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the estimated variable consideration is also affected by claims and unapproved change orders , which may result from changes in the scope of the contract . provisions for estimated losses on uncompleted contracts are recognized immediately in the period in which such losses are determined . we recognize real estate services revenues from property development and management as we satisfy our performance obligations under these service arrangements . we assess whether multiple contracts with a single counterparty may be combined into a single contract for the revenue recognition purposes based on factors such as the timing of the negotiation and execution of the contracts and whether the economic substance of the contracts was contemplated separately or in tandem . 46 operating property acquisitions acquisitions of operating properties have been and will generally be accounted for as acquisitions of a group of assets , with costs incurred to effect an acquisition , including title , legal , accounting , brokerage commissions , and other related costs being capitalized as part of the cost of the assets acquired . in connection with operating property acquisitions , we identify and recognize all assets acquired and liabilities assumed at their relative fair values as of the acquisition date . the purchase price allocations to tangible assets , such as land , site improvements , and buildings and improvements , are presented within income producing property in the consolidated balance sheets and depreciated over their estimated useful lives . acquired lease intangible assets are presented as a separate component of assets on the consolidated balance sheets . acquired lease intangible liabilities are presented within other liabilities in the consolidated balance sheets . we amortize in-place lease assets as depreciation and amortization expense on a straight-line basis over the remaining term of the related leases . we amortize above-market lease assets as reductions to rental revenues on a straight-line basis over the remaining term of the related leases . we amortize below-market lease liabilities as increases to rental revenues on a straight-line basis over the remaining term of the related leases . we amortize below-market ground lease assets as increases to rental expenses on a straight-line basis over the remaining term of the related leases . we capitalize the costs related to operating property acquisitions that do not meet the definition of a business . we value land based on a market approach , looking to recent sales of similar properties , adjusting for differences due to location , the state of entitlement , and the shape and size of the parcel . improvements to land are valued using a replacement cost approach . the approach applies industry standard replacement costs adjusted for geographic specific considerations and reduced by estimated depreciation . the value of buildings acquired is estimated using the replacement cost approach , assuming the buildings were vacant at acquisition . the replacement cost approach considers the composition of the structures acquired , adjusted for an estimate of depreciation . the estimate of depreciation is made considering industry standard information and depreciation curves for the identified asset classes . the value of acquired lease intangible assets and liabilities considers the estimated cost of leasing the properties as if the acquired buildings were vacant , as well as the value of the current leases relative to market-rate leases . the in-place lease value is determined using an estimated total lease-up time and lost rental revenues during such time . the value of current leases relative to market-rate leases is based on market rents obtained for market comparables . given the significance of unobservable inputs used in the valuation of acquired real estate assets , we classify them as level 3 inputs in the fair value hierarchy . we value debt assumed in connection with operating property acquisitions based on a discounted cash flow analysis of the expected cash flows of the debt . such analysis considers the contractual terms of the debt , including the period to maturity , credit characteristics , and other terms of the arrangements , which are level 3 inputs in the fair value hierarchy . real estate project costs we capitalize direct and certain indirect costs clearly associated with the development , redevelopment , construction , leasing , or expansion of our real estate assets . capitalized project costs include direct material , labor , subcontract costs , real estate taxes , insurance , utilities , ground rent , interest on borrowing obligations , and salaries and related personnel costs . we capitalize direct and indirect project costs associated with the initial construction or redevelopment of a property up to the time the property is substantially complete and ready for its intended use . we believe the completion of the building shell is the proper basis for determining substantial completion of initial construction . we also capitalize direct and indirect costs , including interest costs , on vacant space during extended lease-up periods after construction of the building shell has been completed if costs are being incurred to prepare the vacant space for its intended use . if costs and activities incurred to prepare the vacant space for its intended use cease , then cost capitalization is also discontinued until such activities are resumed . once necessary work has been completed on a vacant space , project costs are no longer capitalized . in addition , all leasing commissions paid to third parties for new leases or lease renewals are capitalized . we depreciate buildings on a straight-line basis over 39 years and tenant improvements over the shorter of their estimated useful lives or the term of the related lease . real estate impairment we evaluate our real estate assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable . if such an evaluation is necessary , we compare the carrying amount of any such real 47 estate asset with the undiscounted expected future cash flows that are directly associated with , and that are expected to arise as a direct result of , its use and eventual disposition . story_separator_special_tag our estimate of the expected future cash flows attributable to a real estate asset is based upon , among other things , our estimates regarding future market conditions , rental rates , occupancy levels , tenant improvements , leasing commissions , tenant concessions , and assumptions regarding the residual value of our properties . if the carrying amount of a real estate asset exceeds its associated undiscounted expected future cash flows , we recognize an impairment loss to reduce the carrying amount of the real estate asset to its fair value based on marketplace participant assumptions . interest income interest income on notes receivable is accrued based on the contractual terms of the loans and when , in the opinion of management , it is deemed collectible . many loans provide for accrual of interest that will not be paid until maturity of the loan . interest is recognized on these loans at the accrual rate subject to management 's determination that accrued interest is ultimately collectible , based on the underlying collateral and the status of development activities , as applicable . if management can not make this determination , recognition of interest income may be fully or partially deferred until it is ultimately paid . allowance for loan losses we evaluate the collectability of both the interest on and principal of each of our notes receivable based primarily upon the value of the underlying development project . we consider factors such as the progress of development activities , including leasing activities , projected development costs , current and projected loan balances , and the estimated realizable value of the loan . the calculation of the estimated realizable value includes an estimation of the projected sales proceeds from the sale of the underlying development property , which is largely dependent on the estimated fair value of the underlying development property and is highly sensitive to significant assumptions based on management 's expectations about future real estate market or economic conditions and the projected operating results of the property . a loan is determined to be impaired when , based upon then-current information , it is no longer probable that we will be able to collect all contractual amounts then due from the borrower . the allowance for loan losses reflects management 's estimate of loan losses inherent in the loan portfolio as of the balance sheet date . recent accounting pronouncements for a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements see note 2 to our consolidated financial statements included in item 8 of this form 10-k. segment results of operations as of december 31 , 2019 , we operated our business in four segments : ( i ) office real estate , ( ii ) retail real estate , ( iii ) multifamily residential real estate , and ( iv ) general contracting and real estate services that are conducted through our taxable reit subsidiaries ( `` trs '' ) . net operating income ( segment revenues minus segment expenses ) ( `` noi '' ) is the measure used by management to assess segment performance and allocate our resources among our segments . noi is not a measure of operating income or cash flows from operating activities as measured by gaap and is not indicative of cash available to fund cash needs . as a result , noi should not be considered an alternative to cash flows as a measure of liquidity . not all companies calculate noi in the same manner . we consider noi to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of our real estate and construction businesses . see note 3 to our consolidated financial statements in item 8 of this annual report on form 10-k for a reconciliation of noi to net income , the most directly comparable gaap measure . we define same store properties as those that we owned and operated and that were stabilized for the entirety of both periods compared . we generally consider a property to be stabilized upon the earlier of : ( i ) the quarter after the property reaches 80 % occupancy or ( ii ) the thirteenth quarter after the property receives its certificate of occupancy . additionally , any property that is fully or partially taken out of service for the purpose of redevelopment is no longer considered stabilized until the redevelopment activities are complete , the asset is placed back into service , and the stabilization criteria above are again met . a property may also be fully or partially taken out of service as a result of a partial disposition , depending on the significance of the portion of the property disposed . finally , any property classified as held for sale is taken out of service for the purpose of computing same store operating results . this section of this form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018 . discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 48 10-k can be found in `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018 . office segment data office rental revenues , property expenses , and noi for the years ended december 31 , 2019 , 2018 and 2017 were as follows ( $ in thousands ) : replace_table_token_12_th ( 1 ) stabilized properties as of the end of the periods presented . rental revenues for the year ended december 31 , 2019 increased $ 12.6 million compared to the year ended december 31 , 2018 . noi for the year ended december 31 , 2019 increased $ 8.3 million compared to the year ended december 31 , 2018 .
| the increases in rental revenues and noi resulted primarily from the commencement of operations at greenside apartments and premier apartments during the third quarter of 2018 , the acquisition of 1405 point in april 2019 , the commencement of operations at hoffler place in august 2019 , and increases in rental rates and occupancy across the rest of the multifamily portfolio , especially at johns hopkins village and smith 's landing . multifamily same store results multifamily same store rental revenues , property expenses , and noi for the comparative years ended december 31 , 2019 and 2018 and december 31 , 2018 and 2017 were as follows ( in thousands ) : replace_table_token_17_th ( 1 ) same store excludes greenside apartments and premier apartments ( placed in service in august 2018 ) , 1405 point ( acquired in april 2019 ) , hoffler place ( placed in service in august 2019 ) , and the cosmopolitan ( due to redevelopment ) . ( 2 ) same store excludes johns hopkins village , greenside apartments , premier apartments , and the cosmopolitan . same store rental revenues and noi for the year ended december 31 , 2019 increased compared to the year ended december 31 , 2018 primarily as a result of increases in rental rates and occupancy across the same store multifamily portfolio , especially at johns hopkins village and smith 's landing . 51 general contracting and real estate services segment data general contracting and real estate services revenues , expenses , and gross profit for the years ended december 31 , 2019 , 2018 and 2017 were as follows ( $ in thousands ) : replace_table_token_18_th segment revenues for the year ended december 31 , 2019 increased $ 29.5 million compared to the year ended december 31 , 2018 . gross profit for the year ended december 31 , 2019 increased $ 1.6 million compared to the year ended december 31 , 2018 . the increase in segment revenues resulted primarily from the increase in revenues from interlock commercial and solis apartments at interlock projects , which were executed at the end of 2018 and began construction in 2019. the changes in construction backlog for each of the years ended december 31 , 2019 , 2018 and 2017 were as follows ( in thousands ) : replace_table_token_19_th during the year ended december 31 , 2019 , we executed new contracts for the bellyard hotel at interlock , boulder lakeside
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we are able to use a wide variety of feedstocks for production , but have focused on accessing brazilian sugarcane for our large-scale production because of its renewability , low cost and relative price stability . we have also successfully used other feedstocks such as sugar beets , corn dextrose , sweet sorghum and cellulosic sugars at various manufacturing facilities . several years ago , we made the strategic decision to transition our business model from collaborating and commercializing molecules in low margin commodity markets to higher margin specialty markets . we began the transition by first commercializing and supplying farnesene-derived squalene as a cosmetic ingredient sold to formulators and distributors . we also entered into collaboration and supply agreements for the development and commercialization of molecules within the flavors & fragrances and cosmetic ingredients where we utilize our strain generation technology to develop molecules that meet the customer 's rigorous specifications . during this transition , we solidified the business model of partnering with our customers to create sustainable , high performing , low-cost molecules that replace an ingredient in their supply chain , commercially scale and manufacture those molecules , and share in the profits earned by our customers once our customer sells its product into these specialty markets . these three steps constitute our collaboration revenues , renewable product revenues , and royalty revenues ( previously referred to as value share revenues ) . 42 during 2017 , we completed several development agreements with dsm and others for new products such as vitamin a , a human nutrition molecule and others . we plan to bring two to three new molecules a year to commercial production . in the first half of 2017 , management made the decision to monetize the use for one of our lower margin molecules , farnesene , in certain fields of use ( e.g. , the human and animal health and nutrition field ) while retaining any associated royalties . we began discussions with our partners and ultimately made the decision to license farnesene to dsm for use in these fields , which we announced in november 2017. during the discussions with dsm , management also made the decision to sell to dsm our manufacturing facility , brotas 1 , which we completed on december 28 , 2017. brotas 1 was built to batch manufacture one commodity product at a time ( originally for high-volume production of biofuels , a business the company has exited ) , which is an inefficient manufacturing process that is not suited for the high margin specialty markets in which we operate today . we currently manufacture five specialty products and will be increasing the number of specialty products we manufacture by two to three products a year . the inefficiencies we experienced included having to idle the facility for two weeks at a time to prepare for the next product batch manufacture . these inefficiencies caused our cost of goods sold to be significantly higher . with the sale of brotas 1 , we expect that our gross margins will markedly improve from the reduction in manufacturing costs caused by these inefficiencies . additionally , we currently are constructing our brotas 2 facility , which will allow for the manufacture of five products concurrently and over 10 different products annually . concurrent with the sale of brotas 1 , we contracted with dsm for the use of brotas 1 to manufacture products for us to fulfill our product supply commitments to our customers until brotas 2 is completed in 2019. in addition , in 2019 , we plan to resume construction of a production facility in pradópolis , brazil that we partially built prior to 2013. this facility will support production of our alternative sweetener products . as discussed above , on december 28 , 2017 , we completed the sale of amyris brasil , which operated our brotas 1 production facility , to dsm and concurrently entered into a series of commercial agreements and a credit agreement with dsm . at closing , we received $ 33.0 million in cash for the capital stock of amyris brasil , which is subject to certain post-closing working capital adjustments and reimbursements from dsm contingent on dsm 's utilization of certain brazilian tax benefits it acquired with its purchase of amyris brasil . we used $ 12.6 million of the cash proceeds received to repay certain indebtedness of amyris brasil . the total fair value of the consideration in connection with the sales agreement for amyris brasil was $ 56.9 million and resulted in a pretax gain of $ 5.7 million from continuing operations . concurrent with the sale of amyris brasil , we entered into a series of commercial agreements with dsm including ( i ) a license agreement to dsm of its farnesene product for dsm to use in the vitamin e , lubricant , and flavors & fragrances specialty markets ; ( ii ) a value share agreement that dsm will pay specified royalties representing a portion of the profit on the sale of vitamin e produced from farnesene under the nenter supply agreement assigned to dsm ; ( iii ) a performance agreement to perform research and development to optimize farnesene for production and sale of farnesene products ; and ( iv ) a transition services agreement where we provide finance , legal , logistics , and human resource services to support the brotas 1 facility under dsm ownership for a six-month period with a dsm option to extend for six additional months . at closing , dsm paid to us a nonrefundable license fee of $ 27.5 million and a nonrefundable minimum royalty revenue payment ( previously referred to as value share ) of $ 15.0 million . dsm will also pay the company nonrefundable minimum royalty amounts in 2018 and 2019. the future nonrefundable minimum annual royalty payments were determined to be fixed and determinable with a fair value of $ 17.8 million , and were included as part of the total arrangement consideration subject to allocation of this overall multiple-element divestiture transaction . story_separator_special_tag see note 10 , “ significant revenue agreements ” , for a full listing and details of agreements entered into with dsm . additionally , we entered into a $ 25.0 million credit agreement with dsm that we used to repay all outstanding amounts under the guanfu note ( see note 4 , “ debt ” ) . sales and revenue we recognize revenue from product sales , license fees and royalties , and grants and collaborations . 43 we have research and development collaboration arrangements for which we receive payments from our collaborators , who include darpa , dsm nutritional products ltd ( dsm ) , firmenich sa ( firmenich ) , givaudan international sa ( givaudan ) , and others . some of our collaboration arrangements provide for advance payments to us in consideration for grants of exclusivity or research efforts that we will perform . in 2017 , we signed collaboration agreements for an infant nutrition ingredient , and two vitamins that will contribute to our collaboration revenue and ultimately product sales . our collaboration agreements , which may require us to achieve milestones prior to receiving payments , are expected to contribute revenues from product sales and royalties ( previously referred to as value share ) if and when they are commercialized . see note 10 , “ significant revenue agreements ” in part ii , item 8 of this form 10-k for more details . all of our non-government partnerships include commercial terms for the supply of molecules we successfully upscale and produce at commercial volumes . the first molecule to generate revenue for the company outside of farnesene was a fragrance molecule launched in 2015. since the launch , the product has continued to grow in sales year over year . in 2016 , we launched our second fragrance molecule and in 2017 , we launched our third fragrance molecule as well as our first cosmetic active ingredient . our partners for these molecules are indicating continued strong growth due to their cost advantaged position , high purity and sustainable production method . we are continuing to identify new opportunities to apply our technology and deliver sustainable access to key molecules . as a result , we have a pipeline that is expected to deliver two new molecules each year over the coming years with one sweetener , a flavor , a cosmetic active ingredient and a fragrance molecule . for 2018 , we are currently finalizing the commercial terms for the products ; including our reb-m product that is a superior sweetener and sugar replacement for food and beverages . as part of the dsm acquisition of our farnesene for vitamin e business , we will receive a royalty payment on all nenter sales of vitamin e utilizing farnesene produced and sold by dsm from our technology . dsm will pay us minimum royalties totaling $ 33 million for 2018 , 2019 and 2020 , the first three years of the agreement . we have several other collaboration molecules in our development pipeline with partners including dsm , givaudan and firmenich that we expect will contribute revenues from product sales and royalties ( previously referred to as value share ) if and when they are commercialized . critical accounting policies and estimates management 's discussion and analysis of results of operations and financial condition are based on the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( u.s. gaap ) . we believe that the critical accounting policies described in this section are those that significantly impact our financial condition and results of operations and require the most difficult , subjective or complex judgements , often as a result of the need to make estimates about the effects of matters that are inherently uncertain . because of this uncertainty , actual results may vary from these estimates . our most critical accounting estimates include : recognition of revenue involving arrangements with multiple revenue-generating activities ; the valuation of embedded derivatives , which impacts gains or losses on such derivatives , the carrying value of debt , preferred stock , interest expense and deemed dividends ; and the evaluation of recoverability of property , plant and equipment , which impacts cost of products sold or operating expenses when we record impairments or accelerate their depreciation or amortization . for more information about our critical accounting estimates and policies , see note 1 , `` basis of presentation and summary of significant accounting policies '' in part ii , item 8 of this form 10-k. sale of subsidiary and entry into commercial agreements on december 28 , 2017 , the company completed the sale of all the capital stock of amyris brasil , a wholly-owned subsidiary , to dsm , which is a related party . amyris brasil owned and operated the company 's production facility ( brotas 1 ) in brotas , brazil . the company and dsm also entered into a series of commercial agreements and a credit agreement concurrently with the sale of amyris brasil . see note 10 , “ significant revenue agreements ” , note 11 , “ related party transactions ” , and note 13 , “ divestiture ” in part ii , item 8 of this form 10-k for further information . 44 story_separator_special_tag plant and equipment decreased by 79 % to $ 7.3 million in 2016. the $ 7.3 million in 2016 was comprised of $ 4.2 million related to the termination of our joint venture with são martinho in brazil , and $ 3.1 million related to assets at our previous contract manufacturer 's site in brazil that could not be utilized in our brotas manufacturing facility . in 2015 , we incurred $ 34.2 million of impairment charges on property , plant and equipment , primarily due to the termination of the são martinho joint venture and indirect tax allowances .
