional quality apartment properties , especially as the wave of millennials moves into its prime rental years over the upcoming decade . as such , we believe there is opportunity in certain of our target markets for development and or redevelopment to deliver highly amenitized institutional quality product and capture premium rental rates and value growth . as financial buyers who entered the market following the recent u.s. recession to take advantage of historical spreads between higher acquisition cap rates and lower , long-term financing interest rates exit as their disposition periods commence , we believe the next phase of the cycle provides opportunity for real estate-centric buyers ( i.e. , buyers who have real estate-specific investment expertise and deep intellectual capital in specific markets ) , to create value using proven real estate investment strategies . as the economy continues its recovery and enters an environment of more traditional ( i.e. , higher ) interest rate levels , we believe private purchasers with greater capital constraints who have needed significant leverage to fund acquisitions will become less competitive , which should provide the opportunity to acquire apartment communities from owners who do not have sufficient capital resources to execute their business plans . we further believe that demographic forces indicate strong growth for apartment demand in the foreseeable future due to a variety of factors , including demand from the growing millennial population which has a high propensity to rent , the large pent-up demand from young adults that have been living at home or with roommates , increasing share of the rental sector vs. homeownership , the declining homeownership rate 66 due to affordability issues , and negative sentiments toward home ownership following the housing crisis experienced during the great recession . story_separator_special_tag $ 3.7 million and $ 0.1 million for the years ended december 31 , 2015 and 2014 , respectively , while cash payment was made for $ 0.5 million and $ 0.9 million for the years ended december 31 , 2015 and 2014 , respectively . acquisition costs amounted to $ 3.5 million for the year ended december 31 , 2015 as compared to $ 4.4 million for the same prior year period . this decrease was primarily due to the acquisition of numerous properties during the second quarter of 2014 in conjunction with the ipo contribution transactions and subsequent 2014 acquisitions as compared to the acquisitions in 2015 , as reflected in item 1. business summary of investments and dispositions . depreciation and amortization expenses increased to $ 16.2 million for the year ended december 31 , 2015 as compared to $ 12.6 million for the same prior year period . this increase was primarily due to the acquisition of interests in the properties noted above . other income and expenses other income and expenses amounted to net other income of $ 9.3 million for the year ended december 31 , 2015 as compared to net expenses of $ 3.1 million for the same prior year period . this was primarily due to a gain on the sale of an unconsolidated joint venture interest of $ 11.3 million in 2015 related to berry hill , a gain on the sale of assets of $ 2.7 million in 2015 related to north park towers , an increase in income from unconsolidated joint venture interest of $ 5.5 million due to additional investments , partially offset by a $ 2.9 million increase in interest expense , net , as the result of the increase in mortgage payables resulting from the acquisition of interests in the properties mentioned above and the gain on sale of unconsolidated joint ventures of $ 4.1 million in 2014. income from discontinued operations income from discontinued operations was $ 0.1 million for the year ended december 31 , 2014. there was no income from discontinued operations in 2015. the 2014 amount related to the discontinued operations of our creekside property , which was sold on march 28 , 2014. property operations we define same store properties as those that we owned and operated for the entirety of both periods being compared , except for properties that are in the construction or lease-up phases , or properties that are undergoing development or significant redevelopment . we move properties previously excluded from our same store portfolio for these reasons into the same store designation once they have stabilized or the development or redevelopment is complete and such status has been reflected fully in all quarters during the applicable periods of comparison . for newly constructed or lease-up properties or properties undergoing significant redevelopment , we consider a property stabilized upon attainment of 90 % physical occupancy , subject to loss-to-lease , bad debt and rent concessions . for comparison of our twelve months ended december 31 , 2016 and 2015 , the same store properties included properties owned at january 1 , 2015. our same store properties for the twelve months ended december 31 , 2016 and 2015 were enders place at baldwin park , village green of ann arbor , mda apartments , lansbrook village and arium grandewood . our non-same store properties for the same period were 23hundred @ berry hill , springhouse at newport news , fox hill , park & kingston , ashton reserve , arium palms , sovereign , sorrel , arium gulfshore , arium at palmer ranch , the preserve at henderson beach , arium westside , nevadan , roswell city walk , arium pine lakes , the brodie , legacy at 69 southpark , vickers village , north park towers and crescent perimeter . 