| licenses and royalty revenue increased by 3,961 % to $ 15.8 million in 2016 , primarily due to $ 15.0 million of license fee revenue from ginkgo bioworks , inc. grants and collaborations revenue increased by 34 % to $ 25.8 million in 2016 , primarily due to $ 9.7 million of grants revenue resulting from a new contract with darpa . 45 cost and operating expenses replace_table_token_7_th nm = not meaningful cost of products sold cost of products sold includes the costs of raw materials , labor and overhead , amounts paid to contract manufacturers , inventory write-downs resulting from applying lower of cost or net realizable value inventory adjustments , and costs related to production scale-up . because of our product mix , our cost of goods sold does not increase proportionately to increases in our renewable product revenues . as a result of the brotas 1 divestiture , we expect our cost of products sold to decrease as a percentage of renewable products revenue in the future . 2017 compared to 2016 : cost of products sold increased by 11 % to $ 62.7 million in 2017 , primarily due to a 93 % increase in volume of products sold . 2016 compared to 2015 : cost of products sold increased by 52 % to $ 56.7 million in 2016 , primarily due to product mix , an increase in volume of products sold and production scale-up costs . 46 research and development expenses 2017 compared to 2016 : research and development expenses increased by 11 % to $ 57.0 million in 2017 , primarily due to partnership payments , consulting costs incurred in connection with collaboration projects and increased spending to support the growth in revenues . 2016 compared to 2015 : research and development expenses increased by 15 % to $ 51.4 million in 2016 , primarily due to increases in consulting costs incurred in connection with collaboration projects and increases in personnel expenses necessary to support the growth in collaboration projects . sales , general and administrative expenses 2017 compared
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goodwill impairment under our policy , goodwill was tested for impairment annually in the fourth quarter of each year or more frequently if events or circumstances indicated that the carrying value of goodwill associated with a reporting unit may not be fully recoverable ( see note c of our consolidated financial statements related to our goodwill assessment process ) . because economic conditions in the carpet industry deteriorated significantly in the first quarter of 2009 , we performed impairment testing of the remaining goodwill associated with our fabrica reporting unit . the measurement resulted in the impairment of the remaining goodwill associated with the acquisition of fabrica international , inc. in 2000 ; accordingly , we recorded a non-cash goodwill impairment loss of $ 31.4 million in the first quarter of 2009. there is no goodwill remaining subsequent to that date . story_separator_special_tag style= '' font-family : arial ; font-size:9pt ; '' > our effective income tax provision rate was 35.0 % in 2011 , compared with an effective income tax benefit rate of 37.3 % in 2010. effective tax rates did not vary from statutory rates significantly in either period . net income ( loss ) . continuing operations reflected income of $ 1.3 million , or $ 0.10 per diluted share in 2011 , compared with a loss from continuing operations of $ 4.4 million , or $ 0.35 per diluted share in 2010. our discontinued operations reflected a loss of $ 286 thousand , or $ 0.02 per diluted share in 2011 , compared with a loss of $ 281 thousand , or $ 0.02 per diluted share in 2010. including discontinued operations , net income was $ 986 thousand , or $ 0.08 per diluted share , in 2011 , compared with a net loss of $ 4.7 million , or $ 0.37 per diluted share , in 2010. fiscal year ended december 25 , 2010 compared with fiscal year ended december 26 , 2009 net sales . net sales for the year ended december 25 , 2010 were $ 231.3 million , an increase of 13.7 % from $ 203.5 million in the year-earlier period . the carpet industry reported an increase of just under 1.0 % in net sales in 2010 , with commercial carpet sales up 1.7 % and residential carpet sales flat compared with the prior year . our 2010 year-over-year carpet sales comparison reflected a 13.8 % increase in total net carpet sales , with sales of residential carpet up 18.3 % and sales of commercial carpet up 3.7 % . revenue from carpet yarn processing and carpet dyeing and finishing services increased $ 580 thousand in 2010 compared with 2009. page 15 cost of sales . cost of sales increased , as a percentage of net sales , 1.1 percentage points in 2010 compared with 2009. this increase was principally attributable to an increase in staffing levels at our production facility in atmore , alabama to align production capabilities with increasing demand and a more diverse product mix . additionally , our product mix in 2010 compared with 2009 included a higher mix of lower margin product offerings in both our residential and commercial markets . gross profit . gross profit increased $ 4.5 million in 2010 compared with 2009 due primarily to the incremental contribution from the higher sales volume . selling and administrative expenses . selling and administrative expenses were reduced $ 3.1 million in 2010 , compared with 2009 , a reduction as a percentage of sales of 4.9 percentage points . the reduction in these expenses was primarily a result of the cost reduction initiatives , organizational realignment , lower variable selling expenses associated with certain sales and greater absorption from the fixed component of these expenses as a result of the increased sales volume . other operating ( income ) expense , net . other operating expense increased $ 189 thousand compared with the prior year primarily as a result of a gain from an insurance settlement that occurred in 2009. facility consolidation and severance expense , impairment of assets and goodwill . facility consolidation and severance expenses were $ 1.6 million in 2010 compared with $ 4.1 million for these expenses in 2009. additionally during 2009 , we recorded $ 32.9 million of non-cash expenses related to impairments of assets and goodwill . the decrease in 2010 compared with 2009 was principally a result of the goodwill write-off and asset impairments that occurred during 2009. operating loss . our 2010 operating loss was $ 2.6 million , including facility consolidation expenses of $ 1.6 million , compared with a loss of $ 45.4 million in 2009 , including $ 37.0 million of principally non-cash costs related to the facility consolidation and severance expenses , impairments of assets and goodwill . interest expense . interest expense decreased $ 1.4 million in 2010 principally due to lower levels of debt in 2010 compared with 2009. other ( income ) expense , net . other ( income ) expense , net was an expense of $ 283 thousand in 2010 and income of $ 181 thousand in 2009. the changes were principally the result of an expense in 2010 associated with the termination of an interest rate swap agreement and gains from the sale of available-for-sale securities in 2009. income tax benefit . our effective income tax benefit rate was 37.3 % in 2010 compared with an effective income tax benefit rate of 17.5 % in 2009. the difference in the effective tax benefit rate in 2009 compared with statutory rates is primarily a result of the write-off of non-taxable goodwill in 2009. net loss . story_separator_special_tag continuing operations reflected a loss of $ 4.4 million , or $ 0.35 per diluted share in 2010 , compared with a loss from continuing operations of $ 41.9 million , or $ 3.39 per diluted share in 2009. our discontinued operations reflected a loss of $ 281 thousand , or $ 0.02 per diluted share in 2010 , compared with a loss of $ 382 thousand , or $ 0.03 per diluted share in 2009. including discontinued operations , the net loss was $ 4.7 million or $ 0.37 per diluted share in 2010 , compared with a net loss of $ 42.2 million , or $ 3.42 per diluted share in 2009. liquidity and capital resources we believe our operating cash flows , credit availability under our senior loan and security agreement and other sources of financing are adequate to finance our normal foreseeable liquidity requirements . we will continue to aggressively pursue inventory management , maintain tight cost controls and limit capital expenditures . however , deterioration in our markets or significant additional cash expenditures above our normal liquidity requirements could require supplemental financing or other funding sources . there can be no assurance that such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us . cash sources and uses . during the year ended december 31 , 2011 , cash generated from operating activities were $ 5.1 million and was supplemented by an increase in the senior indebtedness of $ 12.6 million and $ 366 thousand from an increase in outstanding checks in excess of cash utilized . these funds were used to finance our operations , fund the early redemption of $ 9.7 million of convertible subordinated debentures , purchase $ 6.7 million of property , plant and equipment , fund $ 1.4 million of debt issuance costs and acquire treasury stock for $ 131 thousand . working capital increased $ 9.9 million in 2011 principally as a result of an increase of $ 5.6 million in inventories to support higher levels of business activity and $ 4.4 million to reduce the current portion of long-term debt . trade receivables decreased $ 1.5 million in 2011 primarily as a result of customer mix . during the year ended december 25 , 2010 , cash generated from operating activities was $ 3.9 million . these funds were supplemented by $ 784 thousand from an increase in outstanding checks in excess of cash utilized . these funds were used to support our operations , purchase $ 1.8 million of property , plant and equipment and retire $ 2.6 million of debt and capital leases . working capital increased $ 3.9 million in 2010 principally due to higher current deferred tax assets and a reduction in the current portion of long-term debt . the level of inventories increased $ 3.1 million to support higher business activity . trade receivables increased $ 8.8 million commensurate with increased sales activity while taxes receivable decreased $ 6.8 million . accounts payable and accrued expenses increased $ 5.3 million principally associated with the increase in inventories and certain accrued expenses associated with the increase in sales . page 16 during the year ended december 26 , 2009 , cash generated from operating activities was $ 26.5 million . these funds were supplemented by $ 2.2 million of proceeds from the sale of property , plant and equipment and available-for-sale securities . these funds were used to support our operations , purchase $ 2.4 million of property , plant and equipment , retire $ 26.1 million of debt and capitalized leases and reduce outstanding checks in excess of cash by $ 230 thousand . working capital decreased $ 24.8 million in 2009 principally due to a reduction of $ 20.0 million in inventories to match the lower business activity levels we were experiencing . receivables decreased $ 6.8 million , including a reduction of $ 5.3 million in trade receivables due to lower levels of sales , a reduction of $ 3.4 million in other miscellaneous receivables and an increase of $ 1.7 million in income taxes receivable primarily from tax loss carrybacks . accounts payable and accrued expenses decreased $ 2.2 million in 2009 compared with 2008 as a result of the lower business levels and associate related benefit cost . capital expenditures were $ 6.7 million in 2011 , $ 1.8 million in 2010 and $ 2.4 million in 2009 , while depreciation and amortization were $ 9.6 million in 2011 , $ 11.6 million in 2010 and $ 13.5 million in 2009. a significant portion of capital expenditures in 2011 were directed toward new and more efficient manufacturing capabilities and , to a lesser extent , computer software enhancements . capital expenditures in 2010 and 2009 primarily related to facilities and existing equipment . we expect capital expenditures to be approximately $ 6.0 million in 2012 , while depreciation and amortization is expected to be approximately $ 9.6 million . capital expenditures in 2012 are planned to be primarily directed toward existing machinery and facilities . senior indebtedness . on september 14 , 2011 , we terminated our amended and restated senior loan and security agreement ( the `` terminated facility '' ) . the terminated facility provided $ 65.0 million of revolving credit and a term loan with a principal balance of $ 10.2 million . the terminated facility was originally set to mature on may 11 , 2013. on september 14 , 2011 , we entered into a new five-year , secured revolving credit facility ( the `` senior credit facility '' ) . the senior credit facility provides for a maximum of $ 90.0 million of revolving credit , subject to borrowing base availability , including limited amounts of credit in the form of letters of credit and swingline loans .