23hundred @ berry hill was accounted for under the equity method during the twelve months december 31 , 2015 , but is reflected in our table of net operating income as if it was consolidated . story_separator_special_tag for the twelve months ended december 31 , 2015 , the components of non-same store property revenues , property expenses and net operating income represented by this property were $ 0.2 million , $ 0.1 million and $ 0.1 million , respectively . for the three months ended december 31 , 2015 , the components of non-same store property revenues , property expenses and net operating income represented by this property were insignificant . 23hundred @ berry hill financial information can be found at note 3 , sale of unconsolidated real estate joint ventures and held for sale property. 23hundered @ berry hill was sold on january 14 , 2015. certain amounts in prior year same store presentation have been reclassified to conform to the current period presentation . for comparison of our three months ended december 31 , 2016 and 2015 , the same store properties included properties owned at october 1 , 2015. our same store properties for the three months ended december 31 , 2016 and 2015 were enders place at baldwin park , village green of ann arbor , mda apartments , lansbrook village , arium grandewood , fox hill , arium palms and park & kingston . our non-same store properties for the same period were springhouse at newport news , ashton reserve , sovereign , sorrel , arium gulfshore , arium at palmer ranch , the preserve at henderson beach , arium westside , nevadan , roswell city walk , arium pine lakes , the brodie , legacy at southpark , vickers village , and crescent perimeter . because of the limited number of same store properties as compared to the number of properties in our portfolio in 2016 and 2105 , respectively , our same store performance measures may be of limited usefulness . the following table presents the same store and non-same store results from operations for the years ended december 31 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_12_th ( 1 ) see net operating income below for a reconciliation of same store noi , non-same store noi and total noi to net income ( loss ) and a discussion of how management uses this non-gaap financial measure . 70 the following table presents the same store and non-same store results from operations for the three months ended december 31 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_13_th ( 1 ) see net operating income below for a reconciliation of same store noi , non-same store noi and total noi to net income ( loss ) and a discussion of how management uses this non-gaap financial measure . twelve months ended december 31 , 2016 compared to twelve months ended december 31 , 2015 same store noi for the twelve months ended december 31 , 2016 increased by 7.4 % to $ 18.9 million from $ 17.6 million for the 2015 period . there was a 5.7 % increase in same store property revenues as compared to the 2015 period , primarily attributable to a 4.6 % increase in average rental rates , the acquisition of 17 additional units at our lansbrook property during 2016 and the acquisition of 15 units at park and kingston at the end of 2015 , and a 40 basis point increase in average occupancy . same stores expenses increased $ 0.4 million primarily due to increased real estate taxes due to higher valuations by municipalities . property revenues and property expenses for our non-same store properties increased significantly due to the properties acquired during 2016 and certain dispositions in 2015 and 2016. the results of operations for these properties have been included in our consolidated statements of operations from the date of acquisition . three months ended december 31 , 2016 compared to three months ended december 31 , 2015 same store noi for the three months ended december 31 , 2016 increased by 6.1 % to $ 6.4 million from $ 6.1 million for the 2015 period . there was a 5.7 % increase in same store property revenues as compared to the 2015 period , primarily attributable to a 4.0 % increase in average rental rates and the acquisition of 17 additional units at our lansbrook property during 2016 , and the acquisition of 15 additional units at park and kingston at the end of 2015 , and an 80 basis point increase in average occupancy . same stores expenses increased $ 0.2 million ; the increased expenses were over multiple account categories