| % , or 11.2 % on a `` net sales as adjusted '' basis . revenue from carpet yarn processing and carpet dyeing and finishing services increased $ 768 thousand in 2011 , compared with 2010. cost of sales . cost of sales , as a percentage of net sales , was basically unchanged ; an increase of 0.2 percentage points in 2011 compared with 2010. this was principally attributable to an increase in several lower margin , higher volume sales initiatives in both our residential and commercial markets that resulted in improved fixed cost absorption and other manufacturing efficiencies . gross profit . gross profit increased $ 8.9 million in 2011 compared with 2010 due primarily to the incremental contribution from the higher sales volume . selling and administrative expenses . selling and administrative expenses reflected a reduction of 2.3 percentage points as a percentage of sales in 2011 compared with 2010. the incremental improvement in the percentage comparison in these expenses was primarily a result of the cost reduction initiatives , organizational realignment , lower variable selling expenses associated with certain sales and greater absorption of the fixed component of these expenses as a result of the increased sales volume . other operating ( income ) expense , net . net other operating was income of $ 266 thousand in 2011 compared with net other operating expense of $ 303 thousand in 2010. the change was due primarily to a settlement gain of $ 492 recognized in 2011 related to a company-owned insurance policy . facility consolidation and severance ( benefit ) expense , impairment of assets and goodwill . facility consolidation and severance expenses reflected a cost reduction of $ 563 thousand in 2011 compared with expense of $ 1.6 million in 2010. the gain in 2011 was a result of the favorable settlement of a lease obligation in 2011 compared with the amount previously reserved under our restructuring plan . operating income ( loss ) . operating income was $
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capital requirements and the availability of external sources of capital . we funded a significant portion of our capital expenditures and the cash portion of the elite acquisition through borrowings under the credit facility and issued additional debt such that we now have a substantial amount of debt , which could limit our ability to fund future planned capital expenditures . current conditions could limit our ability to access the debt and equity markets to raise capital on affordable terms in 2020 and beyond . if we are not successful in raising capital within the time period required or at all , we may not be able to fund these capital expenditures , which could impair our ability to grow or maintain our business . cost management . in 2020 , we will likely face rising costs due to manufacturer price increases and higher labor costs due to low unemployment rates in many of our operating areas . to address rising costs , we are actively working to retain employees , negotiating sourcing agreements with vendors and passing cost increases through to customers where appropriate . in addition , in order to improve our operations , in the fourth quarter of 2018 we began a process and technology transformation project that will , among other things , upgrade or replace our existing erp , supply chain and inventory management systems and expand the remote monitoring capabilities of our compression fleet . we believe these improvements will reduce our operating costs and increase our uptime . we expensed $ 6.3 million in 2019 related to this project , and we anticipate that the project will continue to require significant resources and result in increased sg & a expense and capital expenditures for the implementation of new technologies in 2020. cost management continues to be challenging and there is no guarantee that our efforts will result in a reduction in our operating expenses . continued natural gas production growth and resulting demand for our services could also cause us to experience increased operating expenses as we hire employees and incur additional expenses needed to support the market demand . labor . we believe that our ability to hire , train and retain qualified personnel will continue to be important . although we have been able to satisfy our personnel needs thus far , retaining employees in our industry continues to be a challenge . our ability to grow and to continue our current level of service to our customers will depend in part on our success in hiring , training and retaining our employees . later-cycle market participant . compression service providers have traditionally been a later-cycle participant as energy markets fluctuate . as such , we anticipate that any significant change in the demand for our contract operations services will generally lag a change in drilling activity . increased oil and natural gas production in 2017 , 2018 and 2019 contributed to increased new orders for our compression services in 2017 and 2018. despite these new orders , revenue gains were not realized until 2018 and 2019 as the operating horsepower declines and pricing pressure experienced prior to 2017 resulted in a decline in our revenue in 2017. dry natural gas production , one of the key drivers of our business , increased 12 % in 2018 and 10 % in 2019 and is expected to increase 10 % in 2020 through 2024. we believe this production growth will continue to increase demand for compression services , which we expect will result in continued increases in revenue and gross margin , though on a lag of several quarters or more . customer deferrals . our aftermarket services revenue decreased in 2019 as customers deferred near-term maintenance activities . we believe the large installed base of owned compression supports the long-term fundamentals of the aftermarket services business : however , the timing of a recovery is difficult to predict . we remain focused on cost management and the higher margin business within our aftermarket services operations . increasing customer focus on free cash flow . many of our customers are transitioning their business model to focus on sustainable free cash flow generation rather than growth . we expect this transition to have a positive impact on the industry in the long term , as we anticipate the change will reduce volatility through cycles and improve the financial strength of our customers . in the near term , however , we can expect this transition to result in a deceleration in the natural gas production growth rate , to which demand for our products and services is closely aligned . 33 operating highlights the following table summarizes our available and operating horsepower and horsepower utilization ( in thousands , except percentages ) : replace_table_token_4_th ( 1 ) defined as idle and operating horsepower . new compressors completed by a third party manufacturer that have been delivered to us are included in the fleet . ( 2 ) defined as horsepower that is operating under contract and horsepower that is idle but under contract and generating revenue such as standby revenue . non-gaap financial measures management uses a variety of financial and operating metrics to analyze our performance . these metrics are significant factors in assessing our operating results and profitability and include the non-gaap financial measure of gross margin . we define gross margin as total revenue less cost of sales ( excluding depreciation and amortization ) . gross margin is included as a supplemental disclosure because it is a primary measure used by our management to evaluate the results of revenue and cost of sales ( excluding depreciation and amortization ) , which are key components of our operations . we believe gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations , the indirect costs associated with our sg & a activities , our financing methods and income taxes . story_separator_special_tag in addition , depreciation and amortization may not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs of current operating activity . as an indicator of our operating performance , gross margin should not be considered an alternative to , or more meaningful than , net income ( loss ) as determined in accordance with gaap . our gross margin may not be comparable to a similarly-titled measure of other entities because other entities may not calculate gross margin in the same manner . gross margin has certain material limitations associated with its use as compared to net income ( loss ) . these limitations are primarily due to the exclusion of sg & a , depreciation and amortization , impairments , restatement and other charges , restructuring and other charges , interest expense , debt extinguishment loss , transaction-related costs , gain ( loss ) on sale of assets , net , other income ( loss ) , net , provision for ( benefit from ) income taxes and loss from discontinued operations , net of tax . because we intend to finance a portion of our operations through borrowings , interest expense is a necessary element of our costs and our ability to generate revenue . additionally , because we use capital assets , depreciation expense is a necessary element of our costs and our ability to generate revenue and sg & a is necessary to support our operations and required corporate activities . to compensate for these limitations , management uses this non-gaap measure as a supplemental measure to other gaap results to provide a more complete understanding of our performance . 34 the following table reconciles net income to gross margin ( in thousands ) : replace_table_token_5_th story_separator_special_tag style= '' padding-left:0px ; text-indent:0px ; line-height : normal ; padding-top:10px ; '' > replace_table_token_9_th restatement and other charges . during the years ended december 31 , 2019 and 2018 , we recorded expense of $ 0.4 million and $ 1.3 million , respectively , for our share of professional and legal fees related to the restatement of prior period financial statements and disclosures and related matters . we recorded $ 1.3 million for the expected recovery of shared fees incurred during the year ended december 31 , 2018 . interest expense . the increase in interest expense during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was primarily due to an increase in the average outstanding balance of long-term debt , partially offset by a decrease in the weighted average effective interest rate . debt extinguishment loss . we recorded a debt extinguishment loss of $ 3.7 million during the year ended december 31 , 2019 as a result of the redemption of the 2021 notes . we recorded a debt extinguishment loss of $ 2.5 million during the year ended december 31 , 2018 as a result of the termination of the archrock credit facility . see note 13 ( “ long-term debt ” ) to our financial statements for further details . 37 transaction-related costs . we incurred $ 8.2 million and $ 10.2 million of financial advisory , legal and other professional fees during the years ended december 31 , 2019 and 2018 , respectively . the $ 8.2 million of fees incurred during the year ended december 31 , 2019 related primarily to the elite acquisition . the $ 10.2 million of fees incurred during the year ended december 31 , 2018 related to the merger . see note 4 ( “ business transactions ” ) and note 15 ( “ equity ” ) to our financial statements for further details of these transactions . gain on sale of assets , net . the increase in gain on sale of assets , net was primarily due to a $ 6.6 million gain related to the harvest sale during the year ended december 31 , 2019 and a $ 3.2 million increase in gains recognized on other compression equipment sales during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . see note 4 ( “ business transactions ” ) for further details of the harvest sale . other income , net . the increase in other income , net during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was primarily due to a $ 0.9 million decrease in indemnification expense incurred pursuant to our tax matters agreement with exterran corporation and income of $ 0.3 million related to equipment damaged at a customer site during 2019 , partially offset by $ 0.5 million in indemnification income earned pursuant to that same tax matters agreement during 2018 and a $ 0.3 million decrease in interest income earned related to tax refunds and settlements . provision for ( benefit from ) income taxes ( dollars in thousands ) replace_table_token_10_th the change in provision for ( benefit from ) income taxes was primarily due to the release of a valuation allowance in the year ended december 31 , 2019 , as well as a higher release of an unrecognized tax benefit due to the settlement of a tax audit in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . see note 20 ( “ income taxes ” ) to our financial statements for further details . net income attributable to the noncontrolling interest ( dollars in thousands ) year ended december 31 , increase 2019 2018 ( decrease ) net income attributable to the noncontrolling interest $ — $ ( 8,097 ) ( 100 ) % net income attributable to the noncontrolling interest was the portion of the partnership 's earnings that were applicable to the partnership 's publicly-held common unitholder interest through the completion of the merger . immediately prior to the merger , public unitholders held a 57 % ownership interest in the partnership .
| the increase in net income attributable to archrock stockholders during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was primarily driven by the increase in gross margin from our contract operations and aftermarket services businesses and decreases in depreciation and amortization , sg & a and restatement and other charges , partially offset by the change in provision for ( benefit from ) income taxes , transaction-related costs , the change in net income ( loss ) attributable to the noncontrolling interest and an increase in interest expense . 35 year ended december 31 , 2019 compared to year ended december 31 , 2018 contract operations ( dollars in thousands ) replace_table_token_6_th ( 1 ) defined as gross margin divided by revenue . the increase in revenue during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was primarily due to an increase in contract operations rates driven by an increase in customer demand , an increase in average operating horsepower ( excluding the horsepower acquired in the elite acquisition ) and $ 33.2 million of revenue associated with the compression assets acquired in the elite acquisition . gross margin increased during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to the increase in revenue mentioned above partially offset by the increase in cost of sales . the increase in cost of sales was primarily driven by increases in maintenance , freight and lube oil expense associated with the increase in average operating horsepower and the horsepower acquired in the elite acquisition . these increases in cost of sales were partially offset by a decrease in cost associated with the start-up of compression packages , as the majority of the increase in average operating horsepower was comprised of newly-built compressors . gross margin percentage increased during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to the increase in contract operations rates mentioned above . aftermarket services ( dollars in thousands ) replace_table_token_7_th the decrease in revenue during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was primarily due to decreases in parts sales and service activities as customers deferred maintenance activities . gross margin decreased during the
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we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , and these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results under different assumptions and conditions may differ from these estimates . our significant accounting policies are more fully described in note 2 to our financial statements . we define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles . we believe our critical accounting policies include the recognition of revenue , completeness of clinical trial accruals , stock-based compensation , income taxes and impairment of long-lived assets , each discussed in more detail as follows : revenue recognition the terms of our license and collaborative research and development agreements include upfront and license fees , research , development and other funding or reimbursements , milestone and other contingent payments for the achievement of defined collaboration objectives and certain preclinical , clinical , regulatory and sales-based events , as well as royalties on sales of commercialized products . arrangements that include upfront payments may require deferral of revenue recognition to a future period until we perform obligations under these arrangements . we record research and development funding payable to us as accounts receivable when our right to consideration is unconditional . the event-based milestone and other contingent payments represent variable consideration , and we use the most likely amount method to estimate this variable consideration . given the high degree of uncertainty around the occurrence of these events , we determine the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved . we will recognize revenue from sales-based royalty payments when or as the sales occur . we will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur . 64 a performance obligation is a promise in a contract to transfer a distinct good or service and is the unit of accounting . a contract 's transaction price is allocated among each distinct performance obligation based on relative standalone selling price and recognized when , or as , the applicable performance obligation is satisfied . w e elected to use the practical expedient permitted related to adoption , which does not require us to disclose certain information regarding our remaining performance obligations as of the end of the reporting period prior to the initial date of adoption . additionally , we elected the practical expedient for certain research and development funding which allows us to recognize revenue in the amount for which we have a right to invoice if our right to consideration is an amount that corresponds directly to the value of our performance completed to date . as a result , we effectively bypass the steps of determining the transaction price and allocating that transaction price to the performance obligation . completeness of clinical trial accruals we estimate preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions and cros and cmos that conduct and manage preclinical studies and clinical trials on our behalf based on actual time and expenses incurred by such entities . further , we accrue expenses related to clinical trials based on the level of patient enrollment and activity according to the relevant agreement . we monitor patient enrollment levels and related activity to the extent reasonably possible and adjust estimates accordingly . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . stock-based compensation we recognize compensation expense using a fair value-based method for costs related to all share-based payments . we have granted restricted stock awards , or rsas , some of which are subject to performance conditions or market conditions . for rsas subject to performance conditions , stock-based compensation cost is based on the closing market price of our common stock at the date of grant and is recognized as expense using the accelerated attribution recognition method when it is probable that the performance condition will be achieved . for rsas subject to market conditions , we base the fair value of the awards on a monte carlo simulation model and recognize stock-based compensation cost commencing at the grant date over the derived service period . performance- and market-based awards require estimates as to the probability of certain outcomes—the probability of the achievement of performance conditions and the probability of various market-based outcomes , respectively—which require a high degree of judgment . income taxes we account for income taxes using the liability method , under which deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . as of december 31 , 2020 , our total net deferred tax assets , net of gross deferred tax liabilities , were $ 182.3 million . due to our lack of earnings history , the net deferred tax assets have been fully offset by a valuation allowance . in assessing the realizability of deferred tax assets , we considered whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible . story_separator_special_tag due to our history of losses and lack of other positive evidence , we determined that it is more likely than not that our net deferred tax assets will not be realized , and therefore , the net deferred tax assets are fully offset by a valuation allowance . impairment of long-lived assets long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the assets may not be recoverable . recoverability of these assets is measured by comparing their carrying amounts to the future undiscounted cash flows the assets are expected to generate . if an asset is impaired , the impairment to be recognized equals the amount by which the carrying value exceeds the asset 's fair value . the primary measure of fair value is discounted cash flows , which includes significant estimates primarily related to the discount rate and projected cash flows . the discount rate considers the relevant risk associated with asset-specific characteristics and the uncertainty related to the ability to achieve the projected cash flows . 65 new accounting standards see note 2 of our financial statements contained elsewhere in this annual report . financial overview the following sections of this management 's discussion & analysis generally discuss 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this annual report can be found in part ii , item 7. management 's discussion and analysis of financial condition and results of operations of our annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec on february 27 , 2020. collaboration revenue and license revenue we have not generated any revenue from product sales . we have derived our revenue to date from upfront payments , research and development funding and milestone payments under agreements with our collaboration partners and licensees . we currently have an active cabiralizumab license and collaboration agreement with bms , an active collaboration and license agreement with zai lab for bemarituzumab and a license agreement with seagen . we completed the research terms of our immuno-oncology research collaboration with bms in march 2019. in february 2020 , we entered into a license agreement with seagen . for additional information on these agreements , see the description of these agreements set forth in this section below . the following is a comparison of collaboration and license revenue by agreement : year ended december 31 , ( in millions ) 2020 2019 2018 milestone payments : ( 1 ) cabiralizumab collaboration - bms $ — $ — $ 25.0 other payments : china collaboration - zai lab 5.5 4.4 5.1 cabiralizumab collaboration - bms 2.6 9.1 13.4 immuno-oncology research collaboration - bms — 1.4 6.1 license agreement - seagen 5.1 — — other — — 0.3 total $ 13.2 $ 14.9 $ 49.9 ( 1 ) includes milestone payments recognized at a point in time . other payments may also include milestone payments recognized over time . we expect that the level of revenue we generate will fluctuate from period to period as a result of the timing and amount of milestone , reimbursable expenses and other payments we receive in the course of our existing collaborations and licenses and as a result of the deferred revenue that we recognize , including due to revisions to estimates related to reimbursable activities or estimates of actual or estimated costs as a percentage of total budgeted costs , or as a result of entry into any new collaborations and license agreements . 66 bms immuno-oncology research collaboration in march 2014 , we entered into a research collaboration and license agreement , or the immuno-oncology research collaboration , with bms to carry out a research program to ( i ) discover novel interacting proteins in two undisclosed immune checkpoint pathways , which we refer to as the checkpoint pathways , using our target discovery platform ; ( ii ) further the understanding of target biology with respect to targets in these checkpoint pathways ; and ( iii ) discover and pre-clinically develop compounds suitable for development for human therapeutic uses against targets in these checkpoint pathways . under the immuno-oncology research collaboration , we granted to bms an exclusive , worldwide license to research , develop and commercialize products directed towards certain targets in the checkpoint pathways . bms has an option to take exclusive licenses to additional targets we may identify in these checkpoint pathways pursuant to the research plan under the immuno-oncology research collaboration . based on data arising from our activities under the research plan , in january 2016 , we amended the immuno-oncology research collaboration to add an additional checkpoint pathway to the research program , for a total of three immune checkpoint pathways . we received an upfront non-refundable payment of $ 20.0 million from bms in connection with the execution of the immuno-oncology research collaboration . bms also paid us $ 13.7 million in research funding from 2014 through 2019 , during which we performed certain research activities . in connection with entering into the immuno-oncology research collaboration , bms purchased 994,352 shares of our common stock at a price per share that exceeded the fair value of our common stock by a total of $ 2.4 million . we are eligible to receive certain developmental- , regulatory- and sales-based contingent payments with respect to each target subject to the immuno-oncology research collaboration and royalties on sales of products related to such targets , if any . we identified one performance obligation for the research license to access our technology , the exclusive commercial license and research activities . bms 's option to select additional collaboration targets is not priced at a discount and therefore does not represent one or more performance obligations for which the transaction price would be allocated .