and were driven by multiple factors . property revenues and property expenses for our non-same store properties increased significantly due to the properties acquired during 2016. the results of operations for these properties have been included in our consolidated statements of operations from the date of acquisition . prior year 's comparisons for comparison of our three months ended december 31 , 2015 and 2014 , the same store properties included properties owned at october 1 , 2014 , excluding the berry hill property , which was under construction . our same store properties for the three months ended december 31 , 2015 and 2014 were springhouse at newport news , enders place at baldwin park , village green of ann arbor , mda apartments and lansbrook village . our non-same store properties for the same periods were the estates at perimeter/augusta , 23hundred @ berry hill , grove at waterford , arium grandewood , park 71 & kingston , fox hill , ashton reserve and arium palms . our same store properties for the twelve months ended december 31 , 2015 and 2014 were springhouse at newport news , enders place at baldwin park and mda apartments . our non-same store properties for the same period were the estates at perimeter/augusta , 23hundred @ berry hill , grove at waterford , village green of ann arbor , north park towers , lansbrook village , arium grandewood , park & kingston , fox hill , ashton , arium palms , sorrel and sovereign .
| % in the prior year period . general and administrative expenses amounted to $ 5.9 million for the year ended december 31 , 2016 as compared to $ 4.1 million for the same prior year period . excluding non-cash amortization of ltips and restricted stock expense of $ 3.0 million and $ 2.1 million , for the years ended december 31 , 2016 and 2015 , respectively , general and administrative expenses increased to $ 2.8 million , or 3.7 % of revenues for the year ended december 31 , 2016 as compared to $ 2.0 million , or 4.4 % of revenues , for the same prior year end period . management fees amounted to $ 6.5 million for the year ended december 31 , 2016 as compared to $ 4.2 million for the same prior year period . base management fees were $ 6.4 million and $ 3.3 million for the years ended december 31 , 2016 and 2015 , respectively . incentive fees were $ 0.2 million and $ 0.9 million for the years ended december 31 , 2016 and 2015 , respectively . these increases were primarily due to the significant increase in our equity base as a result of our follow-on offerings . ltip units were issued for the payment of base management and incentive fees of $ 6.5 million and $ 3.7 million for the years ended december 31 , 2016 and 2015 , respectively , while cash payment was made for none and $ 0.5 million for the years ended december 31 , 2016 and 2015 , respectively . acquisition costs amounted to $ 4.6 million for the year ended december 31 , 2016 as compared to $ 3.5 million for the same prior year period . these costs relate to the acquisition of 13 properties during 2016 and 14 acquisitions in 2015. depreciation and amortization expenses increased to $ 31.2 million for the year ended december 31 , 2016 as compared to $ 16.2 million for the same prior
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rt001 topical is designed to have several such advantages , including painless topical administration , no bruising , ease of use and limited 62 dependence on administration technique by physicians and medical staff . we believe these potential advantages may improve the experience of patients undergoing botulinum toxin procedures and make rt001 topical suitable for multiple indications . the first indications we are pursuing are in the fields of dermatology and plastic surgery . if approved , we believe rt001 topical can expand the overall botulinum toxin aesthetic market by appealing to new patients who would prefer a needle-free approach to treatment . the aesthetic dermatology market is attractive because we believe that patients in this market tend to be open to trying new products and are willing to pay for aesthetic procedures out of pocket , reducing reliance on reimbursement . we are focused on this market not only because of its size and growth potential but also because , in the united states and europe , this market can be accessed by a specialty sales force and distributor network . we are in a phase 3 development program of rt001 topical in north america for the treatment of crow 's feet . during the third quarter of 2015 , we initiated realise 1 , a pivotal phase 3 clinical trial designed to evaluate the safety and efficacy of a single , bilateral administration of rt001 topical compared to placebo in subjects with moderate to severe crow 's feet . we expect to report efficacy data from this study in the first half of 2016 , and if successful , will need to conduct additional phase 3 studies in order to submit our biologics license application , bla , to the fda . to date , we have conducted seventeen clinical