| research and development research and development expenses decreased by $ 48.6 million , or 43 % , to $ 65.5 million for the year ended december 31 , 2020 from $ 114.1 million for the year ended december 31 , 2019. this decrease was primarily due to a $ 19.2 million decrease in overall compensation costs due to the october 2019 restructuring , a $ 7.9 million decrease in clinical trial expenses across all clinical trials , a $ 6.0 million decrease in manufacturing costs related to our bemarituzumab and fpa150 programs , a $ 5.3 million decrease in costs related to our preclinical programs , a $ 4.6 million decrease in allocated costs , a $ 3.4 million decrease in companion diagnostics costs related to our bemarituzumab program , a $ 3.4 million decrease related to a gain recorded from the sale of laboratory equipment in april 2020 , a $ 3.3 million decrease in bioanalytics and central laboratory costs related to the reduction of activities in the fight trial and the winding down of our cabiralizumab and fpa150 clinical trials , a $ 1.2 million decrease in other clinical and specialty laboratory costs related to our bemarituzumab program and the winding down of our cabiralizumab and fpa150 clinical trials and a $ 1.0 million decrease due to reducing our use of temporary resources . the decrease was offset by a $ 5.4 million increase in impairment charges related to long-lived assets ( a $ 7.3 million impairment charge on the operating lease right-of-use asset and related l easehold improvements and furniture and fixtures recorded in the third quarter of 2020 in connection with the facility sublease , as compared to a $ 1.9 million impairment charge on our laboratory equipment recorded primarily during the fourth quarter of 2019 in connection with the october 2019 restructuring ) and a $ 1.3 million increase in other miscellaneous research and development costs . general and administrative general and administrative expenses decreased by $ 2.2 million , or 5 % , to $ 40.5 million for the year ended december 31 , 2020 from $ 42.7 million for the year ended december 31 , 2019. this decrease was primarily due to a $ 9.4 million decrease in overall compensation costs due to the october 2019 restructuring , a $ 2.1 million decrease in depreciation expense as a result of the sale of laboratory equipment in april 2020 and a $ 1.8 million net decrease in other miscellaneous general and administrative costs . t he decrease was offset by a $ 6.5 million impairment
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our investment segment 's net income ( loss ) is driven by the amount of funds allocated to the investment funds and the performance of the underlying investments in the investment funds . future funds allocated to the investment funds may increase or decrease based on the contributions and redemptions by our holding company and by mr. icahn and his affiliates . additionally , historical performance results of the investment funds are not indicative of future results as past market conditions , investment opportunities and investment decisions may not occur in the future . changes in general market conditions coupled with changes in exposure to short and long positions have significant impact on our investment segment 's results of operations and the comparability of results of operations year over year and as such , future results of operations will be impacted by our future exposures and future market conditions , which may not be consistent with prior trends . refer to the `` investment segment liquidity '' section of our `` liquidity and capital resources '' discussion for additional information regarding our investment segment 's exposure as of december 31 , 2017 . 33 for the years ended december 31 , 2017 , 2016 and 2015 , our investment funds ' returns were 2.1 % , ( 20.3 ) % and ( 18.0 ) % , respectively . our investment funds ' returns represent a weighted-average composite of the average returns , net of expenses . the following table sets forth the performance attribution for the investment funds ' returns : replace_table_token_4_th the following table presents net income ( loss ) for our investment segment for the years ended december 31 , 2017 , 2016 and 2015 . replace_table_token_5_th years ended december 31 , 2017 and 2016 for 2017 , the investment funds ' positive performance was driven by net gains in their long positions , offset in part by net losses in their short positions . the positive performance of our investment segment 's long positions was driven by gains from two consumer , non-cyclical sector investments , a basic materials sector investment and an energy sector investment aggregating approximately $ 1.5 billion . the aggregate performance of investments with gains across various other sectors accounted for the additional positive performance of our investment segment 's long positions , offset in part by the aggregate performance of investments with losses in the financial sector . losses in short positions were attributable to the negative performance of broad market hedges of approximately $ 2.1 billion and the negative performance of various other short positions across multiple sectors . losses in short positions were offset in part by the positive performance of three short positions in the consumer , cyclical sector aggregating $ 620 million . for 2016 , the investment funds ' negative performance was driven by net losses in their short positions , offset in part by net gains in their long positions . losses in short positions were attributable to the negative performance of broad market hedges of approximately $ 1.5 billion , as well as the negative performance of other short positions , primarily in the consumer , cyclical sector . the positive performance of our investment segment 's long positions was driven by gains from a certain basic materials sector investment of $ 561 million . the aggregate performance of investments with gains across various other sectors were offset by the aggregate performance of investments with losses primarily in the technology and consumer non-cyclical sectors . years ended december 31 , 2016 and 2015 for 2016 , the investment funds ' negative performance was driven by net losses in their short positions , offset in part by net gains in their long positions . losses in short positions were attributable to the negative performance of broad market hedges of approximately $ 1.5 billion , as well as the negative performance of other short positions , primarily in the consumer , cyclical sector . the positive performance of our investment segment 's long positions was driven by gains from a certain basic materials sector investment of $ 561 million . the aggregate performance of investments with gains across various other sectors were offset by the aggregate performance of investments with losses primarily in the technology and consumer non-cyclical sectors . for 2015 , the investment funds ' negative performance was driven by net losses in their long positions . the negative performance of our investment segment 's long positions was driven by losses from two energy sector investments and a certain basic materials sector investment aggregating approximately $ 2.0 billion . this was offset in part by the performance of investments with gains primarily in the communications and consumer , non-cyclical sectors . 34 automotive our automotive segment 's results of operations are generally driven by the manufacturing and distribution of automotive parts and are affected by the relative strength of global vehicle production levels , global vehicle sales levels , automotive part replacement trends , geopolitical risk and foreign currencies , among other factors . acquisitions in recent years within our automotive segment , including our acquisitions of ieh auto parts holding llc ( `` ieh auto '' ) and trw 's valvetrain business in 2015 , the pep boys - manny , moe & jack ( `` pep boys '' ) in 2016 , the franchise businesses of precision tune auto care ( `` precision tune '' ) and american driveline systems , the franchisor of aamco and cottman transmission service centers ( `` american driveline '' ) , in 2017 and various other businesses in recent years , provided operating synergies , added new product lines , strengthened distribution channels and enhanced our automotive segment 's ability to better service its customers . story_separator_special_tag with our acquisition of pep boys in 2016 , our automotive segment 's results of operations include automotive services operations , which has been followed by additional acquisitions of automotive services businesses in 2016 and 2017. however , such automotive services operations did not materially impact our automotive segment 's consolidated results of operations . for 2017 and 2016 , automotive services revenues were $ 487 million and $ 422 million , respectively . the following is a discussion of our automotive segment 's results of operations from its manufacturing and distribution operations . replace_table_token_6_th years ended december 31 , 2017 and 2016 net sales for our automotive segment for the year ended december 31 , 2017 increased by $ 537 million ( 6 % ) as compared to the comparable prior year period . the increase was due to organic sales volume increases of $ 300 million and sales volume increases due to acquisitions aggregating $ 226 million . increases from acquisitions was impacted primarily from the inclusion of the results of pep boys for the full twelve months in 2017 compared to eleven months in the comparable prior year period , as well as from various acquisitions by icahn automotive during 2017. in addition , increases were impacted by a $ 58 million favorable effect of foreign currency exchange . the increases in net sales were offset in part by other decreases , including from commercial actions and customer pricing . cost of goods sold for the year ended december 31 , 2017 increased by $ 452 million ( 6 % ) as compared to the comparable prior year period . the increase was primarily due to volume increases of $ 363 million attributable to organic sales volume increases and acquisitions , as discussed above , $ 22 million of additional cost from net performance and $ 67 million from the unfavorable effect of foreign currency exchange . gross margin on net sales for the year ended december 31 , 2017 increased by $ 85 million ( 5 % ) as compared to the comparable prior year period . gross margin as a percentage of net sales was flat at 19 % for the year ended december 31 , 2017 and 2016 , respectively . the inclusion of the results of pep boys , whose product sales margins are higher than those of federal-mogul 's , as well as the favorable effects of higher sales volumes , net of changes in product mix , had a positive impact on gross margin as a percentage of net sales . however , this positive impact was offset by unfavorable effects of net performance , foreign currency exchange and other . years ended december 31 , 2016 and 2015 net sales for our automotive segment for the year ended december 31 , 2016 increased by approximately $ 1.6 billion ( 21 % ) as compared to the comparable prior year period . of the increase , approximately $ 1.5 billion was attributable to several acquisitions made during 2016 , primarily the acquisition of pep boys in february 2016 , and $ 305 million pertained to other sales volume increases that was primarily due to the inclusion of icahn automotive for the full year 2016 compared to only seven months in 2015. the sales volume increases were offset in part by $ 128 million decrease , primarily due to an unfavorable effect of foreign currency exchange . cost of goods sold for the year ended december 31 , 2016 increased by approximately $ 1.1 billion ( 16 % ) as compared to the comparable prior year period . the increase was primarily due to the inclusion of the results of pep boys and ieh auto , which were acquired in february 2016 and june 2015 , respectively , as well as certain other acquisitions within our automotive segment . these increases were offset in part by savings from improved efficiencies , including benefits of favorable material and service sourcing and productivity , as well as a favorable effect of foreign currency exchange . 35 gross margin on net sales for the year ended december 31 , 2016 increased by $ 550 million ( 45 % ) as compared to the comparable prior year period . gross margin as a percentage of net sales was 19 % and 16 % for the year ended december 31 , 2016 and 2015 , respectively . the increase over the respective periods was due to the inclusion of the results of pep boys and ieh auto , whose product sales margins are higher than those of federal-mogul 's , as well as savings from improved efficiencies , including benefits of favorable material and service sourcing and productivity . energy our energy segment is primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing . the petroleum business accounted for approximately 95 % , 93 % and 95 % of our energy segment 's net sales for the years ended december 31 , 2017 , 2016 and 2015 , respectively . the results of operations of the petroleum business are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks that are processed and blended into refined products . the cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depend on factors beyond our energy segment 's control , including the supply of and demand for crude oil , as well as gasoline and other refined products . this supply and demand depends on , among other factors , changes in domestic and foreign economies , weather conditions , domestic and foreign political affairs , production levels , the availability of imports , the marketing of competitive fuels and the extent of government regulation . because the petroleum business applies first-in , first-out accounting to value its inventory , crude oil price movements may impact gross margin in the short term because of changes in the value of its unhedged on-hand inventory .
| years ended december 31 , 2016 and 2015 our consolidated selling , general and administrative for the year ended december 31 , 2016 increased by $ 434 million ( 23 % ) as compared to the comparable prior year period . the increase was primarily attributable to an increase from our automotive segment of $ 520 million primarily due to the inclusion of the acquisitions of pep boys in february 2016 and ieh auto in the second quarter of 2015 and an increase of $ 102 million from our gaming segment primarily due to the inclusion of ter upon its emergence from bankruptcy on february 26 , 2016 , offset in part by a decrease of $ 203 million from our investment segment due to a decrease of compensation expense related to a certain fund performance over the respective periods . restructuring our consolidated restructuring costs , net is primarily attributable to our automotive segment and consists primarily of employee severance and termination benefits as well as facility closures and other costs . our automotive segment 's restructuring activities are undertaken as necessary to execute management 's strategy and streamline operations , consolidate and take advantage of available capacity and resources , and ultimately achieve net cost reductions . restructuring activities include efforts to integrate and rationalize businesses and to relocate manufacturing operations to best cost manufacturing locations . restructuring , net decreased for the year december 31 , 2017 compared to the comparable prior year periods due to lower severance and other charges incurred . impairment refer to note 5 , `` fair value measurements , '' and note 8 , `` goodwill and intangible assets , net , '' to the consolidated financial statements for a discussion of impairments of assets . interest expense years ended december 31 , 2017 and 2016 our consolidated interest expense for the year ended december 31 , 2017 decreased by $ 35 million ( 4 % ) as compared to the comparable prior year period . the decrease was primarily due
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for both goodwill and for the core deposit intangible , the comparable transaction methodology was used to assess , and conclude that there was no impairment at december 31 , 2017. future events , or changes in the estimates , which are used to determine the carrying value of goodwill and identifiable intangible assets or which otherwise adversely affect their value or estimated lives could have a material adverse impact on the results of operations . 22 management evaluates securities for other-than-temporary impairment giving consideration to the extent to which the fair value has been less than cost , estimates of future cash flows , delinquencies and default severity , and the intent and ability of salisbury to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value . the consideration of the above factors is subjective and involves estimates and assumptions about matters that are inherently uncertain . should actual factors and conditions differ materially from those used by management , the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements . the following discussion and analysis of salisbury 's consolidated results of operations should be read in conjunction with the consolidated financial statements and footnotes . story_separator_special_tag sequence ; type : arabic ; name : pageno -- > 24 provision and allowance for loan losses the provision for loan losses was $ 1,020,000 for 2017 , compared with $ 1,835,000 for 2016. net loan charge-offs were $ 371,000 and $ 1,424,000 , for the respective years . the lower provision for loan losses in 2017 reflected lower charge-offs and higher recoveries . the following table sets forth changes in the allowance for loan losses and other statistical data : replace_table_token_5_th the reserve coverage at december 31 , 2017 , as measured by the ratio of allowance for loan losses to gross loans , was 0.84 % , as compared with 0.80 % at december 31 , 2016. non-performing loans ( non-accrual loans and accruing loans past-due 90 days or more ) decreased $ 2.2 million to $ 6.6 million , or 0.82 % of gross loans receivable , at december 31 , 2017 , down from 1.14 % at december 31 , 2016. accruing loans past due 30-89 days decreased $ 1.0 million to $ 3.5 million , or 0.44 % of gross loans receivable at december 31 , 2017. see “ overview – loan credit quality ” below for further discussion and analysis . 25 non-interest income the following table details the principal categories of non-interest income . replace_table_token_6_th non-interest income increased $ 345,000 , or 4.4 % , in 2017 versus 2016. trust and wealth advisory revenues increased $ 139,000 primarily due to increased market values and a higher volume of assets under management , partially offset by decreased estate fee income . service charges and fees increased $ 585,000 mainly due to increased atm fees and ancillary account service related fees . gains on sales of mortgage loans decreased $ 104,000 due to a decline in sales volume . mortgage loans sales totaled $ 5.3 million in 2017 versus $ 10.3 million in 2016. income from servicing of mortgage loans increased $ 99,000 due primarily to a reduction in the amortization of mortgage servicing rights . loans serviced under the fhlbb mortgage partnership finance program totaled $ 117.5 million and $ 125.2 million at december 31 , 2017 and 2016 , respectively . non-interest expense the following table details the principal categories of non-interest expense . replace_table_token_7_th non-interest expenses of $ 29.3 million for 2017 included charges of $ 1.7 million related to the write down and loss on the sale of an oreo property compared with oreo charges of $ 435,000 in 2016. excluding oreo related charges , non-interest expenses increased $ 660,000 , or 2.45 % in 2017 versus 2016. salary expense increased $ 209,000 due to changes in staffing levels and mix and merit increases . employee benefit expense decreased $ 124,000 primarily as a result of lower deferred compensation and a decrease in employee stock ownership plan expenses . premises and equipment expense increased $ 456,000 primarily as a result of the acquisition of the new paltz branch in june 2017 and the additional lease expense associated with the relocation of the current newburgh , new york branch to a new location . building maintenance and depreciation costs for computer equipment and software were also higher . data processing expense decreased $ 49,000 mainly as a result of expenses incurred in 2016 related to the conversion of the bank 's core processing system and related infrastructure . the increase of $ 566,000 in professional fees primarily reflected higher consulting and audit fees as a result of salisbury 's core system conversion and new general ledger implementation as well as higher legal costs due to the new paltz branch acquisition . collections , oreo and appraisal expenses increased $ 1,180,000 primarily due to the oreo charges noted above , which were partly offset by lower taxes , appraisal and litigation costs . marketing and community support increased $ 107,000 mainly related to an increase in general marketing campaigns . amortization of intangibles decreased $ 68,000 reflecting the completion of the intangible asset amortization of an acquired branch office . all other operating expenses decreased $ 226,000. income taxes the effective income tax rates for 2017 and 2016 were 31.78 % and 27.92 % , respectively . fluctuations in the effective tax rate generally result from changes in the mix of taxable and tax exempt income . in addition , the effective tax rate for 2017 also included a discrete charge of $ 445,000 related to the remeasurement of salisbury 's net deferred tax assets as a result of the enactment of the new u.s. tax law in december 2017. salisbury 's effective tax rate was less than the 34 % federal statutory rate due to tax-exempt income , primarily from municipal bonds , tax advantaged loans and bank-owned life insurance . story_separator_special_tag for further information on income taxes , see note 12 of notes to consolidated financial statements . 26 salisbury did not incur connecticut income tax in 2017 , 2016 or 2015 , other than minimum state income tax , as a result of a connecticut law that permits banks to shelter certain mortgage income from the connecticut corporation business tax through the use of a special purpose entity called a passive investment company or pic . in 2004 , salisbury availed itself of this benefit by forming a pic , sbt mortgage service corporation . salisbury 's income tax provision reflects the full impact of the connecticut legislation . salisbury does not expect to pay other than minimum connecticut state income tax in the foreseeable future unless there is a change in connecticut tax law . comparison of the years ended december 31 , 2016 and 2015 net interest and dividend income net interest and dividend income represents the difference between interest and dividends earned on loans and securities and interest expense incurred on deposits and borrowings . the level of net interest income is a function of volume , rates and mix of both earning assets and interest-bearing liabilities . net interest income can be affected by changes in interest rate levels , changes in the volume of assets and liabilities that are subject to re-pricing within different future time periods , and in the level of non-performing assets . interest and dividend income tax equivalent interest and dividend income decreased $ 0.2 million , or 0.5 % , to $ 35.6 million in 2016. loan income increased $ 0.5 million , or 1.6 % , primarily due to a $ 58.2 million , or 8.5 % , increase in average loans , partially offset by a 29 basis point decrease in average yield . interest income for 2016 and 2015 reflects purchase accounting adjustments consisting of net accretion related to the fair value adjustments of loans acquired in the riverside bank acquisition in the amount of $ 1.8 million and $ 2.7 million , respectively . tax equivalent interest and dividend income from securities decreased $ 776,000 , or 23.1 % , in 2016 , as a result of a $ 2.3 million decrease in average security balances , and an 89 basis point decrease in average yield . contributing factors to the lower yield include the maturity , sale , call or pay down of higher yielding securities resulting in a remaining mix of lower yielding securities in the portfolio . interest from short term funds increased $ 53,000 in 2016 as a result of a 24 basis point increase in average yield on short term funds which occurred primarily as a result of the late 2015 increase in the fed funds target rate , partially offset by a $ 14.9 million decrease in average short term balances . interest expense interest expense increased $ 823,000 , or 27.2 % , to $ 3.8 million in 2016. interest expense on interest bearing deposit accounts increased $ 337,000 , or 18.3 % , in 2016 , as a result of a $ 17.2 million , or 3.1 % , increase in average interest bearing deposits and a 5 basis point increase in the average rate to 0.38 % . interest expense on fhlbb advances decreased $ 117,000 , or 11.0 % , due to a $ 3.0 million , or 10.9 % , increase in average advances , partially offset by a 75 basis point decrease in the average borrowing rate to 3.07 % from 3.82 % . in december 2015 , salisbury issued $ 10 million of subordinated debentures . interest expense on the subordinated debt , along with issuance costs , in 2015 totaled $ 35,000. in 2016 this expense totaled $ 624,000 , which represents an increase of $ 589,000 as compared to 2015. the proceeds of such issuance , along with cash-on-hand , were used by salisbury to fully redeem $ 16 million of its outstanding series b preferred stock , which was issued pursuant to the participation in the u.s. treasury 's sblf program . provision and allowance for loan losses the provision for loan losses was $ 1,835,000 for 2016 , compared with $ 917,000 for 2015. net loan charge-offs were $ 1,424,000 and $ 559,000 , for the respective years . the higher provision for loan losses was supported by maintaining an adequate allowance to gross loans as gross loans continue to increase . the reserve coverage at december 31 , 2016 , as measured by the ratio of allowance for loan losses to gross loans , was 0.80 % , as compared with 0.81 % at december 31 , 2015. non-performing loans ( non-accrual loans and accruing loans past-due 90 days or more ) decreased $ 7.5 million to $ 8.8 million , or 1.14 % of gross loans receivable , at december 31 , 2016 , down from 2.31 % at december 31 , 2015. accruing loans past due 30-89 days increased $ 0.4 million to $ 4.9 million , or 0.64 % of gross loans receivable at december 31 , 2016. see “ overview – loan credit quality ” below for further discussion and analysis . 27 non-interest income non-interest income increased $ 617,000 , or 8.5 % , in 2016 versus 2015. trust and wealth advisory revenues increased $ 73,000 primarily due to increased market values and a higher volume of assets under management , partially offset by decreased estate fee income . service charges and fees increased $ 147,000 mainly due to increased ancillary account service related fees and deposit related fee income . gains on sales of mortgage loans decreased $ 45,000 due to pressure on gain on sale margins with rising interest rates . mortgage loans sales totaled $ 10.3 million in 2016 versus $ 8.4 million in 2015. income from servicing of mortgage loans increased $ 109,000 due primarily to a slowdown in amortization .
| replace_table_token_4_th net interest and dividend income represents the difference between interest and dividends earned on loans and securities and interest expense incurred on deposits and borrowings . the level of net interest income is a function of volume , rates and mix of both earning assets and interest-bearing liabilities . net interest income can be affected by changes in interest rate levels , changes in the volume of assets and liabilities that are subject to re-pricing within different future time periods , and in the level of non-performing assets . interest and dividend income tax equivalent interest and dividend income increased $ 835,000 , or 2.3 % , to $ 36.4 million in 2017. loan income increased $ 1.1 million , or 3.4 % , to $ 33.8 million in 2017. the increase was primarily due to a $ 35.0 million , or 4.7 % , increase in average loans , partially offset by a 6 basis point decrease in average yield . interest income for 2017 and 2016 reflects purchase accounting adjustments consisting of net accretion related to the fair value adjustments of loans acquired in the riverside bank acquisition in the amount of $ 1.2 million and $ 1.9 million , respectively . tax equivalent interest and dividend income from securities decreased $ 453,000 , or 17.5 % , to $ 2.1 million in 2017 , as a result of a $ 3.6 million , or 4.8 % , decrease in average security balances , and a 72 basis point decrease in average yield . contributing factors to the lower yield include the maturity , sale , call or pay down of higher yielding securities resulting in a remaining mix of lower yielding securities in the portfolio . interest from short term funds increased $ 170,000 in 2017 as a result of a 46 basis point increase in average yield and $ 0.4 million , or 1.1 % , increase in average short term balances . interest expense interest expense increased $ 389,000 , or 10.1 % ,
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% 81.5 % 76.2 % ( 15.0 ) 5.3 commission and brokerage ratio 23.0 % 21.9 % 22.0 % 1.1 ( 0.1 ) other underwriting expense ratio 6.0 % 5.4 % 5.3 % 0.6 0.1 combined ratio 95.5 % 108.8 % 103.5 % ( 13.3 ) 5.3 at december 31 , percentage increase/ ( decrease ) ( dollars in millions , except per share amounts ) 2019 2018 2017 2019/2018 2018/2017 balance sheet data : total investments and cash $ 20,748.5 $ 18,433.1 $ 18,626.5 12.6 % ( 1.0 ) % total assets 27,324.1 24,751.0 23,563.3 10.4 % 5.0 % loss and loss adjustment expense reserves 13,611.3 13,119.1 11,884.3 3.8 % 10.4 % total debt 633.8 633.6 633.4 0.0 % 0.0 % total liabilities 18,191.1 16,890.2 15,222.6 7.7 % 11.0 % shareholders ' equity 9,132.9 7,860.8 8,340.7 16.2 % ( 5.8 ) % book value per share 223.85 193.37 204.25 15.8 % ( 5.3 ) % ( nm , not meaningful ) ( some amounts may not reconcile due to rounding . ) 47 revenues . premiums . gross written premiums increased by 7.8 % to $ 9,133.4 million in 2019 , compared to $ 8,475.2 million in 2018 , reflecting a $ 526.9 million , or 23.4 % , increase in our insurance business and a $ 131.3 million , or 2.1 % , increase in our reinsurance business . the rise in insurance premiums was primarily due to increases in many lines of business , including casualty , energy , accident and health and business written through the lloyd 's syndicate . the increase in reinsurance premiums was mainly due to increases in treaty casualty writings and mortgage business , partially offset by a decline in treaty property business , including lower reinstatement premiums , and a $ 55.5 million negative impact from the movement of foreign exchange rates . net written premiums increased by 5.5 % to $ 7,824.4 million in 2019 , compared to $ 7,414.4 million in 2018. this change is consistent with the change in gross written premiums . premiums earned increased by 6.8 % to $ 7,403.7 million in 2019 , compared to $ 6,931.7 million in 2018. the change in premiums earned relative to net written premiums is the result of timing ; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period . gross written premiums increased by 18.1 % to $ 8,475.2 million in 2018 , compared to $ 7,173.9 million in 2017 , reflecting a $ 1,109.9 million , or 21.7 % , increase in our reinsurance business and a $ 191.3 million , or 9.3 % , increase in our insurance business . the increase in reinsurance premiums was mainly due to increases in treaty property and treaty casualty writings , rise in mortgage business , growth in latin american business , and increases in production from our u.k. branch and ireland office . the rise in insurance premiums was primarily due to increases in many lines of business , including casualty , energy , accident and health and business written through the lloyd 's syndicate . net written premiums increased by 18.7 % to $ 7,414.4 million in 2018 , compared to $ 6,244.7 million in 2017. this change is consistent with the change in gross written premiums . premiums earned increased by 16.7 % to $ 6,931.7 million in 2018 , compared to $ 5,937.8 million in 2017. the change in premiums earned relative to net written premiums is the result of timing ; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period . net investment income . net investment income increased by 11.3 % to $ 647.1 million in 2019 compared with investment income of $ 581.2 million in 2018. net pre-tax investment income , as a percentage of average invested assets , was 3.3 % in 2019 compared to 3.2 % in 2018. the increases in both income and yield were primarily the result of higher income from our growing fixed maturity portfolio and higher income from our limited partnerships , partially offset by lower dividend income from our equity portfolio . net investment income increased by 7.1 % to $ 581.2 million in 2018 compared with investment income of $ 542.9 million in 2017. net pre-tax investment income , as a percentage of average invested assets , was 3.2 % in 2018 compared to 3.1 % in 2017. the increases in both income and yield were primarily the result of higher income from our growing fixed maturity portfolio and higher income from our limited partnerships , partially offset by lower dividend income from our equity portfolio . net realized capital gains ( losses ) . net realized capital gains were $ 185.0 million in 2019 , net realized capital losses were $ 127.1 million in 2018 and net realized capital gains were $ 153.2 million in 2017. the net realized capital gains of $ 185.0 million in 2019 were comprised of $ 167.0 million of net gains from fair value re-measurements and $ 38.9 million of net realized capital gains from sales of investments , partially offset by $ 20.9 million of other-than-temporary impairments . the net realized capital losses of $ 127.1 million in 2018 were comprised of $ 67.3 million of net losses from fair value re-measurements , $ 51.7 million of net realized capital losses from sales of investments and $ 8.1 million of other-than-temporary impairments . the net realized capital gains of $ 153.2 million in 2017 were comprised of $ 139.0 million of net gains from fair value re-measurements and $ 21.3 million of net realized capital gains from sales of investments , partially offset by $ 7.1 million of other-than-temporary impairments . net derivative gain ( loss ) . in 2005 and prior , we sold seven equity index put option contracts , three of which remain outstanding . story_separator_special_tag these contracts meet the definition of a derivative in accordance with fasb guidance and as such , are fair valued each quarter with the change recorded as net derivative gain or loss in the consolidated statements of operations and comprehensive income ( loss ) . as a result of these adjustments in value , we 48 recognized net derivative gains of $ 6.4 million , $ 0.5 million and $ 9.6 million in 2019 , 2018 and 2017 , respectively . the change in the fair value of these equity index put option contracts is generally indicative of the change in the equity markets and interest rates over the same periods . other income ( expense ) . we recorded other expense of $ 11.0 million , $ 24.8 million and $ 21.2 million in 2019 , 2018 and 2017 , respectively . t he changes were primarily the result of fluctuations in foreign currency exchange rates , income related to mt . logan re and changes in deferred gains related to any retroactive reinsurance transactions . we recognized foreign currency exchange expense of $ 13.4 million in 2019 , foreign currency exchange income of $ 2.4 million in 2018 and foreign currency exchange expense of $ 11.3 million in 2017. claims and expenses . incurred losses and loss adjustment expenses . the following table presents our incurred losses and loss adjustment expenses ( “ lae ” ) for the periods indicated . years ended december 31 , current ratio % / prior ratio % / total ratio % / ( dollars in millions ) year pt change years pt change incurred pt change 2019 attritional $ 4,441.0 60.0 % $ ( 93.6 ) ( 1.3 ) % $ 4,347.4 58.7 % catastrophes 545.5 7.4 % 30.0 0.4 % 575.5 7.8 % total segment $ 4,986.5 67.4 % $ ( 63.6 ) ( 0.9 ) % $ 4,922.9 66.5 % 2018 attritional $ 4,025.4 58.0 % $ ( 174.1 ) ( 2.5 ) % $ 3,851.2 55.5 % catastrophes 1,239.0 17.9 % 561.2 8.1 % 1,800.2 26.0 % total segment $ 5,264.3 75.9 % $ 387.1 5.6 % $ 5,651.4 81.5 % 2017 attritional $ 3,313.5 55.8 % $ ( 263.4 ) ( 4.4 ) % $ 3,050.0 51.4 % catastrophes 1,502.5 25.3 % ( 30.0 ) ( 0.5 ) % 1,472.6 24.8 % total segment $ 4,816.0 81.1 % $ ( 293.4 ) ( 4.9 ) % $ 4,522.6 76.2 % variance 2019/2018 attritional $ 415.6 2.0 pts $ 80.6 1.2 pts $ 496.2 3.2 pts catastrophes ( 693.5 ) ( 10.5 ) pts ( 531.2 ) ( 7.7 ) pts ( 1,224.7 ) ( 18.2 ) pts total segment $ ( 277.9 ) ( 8.5 ) pts $ ( 450.6 ) ( 6.5 ) pts $ ( 728.5 ) ( 15.0 ) pts variance 2018/2017 attritional $ 711.9 2.2 pts $ 89.3 1.9 pts $ 801.2 4.1 pts catastrophes ( 263.6 ) ( 7.4 ) pts 591.2 8.6 pts 327.6 1.2 pts total segment $ 448.4 ( 5.2 ) pts $ 680.5 10.5 pts $ 1,128.8 5.3 pts ( some amounts may not reconcile due to rounding . ) incurred losses and lae decreased by 12.9 % to $ 4,922.9 million in 2019 , compared to $ 5,651.4 million in 2018 , primarily due to an decrease in current year catastrophe losses of $ 693.5 million and $ 531.2 million less of unfavorable development on prior years catastrophe losses in 2019 compared to 2018. these decreases were partially offset by an increase of $ 415.6 million in current year attritional losses , mainly due to the impact of the increase in premiums earned and changes in the mix of business , and $ 80.6 million less of favorable development on prior years attritional losses in 2019 compared to 2018. the current year catastrophe losses of $ 545.5 million in 2019 related to typhoon hagibis ( $ 200.0 million ) , hurricane dorian ( $ 170.9 million ) , typhoon faxai ( $ 124.3 million ) , townsville monsoon ( $ 25.3 million ) , and the dallas tornadoes ( $ 25.0 million ) . the $ 1,239.0 million of current year catastrophe losses in 2018 related to hurricane michael ( $ 462.0 million ) , camp 49 wildfire ( $ 322.0 million ) , woolsey wildfire ( $ 154.0 million ) , typhoon jebi ( $ 80.0 million ) , hurricane florence ( $ 73.8 million ) , cyclone mekunu ( $ 43.7 million ) , typhoon trami ( $ 25.0 million ) , australia hailstorm ( $ 25.0 million ) , other 2018 california wildfires ( $ 24.6 million ) , japan floods ( $ 20.5 million ) and the u.s. winter storms ( $ 8.4 million ) . incurred losses and lae increased by 25.0 % to $ 5,651.4 million in 2018 , compared to $ 4,522.6 million in 2017 , primarily due to an increase in current year attritional losses of $ 711.9 million , mainly due to the impact of the increase in premiums earned and changes in the mix of business , and unfavorable development of $ 561.2 million on prior years catastrophe losses , mainly related to hurricanes harvey , irma and maria and the california wildfires . the increase in loss estimates for hurricanes harvey , irma and maria was mostly driven by re-opened claims reported in the second quarter of 2018 and loss inflation from higher than expected loss adjustment expenses and in particular , their impact on aggregate covers . these increases were partially offset by a decrease of $ 263.6 million in current year catastrophe losses . the current year catastrophe losses of $ 1,239.0 million are outlined above .