trials with rt001 topical for the treatment of crow 's feet , with a total of over 1,600 subjects . we are also developing rt001 topical for therapeutic applications where botulinum toxin has shown efficacy and that are particularly well suited for needle-free treatments . we have completed initial phase 2 clinical trials for the treatment of primary axillary hyperhidrosis , and for the prevention of chronic migraine headache . in september 2015 , we initiated an additional randomized , double-blinded , dose-ranging , placebo-controlled phase 2 clinical trial designed to evaluate the safety and efficacy of a single , bilateral application of rt001 topical for the treatment of primary axillary hyperhidrosis . this trial evaluated efficacy of two different doses of rt001 as compared to placebo . in december 2015 , we reported positive interim results and , although the trial sample size was not chosen to meet statistical significance , using quantitative gravimetric measurements , the data was positive and showed that a single treatment of rt001 topical gel achieved clinically meaningful efficacy at week 4. on the primary quantitative assessment of average reduction from baseline in gravimetrically-measured sweat production at week 4 , the results ranged from 214.2 mg to 165.7 mg ( p=0.003 for the higher dose ) per five minutes for rt001 , compared to 66.3 mg per five minutes in patients who received placebo . these ranges corresponded to 81.1 % to 79.6 % change for rt001 , compared to 54.6 % for placebo . on the primary qualitative efficacy assessment of a 2-point or greater responders from baseline using the hyperhidrosis disease severity scale , or hdss , at weeks 1 and 2 the results ranged from a 23.8 % to 13.3 % improvement for rt001 compared to 11.8 % at week 1 and 17.6 % at week 2 for placebo . by week 4 , there was a 14.3 % to 13.3 % improvement for rt001 , compared to a 29.4 % improvement in patients who received placebo . the clinical study indicated that rt001 topical appeared to be well-tolerated with no serious adverse events related to the study drug or study treatment procedures or other safety concerns . we plan to advance rt001 topical into a larger phase 2 study for the treatment of hyperhidrosis in 2016 , which will be designed to confirm a final dose . upon successful completion of this study , we plan to meet with the fda to discuss moving forward into phase 3 studies . since commencing operations in 2002 , we have devoted substantially all our efforts to identifying and developing our product candidates for the aesthetic and therapeutic markets , recruiting personnel , raising capital , and preclinical and clinical development of , and manufacturing capabilities for , rt001 topical and rt002 injectable . we have retained all rights to develop and commercialize rt001 topical and rt002 injectable worldwide . we have not filed for approval with the u.s. food and drug administration , or fda , for the commercialization of rt001 topical or rt002 injectable , and we have not generated any revenue from product sales for rt001 topical or rt002 injectable . through december 31 , 2015 , we have funded substantially all of our operations through the sale and issuance of our common stock , preferred stock , venture debt and convertible debt . on november 9 , 2015 , we completed a follow-on public offering , pursuant to which we issued 3,737,500 shares of common stock at 36.00 per share , including the exercise of the underwriters ' option to purchase 487,500 additional shares of common stock , for net proceeds of $ 126.2 million , after underwriting discounts , commissions and other offering expenses . in march 2015 , we entered into an at-the-market , atm , sales agreement , or the atm agreement , with cowen and company , llc , or cowen , under which we may offer and sell our common stock having aggregate proceeds of up to $ 50.0 million from time to time . story_separator_special_tag during the third quarter of 2015 , we sold 352,544 shares of our common stock under the atm agreement at a weighted average price of $ 30.76 per share resulting in net proceeds of approximately $ 10.0 million , after underwriting discounts , commissions and other offering expenses . on june 19 , 2014 , we completed a follow-on public offering , pursuant to which we issued 4,600,000 shares of common stock at $ 30.50 per share , including the exercise of the underwriters ' option to purchase 600,000 additional shares of common stock , and received net proceeds of $ 131.3 million , after underwriting discounts , commissions and other offering expenses . on february 6 , 2014 , we completed our initial public offering , or ipo , for sale of 6,900,000 shares of common stock at $ 16.00 per share , including 63 the exercise of the underwriters ' option to purchase an additional 900,000 shares of common stock , for net proceeds of $ 98.6 million , after underwriting discounts , commissions and other offering expenses . we also raised $ 23.7 million through the issuance