| consolidated investment results net investment income . net investment income increased by 11.3 % to $ 647.1 million in 2019 compared with investment income of $ 581.2 million in 2018. the increase was primarily due to higher income from our growing fixed maturity portfolio and an increase in limited partnership income , partially offset by lower dividend income from our equity portfolio . 51 net investment income increased by 7.1 % to $ 581.2 million in 2018 compared with investment income of $ 542.9 million in 2017. the increase was primarily due to higher income from our growing fixed maturity portfolio and an increase in limited partnership income , partially offset by lower dividend income from our equity portfolio . the following table shows the components of net investment income for the periods indicated . years ended december 31 , ( dollars in millions ) 2019 2018 2017 fixed maturities $ 520.3 $ 465.8 $ 427.4 equity securities 19.5 25.3 34.5 short-term investments and cash 17.6 14.4 4.2 other invested assets limited partnerships 105.8 93.3 83.6 other 14.1 17.0 10.1 gross investment income before adjustments 677.3 615.8 559.8 funds held interest income ( expense ) 13.3 6.3 11.9 future policy benefit reserve income ( expense ) ( 1.4 ) < span
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sequentially , segment operating income increased each of the past two quarters from $ 37.3 to $ 83.9 in the third quarter , and further improved to $ 119.5 in the fourth quarter . income from continuing operations decreased $ 254.9 , which included increased pension costs of $ 108.2 , net of tax , from the termination of our u.s. qualified pension plan , a decline in segment operating income , and higher asbestos costs of $ 64.4 , net of tax , primarily to extend the period over which we estimate our net liability through 2052 ( i.e. , “ full horizon ” ) , partially offset by a reduction in corporate costs . as a result , earnings per diluted share decreased from $ 3.65 to $ 0.78. adjusted earnings per share was $ 3.20 , reflecting a decrease of $ 0.61 from the prior year . operating cash flow of $ 435.9 increased $ 78.2 or 21.9 % , primarily due higher collections from customers , improved inventory management , and cost containment measures . operating cash flow less capital expenditures was $ 372 , an increase of $ 106 or 40 % . in 2020 , we focused on what we can control and executed timely cost actions to counter the anticipated impacts of the covid-19 pandemic . we generated strong levels of cash flow through intense working capital efficiency , and 24 focused our strategic priorities to drive long-term growth and share gains . the following highlights a few examples of strategic actions that occurred during the year that will help position us for continued value creation : our elastomeric rotorcraft business was awarded a position on the next u.s. military reconnaissance helicopter codenamed fara . this is a major recognition for our rotorcraft business which we created organically just a few years ago . our friction business continued to outpace global auto production by 640 basis points and added key automotive platforms , including doubling our share in electric vehicles . funded new innovations , such as the added diagnostics capabilities to our i-alert remote monitoring platform and various product redesign projects , including our bb2 and process pumps . continued to invest in smart and energy efficient applications , for example our itt smartpad , which is making new inroads with both aftermarket and oe customers , and an energy efficient power source for our pumps . we also won content on 42 new electrical vehicle platforms in north america , europe , and china , where we continue to increase our market share . in 2020 , we continued to effectively manage our legacy liabilities positioning us well for the future , including : termination of our u.s. pension plan that was primarily funded with assets of the plan . improved visibility to net asbestos liability through 2052 , resulting from underlying trends and insurance settlements . continued effective cash flow management resulted in projected annual average net after-tax defense and indemnity outflows for the next 10 years of $ 20 million to $ 30 million , a reduction of 23 % from the midpoint . negotiated certain asbestos-related insurance coverage in 2020 , resulting in a net benefit of $ 100.4 , including a coverage-in-place agreement in the fourth quarter that increased our asbestos-related asset by $ 52.1. finally , we returned $ 143 to shareholders , including dividends of $ 59 , an increase of 13.2 % , and discretionary share repurchases of $ 73 at average price of $ 42.34 per share . today , itt is firmly on the road to recovery thanks to the resilience of our businesses and of our people . itt 's performance is the outcome of a sound and actionable strategy , one with clear priorities and a strong focus on execution , driven by unprecedented level of granularity . as a result of this strategy , we generated strong levels of profitability and outstanding free cash flow . we continue to manage through the ongoing impacts of the global pandemic and believe we are on track to emerge stronger and bolder than ever before . we do expect some challenges in the coming year primarily related to covid-19 uncertainty , including market recovery timing and potential supply chains disruptions , as well as increased commodity costs , tight capital expenditure budgets , and uncertain oil and gas market dynamics . despite these uncertainties , in 2021 , we expect to continue to drive productivity and innovation across our businesses , with clear priorities on operational excellence , customer centricity , innovation , and effective capital deployment . we raised our first quarter 2021 quarterly dividend by 30 % , which represents our ninth consecutive year of dividend increases . 25 story_separator_special_tag style= '' color : # 000000 ; font-family : 'arial ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > sales and marketing expenses for the year ended december 31 , 2020 decreased $ 19.4 , driven by proactive cost-saving actions . research and development ( r & d ) expenses for the year ended december 31 , 2020 decreased $ 13.0 due to cost containment actions partially offset by increased focus on strategic investments . r & d as a percentage of revenue was 3.4 % during both 2020 and 2019 . 27 asbestos-related costs for the year ended december 31 , 2020 increased $ 86.5 as a result of the transition to a full horizon estimate . the table below summarizes the total net asbestos-related charge for the years ended december 31 , 2020 and 2019. replace_table_token_8_th ( a ) the asbestos provision includes amounts recognized on a quarterly basis to maintain a rolling 10-year provision prior to the transition in the third quarter of 2020 to full horizon , described in note ( b ) . ( b ) in the third quarter of 2020 , we extended our projection to include claims expected to be filed through 2052 , reflecting the full time period over which we expect asbestos-related claims to be filed against us . story_separator_special_tag the asbestos remeasurement conducted during the third quarter of 2019 resulted in a net gain of $ 68.1 primarily reflecting an increase in estimated asbestos-related assets . ( c ) the current period includes a net benefit of $ 100.4 from settlement agreements with insurers . see note 20 , commitments and contingencies , to the consolidated condensed financial statements for further information . restructuring costs increased $ 30.2 during the year ended december 31 , 2020 , due to actions taken under the company 's 2020 global restructuring plan . see note 5 , restructuring actions , to the consolidated condensed financial statements for further information . asset impairment charges during the year ended december 31 , 2020 are related to a business within ip that primarily serves the global upstream oil and gas market . see note 11 , plant , property and equipment , net , and note 12 , goodwill and other intangible assets , net , to the consolidated condensed financial statements for further information . significant additional adverse changes to the economic environment and future cash flows of other businesses could cause us to record additional impairment charges in future periods , which may be material . operating income the following table illustrates the 2020 and 2019 operating income and operating margin by segments and at the consolidated level . replace_table_token_9_th ( a ) includes a gain on sale of corporate long-lived assets of $ 0.7 during 2020 and a loss on sale of $ 0.2 during 2019 , respectively . 28 mt operating income for the year ended december 31 , 2020 decreased $ 32.1. the decline in operating income was primarily driven by unfavorable sales volume of $ 48 due to a decline in automotive production resulting from covid-19 , as well as unfavorable product mix and pricing . in addition , there was an increase in restructuring costs of $ 7.8 and investment incentives received in the prior year of $ 3.1. partially offsetting the decline was net savings from productivity , sourcing and restructuring actions of $ 35 and a reduction in tariffs . ip operating income for the year ended december 31 , 2020 decreased $ 27.1. the decline in operating income was primarily driven by lower sales volumes of $ 41 and an increase in restructuring costs of $ 13.8. in addition , the year ended 2020 included asset impairments of $ 16.3 related to a business that primarily serves the global upstream oil and gas market . these items were partially offset by net savings from productivity , supply chain and restructuring actions of $ 29 , as well as favorable product mix and pricing of $ 12 and lower acquisition-related costs of $ 7. cct operating income for the year ended december 31 , 2020 decreased $ 54.5. the decrease was driven by lower sales volumes of $ 82 , mainly due to the negative impact of covid-19 on global commercial air traffic and an increase in restructuring costs of $ 6.5. these items were partially offset by benefits from productivity , supply chain , and restructuring actions of $ 26. other corporate costs , net , decreased $ 15.3 primarily driven by lower incentive compensation costs of $ 4.1 , benefits from cost containment and restructuring actions , and a prior year legal reserve of $ 4.4. these items were partially offset by unfavorable foreign currency impacts of $ 2.7. interest and non-operating ( income ) expenses , net replace_table_token_10_th the decline in interest ( income ) expense , net is due to higher interest expense from an increase in outstanding revolver borrowings in the first half of 2020 and a decline in interest returns on cash and money market investments , partially offset by interest income of $ 1.6 in the current year related to a change in uncertain tax positions . the increase in non-operating postretirement costs is due to the termination of our u.s. qualified pension plan and transfer of the plan 's liabilities to an insurance company . in connection with the termination , we recognized a settlement charge of $ 136.9 , which primarily represents the acceleration of deferred charges previously accrued in accumulated other comprehensive loss and derecognition of the net assets of the plan . see note 16 , postretirement benefit plans , to the consolidated condensed financial statements for further information . income tax expense replace_table_token_11_th the decrease in the effective tax rate was due to a benefit of $ 25.9 resulting from a recently completed internal reorganization in europe . the reorganization increased projections of future earnings , which will result in the realization of a portion of our deferred tax assets . this benefit was partially offset by the recognition of a $ 21.7 valuation allowance on our germany and uk entities . the company 's financial condition and results of operations have been and may continue to be adversely affected by the covid-19 pandemic and the governmental and market reactions to covid-19 . the impacts on earnings have already had , and may continue to have , an impact on the company 's overall effective tax rate . the coronavirus aid , relief , and economic security act ( the cares act ) was enacted march 27 , 2020. the cares act provides numerous tax provisions and other stimulus measures , including temporary changes regarding the prior and future utilization of net operating losses , temporary suspension of certain payment requirements for the employer portion of social security taxes , and the creation of certain refundable employee retention credits . during the twelve months ended december 31 , 2020 , the company recognized a benefit of $ 10.7 from the cares act . the benefit was recorded in operating income and was applied against the employer portion of payroll taxes . 29 certain non-u.s. jurisdictions have enacted similar stimulus measures focused on payroll incentives and tariff reductions . we continue to monitor any effects that may result from the cares act or other similar legislation globally .
| the level of order and shipment activity at ip can vary significantly from period to period due to pump projects which are highly engineered , customized to customer needs , and have longer lead times . total ip orders during 2020 were $ 798.1 , a decrease of 10.0 % , compared to the prior year . ip 's backlog as of december 31 , 2020 was $ 367.4 , reflecting a decrease of $ 40.1 , or 9.8 % , compared to december 31 , 2019. our backlog represents firm orders that have been received , acknowledged , and entered into our production systems . 26 connect & control technologies cct revenue for the year ended december 31 , 2020 decreased $ 147.4 , which included revenue of $ 5.8 from our 2019 acquisition of matrix along with favorable foreign currency impact of $ 2.0. organic revenue decreased $ 155.2 primarily due to a 32 % decline within the aerospace and defense market . the decrease in aerospace and defense was driven by a decline in global commercial air traffic due to covid-19 and reduced production levels on key platforms , as well as unfavorable timing of defense programs . revenue from the industrial market decreased 6 % driven by covid-19 impacts on demand for our actuation and process control products and weakness in energy absorption during the first half of 2020 on large infrastructure projects . gross profit gross profit for 2020 was $ 782.2 , reflecting a gross margin of 31.6 % . gross profit for 2019 was $ 910.1 , reflecting a gross margin of 32.0 % . the decline in gross profit was primarily driven by lower demand as a result of the covid-19 pandemic and higher commodity costs , partially offset by supply chain and productivity improvements , restructuring benefits , and lower tariffs . during 2020 , the prices of commodities , including raw materials such as steel , used in our production processes have risen each quarter . the rising prices are a result of increased demand as companies increased their safety stock due to supply chain uncertainty amid the
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2011 compared to 2010 net sales net sales increased $ 23.3 million to $ 762.5 million in fiscal 2011 , a 3.2 % increase over the prior year 's net sales of $ 739.2 million . of this increase , $ 22.5 million was attributable to the sales generated by the 17 new stores we opened during fiscal 2011 , our e-commerce business which was launched in the third quarter of fiscal 2011 along with the full year effect of sales generated by the ten stores we opened in fiscal 2010. our comparable stores sales increased 0.7 % for fiscal 2011. these increases in sales were partially offset by a decline in sales of $ 4.7 million from the 11 stores closed during fiscal 2011 and fiscal 2010. during fiscal 2011 , comparable store sales were negatively impacted by a decline in consumer demand within two key product areas , toning footwear and boots . we were able to mitigate our year over year comparable store sales loss in toning footwear as sales within the balance of the athletic category , particularly performance running , remained strong . however , the unseasonably warm weather that was experienced late in the third quarter and throughout the fourth quarter of fiscal 2011 significantly impacted consumer demand for fall footwear , particularly boots . consequently , heavy promotional activity , including markdowns , was required during the fourth quarter of fiscal 2011 to effectively sell through this inventory . gross profit gross profit increased $ 3.4 million to $ 224.9 million in fiscal 2011 , a 1.5 % increase from gross profit of $ 221.5 million in fiscal 2010. the gross profit margin for fiscal 2011 decreased to 29.5 % from 30.0 % in fiscal 2010. our merchandise margin decreased 0.5 % while buying , distribution and occupancy costs , as a percentage of sales , remained unchanged . the decrease in our merchandise margin was primarily the result of the heavy promotional activity that was required during the fourth quarter of fiscal 2011 to effectively sell through our fall footwear , particularly boots . selling , general and administrative expenses selling , general and administrative expenses increased $ 3.5 million in fiscal 2011 to $ 182.7 million from $ 179.2 million in fiscal 2010 ; however , our sales gain enabled us to leverage these costs by 0.3 % as a percentage of sales . significant changes in expense between the comparative periods included the following : · we incurred an additional $ 7.8 million of incremental expense during fiscal 2011 , as compared to the prior year , to support our sales growth , expanded store base and e-commerce initiative . the increase in selling expenses was primarily due to increases in wages and advertising . 24 · during fiscal 2010 , we experienced a significant decrease in the average cost of health claims per participant as compared to recent historical periods . our average claims per participant returned to a more normalized level in fiscal 2011 and , together with a small increase in covered employees , we experienced a year over year increase in self-insured health care costs of $ 1.7 million . costs related to our self-insured health care programs are subject to a significant degree of volatility and will continue to carry the risk of material variances between reporting periods . · the increases in selling , general and administration expenses were partially offset by a $ 6.6 million reduction in incentive compensation for fiscal 2011 as compared to the prior year when record-breaking financial performance drove material increases in performance-based compensation . pre-opening costs included in selling , general and administrative expenses were $ 1.2 million , or 0.2 % as a percentage of sales , in fiscal 2011 , as compared to $ 642,000 , or 0.1 % as a percentage of sales , in fiscal 2010. we opened 17 stores during fiscal 2011 and ten stores in fiscal 2010. pre-opening costs , such as advertising , payroll and supplies , incurred prior to the opening of a new store are charged in the period they are incurred . the total amount of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities involved . the portion of store closing costs and non-cash asset impairment charges included in selling , general and administrative expenses for fiscal 2011 was $ 554,000 , or 0.1 % as a percentage of sales . these costs related to the closing of four stores , non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management 's determination to close certain underperforming stores in future periods . in fiscal 2010 , we incurred store closing costs and non-cash asset impairment charges of $ 2.0 million , or 0.3 % as a percentage of sales . these costs related to the closing of seven stores , non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management 's determination to close certain underperforming stores in future periods . the timing and actual amount of expense recorded in closing a store can vary significantly depending , in part , on the period in which management commits to a closing plan , the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout . income taxes the effective income tax rate was 37.1 % for fiscal 2011 and 36.6 % for fiscal 2010. included in income tax expense for both fiscal years were benefits related to the favorable resolution of certain tax positions , which lowered our effective income tax rate as compared to other historical periods . liquidity and capital resources our sources and uses of cash are summarized as follows : replace_table_token_7_th we anticipate that our existing cash and cash flows from operations will be sufficient to fund our planned store expansion along with other capital expenditures , working capital story_separator_special_tag 2011 compared to 2010 net sales net sales increased $ 23.3 million to $ 762.5 million in fiscal 2011 , a 3.2 % increase over the prior year 's net sales of $ 739.2 million . of this increase , $ 22.5 million was attributable to the sales generated by the 17 new stores we opened during fiscal 2011 , our e-commerce business which was launched in the third quarter of fiscal 2011 along with the full year effect of sales generated by the ten stores we opened in fiscal 2010. our comparable stores sales increased 0.7 % for fiscal 2011. these increases in sales were partially offset by a decline in sales of $ 4.7 million from the 11 stores closed during fiscal 2011 and fiscal 2010. during fiscal 2011 , comparable store sales were negatively impacted by a decline in consumer demand within two key product areas , toning footwear and boots . we were able to mitigate our year over year comparable store sales loss in toning footwear as sales within the balance of the athletic category , particularly performance running , remained strong . however , the unseasonably warm weather that was experienced late in the third quarter and throughout the fourth quarter of fiscal 2011 significantly impacted consumer demand for fall footwear , particularly boots . consequently , heavy promotional activity , including markdowns , was required during the fourth quarter of fiscal 2011 to effectively sell through this inventory . gross profit gross profit increased $ 3.4 million to $ 224.9 million in fiscal 2011 , a 1.5 % increase from gross profit of $ 221.5 million in fiscal 2010. the gross profit margin for fiscal 2011 decreased to 29.5 % from 30.0 % in fiscal 2010. our merchandise margin decreased 0.5 % while buying , distribution and occupancy costs , as a percentage of sales , remained unchanged . the decrease in our merchandise margin was primarily the result of the heavy promotional activity that was required during the fourth quarter of fiscal 2011 to effectively sell through our fall footwear , particularly boots . selling , general and administrative expenses selling , general and administrative expenses increased $ 3.5 million in fiscal 2011 to $ 182.7 million from $ 179.2 million in fiscal 2010 ; however , our sales gain enabled us to leverage these costs by 0.3 % as a percentage of sales . significant changes in expense between the comparative periods included the following : · we incurred an additional $ 7.8 million of incremental expense during fiscal 2011 , as compared to the prior year , to support our sales growth , expanded store base and e-commerce initiative . the increase in selling expenses was primarily due to increases in wages and advertising . 24 · during fiscal 2010 , we experienced a significant decrease in the average cost of health claims per participant as compared to recent historical periods . our average claims per participant returned to a more normalized level in fiscal 2011 and , together with a small increase in covered employees , we experienced a year over year increase in self-insured health care costs of $ 1.7 million . costs related to our self-insured health care programs are subject to a significant degree of volatility and will continue to carry the risk of material variances between reporting periods . · the increases in selling , general and administration expenses were partially offset by a $ 6.6 million reduction in incentive compensation for fiscal 2011 as compared to the prior year when record-breaking financial performance drove material increases in performance-based compensation . pre-opening costs included in selling , general and administrative expenses were $ 1.2 million , or 0.2 % as a percentage of sales , in fiscal 2011 , as compared to $ 642,000 , or 0.1 % as a percentage of sales , in fiscal 2010. we opened 17 stores during fiscal 2011 and ten stores in fiscal 2010. pre-opening costs , such as advertising , payroll and supplies , incurred prior to the opening of a new store are charged in the period they are incurred . the total amount of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities involved . the portion of store closing costs and non-cash asset impairment charges included in selling , general and administrative expenses for fiscal 2011 was $ 554,000 , or 0.1 % as a percentage of sales . these costs related to the closing of four stores , non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management 's determination to close certain underperforming stores in future periods . in fiscal 2010 , we incurred store closing costs and non-cash asset impairment charges of $ 2.0 million , or 0.3 % as a percentage of sales . these costs related to the closing of seven stores , non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management 's determination to close certain underperforming stores in future periods . the timing and actual amount of expense recorded in closing a store can vary significantly depending , in part , on the period in which management commits to a closing plan , the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout . income taxes the effective income tax rate was 37.1 % for fiscal 2011 and 36.6 % for fiscal 2010. included in income tax expense for both fiscal years were benefits related to the favorable resolution of certain tax positions , which lowered our effective income tax rate as compared to other historical periods . liquidity and capital resources our sources and uses of cash are summarized as follows : replace_table_token_7_th we anticipate that our existing cash and cash flows from operations will be sufficient to fund our planned store expansion along with other capital expenditures , working capital
| these sales increases were partially offset by a decline in sales of $ 9.1 million from the 11 stores closed since the beginning of fiscal 2011. gross profit gross profit increased $ 32.6 million to $ 257.5 million in fiscal 2012. the gross profit margin in fiscal 2012 increased to 30.1 % from 29.5 % in the prior fiscal year . our merchandise margin increased 0.4 % while buying , distribution and occupancy costs , as a percentage of sales , decreased 0.2 % . buying , distribution and occupancy costs increased approximately $ 8.0 million during fiscal 2012 as compared to the prior fiscal year primarily as a result of the operation of additional store locations . however , our sales gain enabled us to leverage these costs by 0.2 % as a percentage of sales . selling , general and administrative expenses selling , general and administrative expenses increased $ 26.3 million in fiscal 2012 to $ 209.0 million . significant changes in expense between the comparative periods included the following : · we incurred an additional $ 17.1 million of expense during fiscal 2012 , as compared to the same period last year , in the operation of new stores and our e-commerce initiative . this increase was net of expense reductions for stores that have closed since the beginning of fiscal 2011 . · incentive compensation , inclusive of stock-based compensation , increased $ 5.2 million in fiscal 2012 as compared to the same period last year primarily due to our improved financial performance . · in connection with his retirement , we paid a one-time retirement and severance payment of $ 1.4 million to our former president and chief executive officer in october 2012 , which was included as incentive compensation in selling , general and administrative expenses . also included were incentive compensation expense reductions of approximately $ 154,000 in fiscal 2012 to reflect the forfeiture of certain of his non-vested restricted stock awards . · we experienced
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in the year ended june 30 , 2018 , we generated approximately 40 % of our revenues from operations outside the united states . although a portion of our revenues are denominated in various currencies , the selling prices of the majority of our sales outside the united states are referenced in u.s. dollars , and as a result , our revenues have not been significantly directly affected by currency movements . we are subject to currency risk to the extent that our costs are denominated in currencies other than those in which we earn revenues . we manufacture some of our major products in brazil and israel and production costs are largely denominated in local currencies , while the selling prices of the products are largely set in u.s. dollars . as such , we are exposed to changes in cost of goods sold resulting from currency movements and may not be able to adjust our selling prices to offset such movements . in addition , we incur selling and administrative expenses in various currencies and are exposed to changes in such expenses resulting from currency movements . because our financial statements are reported in u.s. dollars , changes in currency exchange rates between the u.s. dollar and other currencies have had , and will continue to have , an impact on our results of operations . 58 climate the animal health industry and demand for many of our animal health products in a particular region are affected by changing disease pressures and by weather conditions , as usage of our products follows varying weather patterns and weather-related pressures from diseases . as a result , we may experience regional and seasonal fluctuations in our results of operations . in addition , livestock producers depend on the availability of natural resources , including abundant rainfall to sustain large supplies of drinking water , grasslands and grain production . their animals ' health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods , droughts or other weather conditions . in the event of adverse weather conditions or a shortage of fresh water , livestock producers may purchase less of our products . product development initiatives our future success depends on both our existing product portfolio , including our ability to obtain cross-clearances enabling the use of our medicated products in conjunction with other products , approval for use of our products with new species , approval for new claims for our products , approval of our products in new markets , and our pipeline of new products , including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition . the majority of our r & d programs focus on product lifecycle development , which is defined as r & d programs that leverage existing animal health products by adding new species or claims , achieving approvals in new markets or creating new combinations and reformulations . we commit substantial effort , funds and other resources to expanding our product approvals and r & d , both through our own dedicated resources and through collaborations with third parties . 59 analysis of the consolidated statements of operations story_separator_special_tag 0.5pt 0pt ; min-width:19.5pt ; text-align : right ; white-space : nowrap ; '' > 1,671 * ( 2,566 ) * acquisition-related accrued compensation 1,152 1,680 1,680 ( 528 ) ( 31 ) % — 0 % acquisition-related transaction costs 400 1,274 618 ( 874 ) ( 69 ) % 656 106 % acquisition-related other , net ( 1 ) ( 468 ) ( 972 ) — 504 * ( 972 ) * stock-based compensation 334 — — 334 * — * pension settlement expense — 1,702 — ( 1,702 ) * 1,702 * gain on insurance settlement — ( 7,500 ) — 7,500 * ( 7,500 ) * foreign currency ( gains ) losses , net ( 1,054 ) ( 113 ) ( 7,609 ) ( 941 ) * 7,496 * loss on extinguishment of debt — 2,598 — ( 2,598 ) * 2,598 * adjusted ebitda $ 128,958 $ 120,119 $ 114,060 story_separator_special_tag $ 8,839 7 % $ 6,059 5 % ( 1 ) acquisition-related other , net includes adjustments to contingent consideration on acquisitions and impairments of intangible assets . certain amounts and percentages may reflect rounding adjustments . * calculation not meaningful comparison of years ended june 30 , 2018 and 2017 net sales net sales of $ 820.0 million for the year ended june 30 , 2018 , increased $ 55.7 million , or 7 % , as compared to the year ended june 30 , 2017. each of the segments contributed to the sales growth . animal health , mineral nutrition and performance products grew $ 34.0 million , $ 16.6 million and $ 5.1 million , respectively . animal health net sales of $ 531.7 million for the year ended june 30 , 2018 , grew $ 34.0 million , or 7 % . net sales of mfas and other grew $ 15.2 million , or 5 % . international net sales of mfas and other increased $ 29.3 million due to growth across most regions , notably due to additional penetration in the cattle sector , plus favorable seasonal demand for certain products and the incremental benefit of a recent acquisition . domestic net sales of mfas and other declined $ 14.1 million due to $ 5.9 million lower sales of medically important antimicrobials and lower volumes of certain antibacterial and anticoccidial products . we believe domestic sales of medically important antimicrobials have stabilized at current levels . net sales of nutritional specialty products grew $ 11.7 million , or 11 % , primarily due to volume growth of our products for the poultry and dairy industries in various international countries and in the united states . net sales of vaccines grew $ 7.1 million , or 11 % , primarily due to volume growth in international markets ; domestic growth was moderate due to reduced disease pressure . 62 mineral nutrition net sales of $ 234.9 million increased $ 16.6 million , or 8 % , for the year ended june 30 , 2018. the increased revenue primarily was driven by higher average selling prices , consistent with the underlying raw material commodity price increases . performance products net sales of $ 53.3 million increased $ 5.1 million , or 11 % , for the year ended june 30 , 2018 , primarily due to increased volumes of copper-based products and ingredients used in personal care products and higher average selling prices of copper-based products . gross profit gross profit of $ 266.9 million for the year ended june 30 , 2018 , increased $ 18.6 million , or 8 % , as compared to the year ended june 30 , 2017. gross profit as a percentage of net sales for the year ended june 30 , 2018 , was in-line with the prior year at 32.5 % . the year ended june 30 , 2018 , included $ 1.7 million of acquisition-related cost of goods sold . excluding the effects of the acquisition-related cost of goods sold , animal health gross profit increased $ 19.7 million due to volume growth in international mfas and other and nutritional specialty products , partially offset by volume declines in domestic mfas and other sales and short-term cost increases in the production of certain vaccine products . the declines in domestic mfas and other sales were primarily driven by medically important antimicrobials . favorable international demand for certain mfas and other products and overall lower unit costs from improved manufacturing efficiencies for certain products also contributed to the gross profit increase . mineral nutrition gross profit increased $ 1.1 million due to volume growth , favorable product mix and higher average selling prices , partially offset by higher raw material costs . performance products gross profit decreased $ 0.5 million due to higher raw material costs , partially offset by higher average selling prices of copper-based products . selling , general and administrative expenses sg & a of $ 168.0 million for the year ended june 30 , 2018 , increased $ 17.6 million , or 12 % , as compared to the year ended june 30 , 2017. sg & a for the years ended june 30 , 2018 and 2017 , included acquisition-related transaction costs of $ 0.4 million and $ 1.3 million , respectively . sg & a for the year ended june 30 , 2017 , included a $ 1.7 million charge for a partial settlement of the pension plan and a $ 7.5 million gain from an insurance settlement . excluding these items , sg & a increased $ 12.7 million or 8 % . animal health sg & a increased $ 8.3 million as compared to the prior year , driven by investments in product and organizational development . a recent acquisition also contributed to the animal health increase . mineral nutrition sg & a costs were flat compared to the prior year . performance products sg & a decreased $ 0.2 million . excluding the acquisition-related transaction costs , the pension settlement cost and the insurance settlement gain , corporate sg & a increased $ 4.6 million due to increased employee-related costs and higher professional and business development fees , partially offset by reduced pension expense . interest expense , net interest expense , net of $ 11.9 million for the year ended june 30 , 2018 , decreased $ 3.0 million , or 20 % , as compared to the year ended june 30 , 2017. interest expense decreased $ 3.3 million compared to the prior year , primarily due to lower interest rates from the new credit facilities completed in june 2017. interest income decreased $ 0.3 million due to less interest income on deposits in foreign jurisdictions . foreign currency ( gains ) losses , net foreign currency ( gains ) losses , net for the year ended june 30 , 2018 , amounted to net gains of ( $ 1.1