of convertible notes in the fourth quarter of 2013 and in january 2014. we have never been profitable and , as of december 31 , 2015 , had an accumulated deficit of $ 332.3 million . we incurred net losses of $ 73.5 million , $ 62.9 million and $ 52.4 million in the years ended december 31 , 2015 , 2014 , and 2013 , respectively . as of december 31 , 2015 , we had cash , cash equivalents , and investments of $ 254.1 million . we expect to continue to incur net operating losses for at least the next several years as we advance rt001 topical and rt002 injectable through clinical development , seek regulatory approval , prepare for and , if approved , proceed to commercialization . using a combination of third-party manufacturers and our own manufacturing facility , we have the ability to manufacture botulinum toxin type a drug product to support our clinical trials and eventually , our commercial production . additionally , we currently utilize third-party clinical research organizations , or cros , to carry out our clinical development and we do not yet have a sales organization . we will need substantial additional funding to support our operating activities , especially as we approach anticipated regulatory approval in the united states and other territories and begin to establish our sales capabilities . adequate funding may not be available to us on acceptable terms , or at all . our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business , results of operations , and financial condition . results of operations revenue during the years ended december 31 , 2015 , 2014 and 2013 , we recognized revenue from license and royalty agreements . we did not have any product revenue during the years ended december 31 , 2015 , 2014 , and 2013 . we recognized royalty revenue during the years ended december 31 , 2015 , 2014 , and 2013 related to the relastin® asset purchase and royalty agreement . in august 2011 , we entered into the relastin royalty agreement to sell the business related to our relastin product line , to precision dermatology , inc. , or pdi . the relastin royalty agreement provides for a minimum royalty payment of $ 0.3 million per year , to be paid quarterly for up to 15 years from the execution date ; however , the royalty agreement could be terminated with 90 days ' notice with the rights to the relastin product line reverting back to us . the royalty agreement also provided for one-time payments upon achievement of certain milestones and in the year ended december 31 , 2013 , we received a one-time milestone payment of $ 150,000. pdi was subsequently acquired by valeant pharmaceuticals international , inc. , or valeant , in july 2014. on april 23 , 2015 , we received notice from valeant terminating the royalty agreement effective as of july 23 , 2015 ; however , as of december 31 , 2015 , reversion of the relastin intellectual property rights had not been completed and we are entitled to the minimum royalty payment until such rights are reverted back to us . we do not currently have any plans for the future of relastin , as our focus has been primarily on the development of rt001 topical and rt002 injectable . our license revenue has historically been derived through nonrefundable technology license fees for our rt001 topical and rt002 injectable product candidates . in the years ended december 31 , 2014 , and 2013 , we recognized license revenue of $ 0.1 million , and $ 0.2 million , respectively , pursuant to an exclusive technology evaluation agreement , whereby we received an upfront payment in the amount of $ 0.3 million , which was initially recorded as deferred revenue and recognized over the estimated performance period . during the year ended december 31 , 2015 , there was no license revenue recognized . costs and operating expenses our costs and operating expenses consist of research and development expenses and general and administrative expenses . the largest component of our operating expenses is our personnel costs , which consist primarily of wages , benefits and bonuses as well as related stock-based compensation . we expect our cash expenditures to increase in the near term as we initiate and complete clinical trials and other associated programs relating to rt001 topical for the treatment of crow 's feet , initiate and complete clinical trials using rt001 topical for the treatment of hyperhidrosis , and as we initiate and complete additional clinical trials and associated programs related to rt002 injectable for the treatment of glabellar lines and indications in muscle movement and other disorders , such as cervical dystonia . research and development expenses we recognize research and development expenses as they are incurred .
| pdi was subsequently acquired by valeant pharmaceuticals international , inc. , or valeant , in july 2014. on april 23 , 2015 , we received notice from valeant terminating the royalty agreement effective as of july 23 , 2015 ; however , as of december 31 , 2015 , reversion of the relastin intellectual property rights had not been completed and we are entitled to the minimum royalty payment until such rights are reverted back to us . we recognized the annual minimum royalty payment on a pro rata basis in the amount of $ 0.3 million for each of the years ended december 31 , 2015 , 2014 and 2013 as set forth in the relastin asset purchase agreement . under the relastin asset purchase agreement , we also recognized $ 150,000 in revenue in the year ended december 31 , 2013 for achievement of a one-time milestone . operating expenses replace_table_token_8_th research and development expenses research and development expenses for the year ended december 31 , 2015 increased by 42 % , compared to the same period in 2014 , primarily due to increased costs related to personnel , stock-based compensation , pre-clinical and toxicology studies , and clinical trial expenditures , which increased primarily due to our ongoing rt002 injectable phase 2 study for the treatment of glabellar lines and initiation of our rt001 topical phase 2 study for the treatment of hyperhidrosis , our rt002 injectable phase 2 study for the treatment of cervical dystonia , and our rt001 topical phase 3 program for the treatment of moderate to severe lateral canthal lines . research and development expenses for the year ended december 31 , 2014 increased by 20 % , compared to the same period in 2013 , primarily due to increased costs related to personnel , stock-based compensation , rent , quality control testing , the manufacturing facility , and leasing equipment to support product development activities . 69 our research and development expenses fluctuate as projects transition from one development phase to the next . depending on the stage of completion and level of effort related to
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our focus on lowering cost of services helped produce our third consecutive year of gross margin expansion . gross margin improved in the staffing businesses primarily due to lower workers ' compensation costs and payroll taxes and benefits . the decline in workers ' compensation costs is primarily due to our continued efforts to manage the cost of claims and reduce workplace accidents . continued favorable adjustments to our workers ' compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs . gross margin further improved by growth in our higher-margin peoplescout business and continued efficiency gains in its sourcing and recruitment activities . selling , general and administrative expense sg & a expense was as follows : years ended ( in thousands , except percentages ) 2018 2017 selling , general and administrative expense $ 550,632 $ 510,794 percentage of revenue 22.0 % 20.4 % total company sg & a expense increased by $ 40 million to $ 551 million , or 22.0 % as a percent of revenue for the year ended december 30 , 2018 , compared to $ 511 million , or 20.4 % as a percent of revenue for the same period in the prior year . the acquisition of tmp added operating costs of $ 8 million together with acquisition and integration costs of $ 3 million . the divestiture of planetechs reduced operating costs by $ 4 million . increased sg & a expense also included continued investment in cloud-based systems of approximately $ 7 million and $ 4 million of accelerated stock compensation costs associated with the ceo transition . sg & a expense further increased to support the continued growth of the business . page - 24 management 's discussion and analysis depreciation and amortization depreciation and amortization was as follows : years ended ( in thousands , except percentages ) 2018 2017 depreciation and amortization $ 41,049 $ 46,115 percentage of revenue 1.6 % 1.8 % depreciation and amortization decreased primarily due to a proprietary software application becoming fully depreciated during the fiscal fourth quarter of 2017 , which resulted in a decline in depreciation for the year ended december 30 , 2018 . income taxes the income tax expense and the effective income tax rate were as follows : years ended ( in thousands , except percentages ) 2018 2017 income tax expense $ 9,909 $ 22,094 effective income tax rate 13.1 % 28.5 % our effective tax rate for the years ended december 30 , 2018 and december 31 , 2017 was 13.1 % and 28.5 % , respectively . we benefited from the u.s. government enacting comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) . the tax act made broad and complex changes to the u.s. tax code , including , but not limited to , a federal tax rate reduction from 35.0 % to 21.0 % beginning in 2018. additionally , for the year ended december 30 , 2018 we recognized $ 1 million of tax benefits from prior year hiring credits and $ 0.4 million of detriments from recording foreign withholding taxes related to undistributed foreign earnings . see note 14 : income taxes , to our consolidated financial statements found in item 8 of this annual report on form 10-k , for additional information . our tax provision and our effective tax rate are subject to variation due to several factors , including variability in accurately predicting our pre-tax and taxable income and loss by jurisdiction , tax credits , government audit developments , changes in laws , regulations and administrative practices , and relative changes of expenses or losses for which tax benefits are not recognized . additionally , our effective tax rate can be more or less volatile based on the amount of pre-tax income . for example , the impact of tax credits and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower . a significant driver of fluctuations in our effective income tax rate is wotc . wotc is designed to encourage hiring of workers from certain disadvantaged targeted categories , and is generally calculated as a percentage of wages over a twelve month period up to worker maximums by targeted category . based on historical results and business trends , we estimate the amount of wotc we expect to earn related to wages of the current year . however , the estimate is subject to variation because 1 ) a small percentage of our workers qualify for one or more of the many targeted categories ; 2 ) the targeted categories are subject to different incentive credit rates and limitations ; 3 ) credits fluctuate depending on economic conditions and qualified worker retention periods ; and 4 ) state and federal offices can delay their credit certification processing and have inconsistent certification rates . we recognize additional prior year hiring credits if credits in excess of original estimates have been certified by government offices . wotc was restored through december 31 , 2019 , as a result of the protecting americans from tax hikes act of 2015 , signed into law on december 18 , 2015. changes to our effective tax rate as a result of hiring credits were as follows : replace_table_token_6_th page - 25 management 's discussion and analysis segment performance we evaluate performance based on segment revenue and segment profit . commencing in the fiscal first quarter of 2018 , we revised our internal segment performance measure to be segment profit , rather than the previously reported segment earnings before interest , taxes , depreciation and amortization ( segment ebitda ) . segment profit includes revenue , related cost of services , and ongoing operating expenses directly attributable to the reportable segment . segment profit excludes goodwill and intangible impairment charges , depreciation and amortization expense , unallocated corporate general and administrative expense , interest , other income and expense , income taxes , and costs not considered to be ongoing costs of the segment . story_separator_special_tag the prior year amounts have been recast to reflect this change for consistency purposes . see note 17 : segment information , to our consolidated financial statements found in item 8 of this annual report on form 10-k , for additional details on our reportable segments , as well as a reconciliation of segment profit to income before tax expense . segment profit should not be considered a measure of financial performance in isolation or as an alternative to net income in the consolidated statements of operations in accordance with accounting principles generally accepted in the united states of america , ( `` u.s. gaap '' ) and may not be comparable to similarly titled measures of other companies . peopleready segment performance was as follows : replace_table_token_7_th peopleready segment profit grew to $ 86 million , or 5.7 % as a percent of revenue for the year ended december 30 , 2018 , compared to $ 79 million , or 5.2 % as a percent of revenue for the same period in the prior year . the growth was primarily due to widespread revenue growth , and lower workers ' compensation and payroll tax expenses . peoplemanagement segment performance was as follows : replace_table_token_8_th peoplemanagement segment profit decreased to $ 22 million , or 3.0 % as a percent of revenue for the year ended december 30 , 2018 , compared to $ 27 million , or 3.4 % as a percent of revenue for the same period in the prior year . the decline in segment profit and related margin was primarily due to the divestiture of our planetechs business effective march 12 , 2018 , and volume declines for selected industrial workforce clients . this was partially offset by programs to reduce the cost of services and control sg & a expense commencing in the prior year in connection with declining revenues . those programs continued in the current year and have reduced costs in line with our plans . we will continue to monitor and manage our costs while also investing in growth initiatives . peoplescout segment performance was as follows : replace_table_token_9_th page - 26 management 's discussion and analysis peoplescout segment profit increased to $ 47 million , or 19.0 % as a percent of revenue for the year ended december 30 , 2018 , compared to $ 39 million , or 20.7 % as a percent of revenue for the same period in the prior year . tmp , which was acquired during 2018 , contributed $ 2 million of segment profit for the year ended december 30 , 2018 . tmp reduced the segment profit as a percent of revenue due to the pass through nature of media related purchases on behalf of certain clients . excluding tmp , segment profit as a percentage of revenue increased 0.1 % . the slight increase in segment profit as a percent of revenue was driven by continued efficiency gains in sourcing and recruiting activities , partially offset by additional operating costs to support organic growth . fiscal 2017 as compared to fiscal 2016 revenue from services revenue from services by reportable segment was as follows : replace_table_token_10_th total company revenue declined to $ 2.5 billion for the year ended december 31 , 2017 , an 8.8 % decrease compared to the year ended january 1 , 2017 , primarily due to lower volumes for staffing services within our peopleready business and with our former largest client within our peoplemanagement business . revenue from our former largest client declined by $ 118 million , or 68.8 % for the year ended december 31 , 2017 , when compared to the year ended january 1 , 2017 , which represented a decline in total company revenue of 4.0 % . our fiscal 2017 also had nine fewer days when compared to fiscal 2016 , which represented a decline in total company revenue of 1.2 % . the remaining decrease of 3.6 % was primarily due to lower peopleready volume partially offset by higher peoplescout volume . peopleready peopleready revenue declined to $ 1.5 billion for the year ended december 31 , 2017 , a 7.2 % decrease compared to the year ended january 1 , 2017. the nine fewer days in fiscal 2017 represented a decline in peopleready revenue of 1.1 % . the remaining decline was primarily due to weakness with our residential construction , manufacturing and retail clients . however , this decline was partially offset by an increase in revenue from improving performance in the commercial construction and hospitality clients . we saw improvement in our year-over-year quarterly revenue trends for the second half of fiscal 2017. we exited fiscal 2017 with a year-over-year quarterly decline of 0.7 % , excluding the nine additional days in fiscal 2016. the improving year-over-year results were due to improving client trends across all the industries we serve , with the exception of manufacturing and retail . wage growth has accelerated due to various minimum wage increases and a need for higher wages to attract talent in tight labor markets . we have increased bill rates for the higher wages , payroll burdens and our traditional mark-up . while we believe our pricing strategy is the right long-term decision , these actions impact our revenue trends in the near term . peopleready performance was impacted by temporary disruptions from operational changes related to our consolidation of labor ready , clp resources , and spartan staffing into one specialized workforce solutions business in order to create a more seamless experience for our clients to access all of our blue-collar , contingent on-demand general and skilled labor service offerings .
| the improved gross profit was largely offset by growth in sg & a expense . net income net income was $ 66 million , or $ 1.63 per diluted share for the year ended december 30 , 2018 , compared to $ 55 million , or $ 1.34 per diluted share for the same period in the prior year . the increase to net income per diluted share was primarily due to a lower effective tax rate and share repurchases . our effective tax rate for the year ended december 30 , 2018 was 13.1 % , compared to 28.5 % for the same period in the prior year . the decrease in our effective income tax rate was primarily due to the enactment of the comprehensive tax legislation in december 2017 , referred to as the tax cuts and jobs act , which decreased the federal tax rate from 35 % to 21 % beginning in 2018 , and due to tax benefits from additional prior year work opportunity tax credits ( `` wotc '' ) . page - 21 management 's discussion and analysis additional highlights we believe we are taking the right steps to produce long-term growth for shareholders . we also believe we are in a strong financial position to fund working capital needs for growth opportunities . as of december 30 , 2018 , we had cash and cash equivalents of $ 47 million and $ 213 million available under our revolving credit agreement ( “ revolving credit facility ” ) for total liquidity of $ 260 million . we continue to return cash to shareholders through our share repurchase program . on september 15 , 2017 , our board of directors authorized a $ 100 million share repurchase program of our outstanding common stock . during the year ended december 31 , 2017 , we used $ 7 million under this new program to repurchase shares . we repurchased an additional $ 35 million of common stock during the year ended december 30 , 2018 . as of
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