| segment net sales and adjusted ebitda : replace_table_token_5_th ( 1 ) reflects ratio to total net sales 61 a reconciliation of net income , as reported under gaap , to adjusted ebitda : change for the years ended june 30 2018 2017 2016 2018/2017 2017/2016 ( in thousands ) net income ( loss ) $ 64,883 $ 64,615 $ 82,728 $ 268 0 % $ ( 18,113 ) ( 22 ) % interest expense , net 11,910 14,906 16,592 ( 2,996 ) ( 20 ) % ( 1,686 ) ( 10 ) % provision ( benefit ) for income taxes 23,187 15,928 ( 5,967 ) 7,259 46 % 21,895 * depreciation and amortization 26,943 26,001 23,452 942 4 % 2,549 11 % ebitda 126,923 121,450 116,805 5,473 5 % 4,645
| 14,790 |
while industry hud code manufactured home shipments improved modestly during recent years , the manufactured housing industry is operating at relatively low production and shipment levels . economic challenges in recent years continue to hinder annual industry and company home sales . we believe that low post-recession employment rates and underemployment among potential home buyers who favor affordable housing as well as low post-recession consumer confidence levels are two of the most significant impediments . `` first-time '' and `` move-up '' buyers of affordable homes are historically among the largest segments of new manufactured home purchasers . included in this group are lower-income households that were particularly affected by a period of persistently low employment rates and underemployment . 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 . low consumer confidence in the u.s. economy has been evident among manufactured home buyers interested in our products for seasonal or retirement living , as they have been concerned about financial stability , and , therefore , have been hesitant to commit to a new home purchase . we believe sales of our products may increase as employment and consumer confidence levels continue to improve . 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 . 33 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 and onerous appraisal requirements , higher interest rates compared to site-built homes , regulatory burdens , a reduced number of institutions lending to manufactured home buyers and limited secondary market availability for manufactured home loans are significant restraints to industry growth . we are working directly with other industry participants to develop manufactured home consumer financing models that may better 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 residents of certain manufactured home communities . 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 . only limited progress has been made in this area and meaningful positive impact in the form of increased home orders has yet to be realized . see `` regulatory developments '' below . while home sales activity appear to be showing signs of improvement , 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 potential manufactured home buyers must sell their existing 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 increased 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 2 , 2016 varied among our factories , but in total was $ 47.9 million , or approximately four weeks of current production levels , compared to $ 47.4 million at march 28 , 2015 . the company 's capacity utilization rate was approximately 60 % during the fourth quarter of fiscal year 2016 , versus 55 % during the same quarter last year . 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 . the availability of inventory financing for the industry 's wholesale distribution chain continues to improve . faced with illiquid capital markets in late calendar year 2008 , each of the manufactured housing sector 's remaining inventory finance companies ( floor plan lenders ) initiated significant changes and some ceased lending activities in the industry entirely . other finance programs are subject to more restrictive terms that continue to evolve and in some cases require the financial involvement of the company . story_separator_special_tag as a result , the company entered into certain commercial loan programs whereby the company provides a significant amount of the funds that independent financiers then lend to distributors to finance retail inventories of our products . 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 continued 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 , many of whom may be adversely affected by the volatile conditions in the economy and financial markets . 34 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 , including 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 , which enables us 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 to avoid liquidity problems and enable us to act effectively as market opportunities present themselves . we were named the 2016 manufacturer of the year by the members of mhi , the factory-built home industry 's national trade organization , for the seventh consecutive year . we also received several product and interior design awards from mhi . 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 congress detailed significant changes , and many new rules have been implemented , the full impact will not be known for years as the development of additional rules continue , and congress considers amending part of the act . enforcement actions are in the early stages and the effects of possible litigation related to the regulations remains unknown . 35 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 .
| 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 revenue per home sold . 38 gross profit . the following table summarizes gross profit for fiscal years 2016 and 2015 . replace_table_token_6_th the increase in factory-built housing gross profit is primarily from higher home sales volume pertaining to businesses acquired during the first quarter of fiscal year 2016 , while the remainder of the increase was from sales growth at the company 's pre-existing factory-built housing operations . gross profit decreased for financial services mainly from higher insurance claim losses and lower interest income earned on securitized loan portfolios that continue to amortize , partially offset by gross profit earned on increased insurance policies in force and higher loan servicing volume . higher insurance claims losses included record setting storms in texas during fiscal 2016. while claims activity typically spikes in april and may each year , a prime season for storm activity in the area , the severity of the hail and wind storms and the damage to insured homes were considerably greater than during the same period last year . losses on these catastrophic events were somewhat mitigated by reinsurance contracts in place . selling , general and administrative expenses . the following table summarizes s elling , general and administrative expenses for fiscal years 2016 and 2015 . replace_table_token_7_th factory-built housing selling , general and administrative expenses increased from the addition of the fairmont homes and chariot eagle factories acquired during the first quarter of the fiscal year 2016 and increased incentive compensation from increased home sales overall . selling , general and administrative expenses for financial services remained relatively consistent from ongoing operating stability . as a percentage of net revenue , selling , general
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as we continue to eliminate low-value activities and products , and become more efficient with others , we can reassign resources to further focus on our growth initiatives . our 80/20 initiatives also focus on selective improvement in pricing of our products and services to better capture the value-add that we create . drive talent development and succession management we continue to focus on the development of our people ; in 2013 , we continued to refine our collaborative , comprehensive talent development assessment process which resulted in specific development actions for all employees reviewed . we made key additions to the management team , including positions within our financial departments at corporate and our fire rescue group , and in support of our innovation and engineering efforts . we have made some important internal reassignments in engineering , marketing , and other disciplines to put key talent where it can best help us succeed . these changes will continue , emerging from both our business strategies and the talent development and succession management processes that we have implemented this year . 15 story_separator_special_tag the years ended december 31 , 2013 and 2012 , respectively . in the second quarter of 2013 , it was determined that $ 102.4 million of our valuation allowance on u.s. deferred tax assets could be released . this evaluation was based on a qualitative and quantitative analysis of current and expected domestic earnings , industry and market trends , tax planning strategies , and general business risks , that resulted in a more likely than not conclusion of being able to realize a significant portion of our u.s. deferred tax assets . upon releasing the significant portion of our valuation allowance on u.s. deferred tax assets in the second quarter , a valuation allowance of $ 10.4 million was maintained in accordance with the guidance provided in accounting standards codification ( “ asc ” ) 740-270-25-4 and was released through the effective tax rate as domestic income was recognized throughout the 17 course of the year . an additional $ 3.4 million reduction in deferred tax valuation allowances was recorded as a discrete item in the year ended december 31 , 2013. in the fourth quarter of 2013 , the company also executed a tax planning strategy that resulted in the release of $ 6.7 million of valuation allowance that was previously recorded against the company 's foreign tax credits , which would have begun to expire in 2015. the company also recorded a tax benefit of $ 0.8 million associated with a reduction in the tax rate in finland that was enacted during the fourth quarter of 2013. offsetting the benefits associated with the aforementioned releases of the valuation allowance and the tax rate change in finland during the year ended december 31 , 2013 was tax expense on non-u.s earnings as well as $ 0.8 million of tax expense associated with a change in the tax rate in the united kingdom that was enacted during the third quarter of 2013. for further discussion , see note 6 – income taxes to the accompanying consolidated financial statements . income from continuing operations income from continuing operations was $ 160.2 million for the year ended december 31 , 2013 as compared to $ 22.0 million in the prior year . as indicated above , our results included the release of a significant portion of the valuation allowance on our u.s. deferred tax assets . income before taxes was positively impacted by improvements in net sales , gross profit , and operating efficiencies , as well as a $ 12.6 million reduction in interest expense . these improvements were partially offset by higher debt settlement charges of $ 5.2 million in connection with our march 2013 refinancing . loss from discontinued operations and disposal , net of tax for the year ended december 31 , 2013 , a loss from discontinued operations and disposals , net of tax of $ 0.2 million was recorded . the loss includes a charge related to special termination benefits provided to certain employees of the legacy fstech group businesses that were retained by the company in order to assist with transitional operations through the end of the third quarter of 2013 as well as certain adjustments relating to assets of other previously discontinued operations . for the year ended december 31 , 2012 , the loss from discontinued operations and disposals , net of tax largely reflected the operating losses , as well as the loss on disposal , of the fstech group . for further discussion of the loss from discontinued operations and disposals , see note 11 – discontinued operations to the accompanying consolidated financial statements . year ended december 31 , 2012 vs. year ended december 31 , 2011 net sales net sales increased by $ 114.5 million , or 17 % , for the year ended december 31 , 2012 with increases across all segments . cost of sales cost of sales increased by $ 80.1 million , or 15 % , for the year ended december 31 , 2012 primarily as a result of increased sales volume , offset by favorable product mix and currency impacts . gross profit gross profit margin was 23.6 % for the year ended december 31 , 2012 compared to 22.6 % in the prior year primarily as a result of increased sales volume and an overall favorable change in product mix . operating income operating income increased by $ 18.3 million , or 55 % , for the year ended december 31 , 2012 primarily due to higher sales volume and favorable product mix , partially offset by restructuring charges of $ 1.4 million that were recorded in 2012. interest expense interest expense increased by $ 5.0 million for the year ended december 31 , 2012 primarily due to an increase in interest rates on the company 's debt financing agreements entered into in february 2012. for further discussion , see note 5 – debt to the accompanying consolidated financial statements . story_separator_special_tag 18 debt settlement charges in the first quarter of 2012 , the company recorded $ 1.6 million of charges related to the termination of its prior debt agreements . on september 4 , 2012 , the company expensed $ 1.9 million of deferred debt issuance costs related to the $ 75.0 million prepayment of the outstanding principal for the company 's $ 215 million term loan and $ 100 million secured credit facility . the debt settlement charges for 2012 totaled $ 3.5 million and included $ 1.0 million of make-whole interest payments and a write-off of deferred financing costs of $ 2.5 million . other expense , net other expense totaled $ 0.7 million for the year ended december 31 , 2012 as compared to $ 0.2 million in the prior year , and primarily included realized losses from foreign currency transactions and derivative contracts . income tax benefit ( expense ) the 2012 effective tax rate on income from continuing operations decreased by 6.0 % to 15.1 % for the year ended december 31 , 2012. the company 's 2012 and 2011 effective tax rates reflect no recorded tax benefits for domestic operating losses or domestic loss carryforwards . however , an income tax provision is recorded for foreign operations and other jurisdictions that are not in a cumulative loss position . income from continuing operations income from continuing operations was $ 22.0 million for the year ended december 31 , 2012 as compared to $ 13.1 million in the prior year . the increase of $ 8.9 million was primarily due to improved operating income as described above , partially offset by increased interest expense and debt settlement charges recorded in 2012. loss from discontinued operations and disposal , net of tax loss from discontinued operations and disposal , net of tax was $ 49.5 million for the year ended december 31 , 2012 and primarily resulted from the sale of the fstech group , as compared to $ 27.3 million in prior year primarily from the operations of the fstech group , including goodwill and intangibles impairment charges . for further discussion of the loss from discontinued operations and disposals , see note 11 – discontinued operations to the accompanying consolidated financial statements . orders & backlog replace_table_token_5_th for the year ended december 31 , 2013 , total orders of $ 836.8 million increased by 1 % compared to the prior year largely due to improved orders for municipal street sweepers and industrial vacuum trucks within our environmental solutions group . u.s. municipal and governmental orders increased by 2 % primarily resulting from increases in municipal street sweeper orders of $ 12.6 million , which were positively impacted by a shift in product mix with increased orders of higher-priced units and the effects of an improved pricing strategy , as well as a $ 4.9 million increase in orders within the police market related to new vehicle registrations and increased market share . partially offsetting these increases was a $ 9.2 million decrease in municipal sewer cleaner orders . as a result of capacity constraints , in 2012 the company experienced accelerated placement of orders for sewer cleaners by customers seeking to assure availability of these products , which resulted in an inflated backlog . as the company has expanded capacity at the locations most affected by these advanced placement of orders , a return to more normal ordering patterns has been noted , which has resulted in a reduced backlog . orders for outdoor warning systems in our safety and security systems group were also down $ 4.0 million due to a decrease in military-market orders . u.s. industrial orders increased by 9 % primarily as a result of improved orders of $ 7.3 million for vacuum trucks , $ 5.1 million for waterblasters , and $ 4.7 million for used equipment . 19 non-u.s. orders decreased by 4 % primarily due to lower demand in the asia pacific region for our fire-lift products and decreased orders for international mining product orders due to slowing demand from our coal-mining markets . for the year ended december 31 , 2012 , total orders of $ 826.3 million decreased by 1 % compared to the prior year as slower demand for industrial vacuum trucks more than offset strong municipal demand for sewer cleaners and market share gains in police and fire markets . u.s. municipal and government orders increased 8 % driven by a $ 14.4 million increase in orders for sewer cleaners and a $ 10.4 million increase in police and fire markets and outdoor warning systems . u.s. industrial and commercial orders decreased by 7 % primarily due to decreases in industrial vacuum truck orders of $ 35.1 million , partially offset by increased industrial safety and security product orders of $ 5.4 million due to higher market demand and increased waterblaster orders of $ 8.6 million . non-u.s. orders decreased by 3 % with decreases across most segments , partially offset by a $ 2.6 million increase in u.s. export orders to canada and asia . backlog was $ 305.8 million at december 31 , 2013 as compared to $ 318.4 million at december 31 , 2012. the decrease is primarily due to ( i ) increased production levels of our municipal sewer cleaners , which facilitated reductions in backlog that had become inflated by long-advance orders , ( ii ) the timing of large orders within our integrated systems and outdoor warning systems businesses , and ( iii ) reduced orders of our fire-lift products as we completed and delivered units from a strong order cycle in the asia pacific region in the prior year .
| in our fire rescue group , cost of sales were up $ 2.6 million , primarily due to unfavorable foreign currency impacts of $ 3.5 million and product mix of $ 0.4 million , offset by a $ 1.3 million reduction in cost of sales due to lower unit volumes . gross profit gross profit increased by $ 15.3 million , or 8 % , for the year ended december 31 , 2013 and was positively impacted by increased volumes and improved pricing within our environmental solutions group . the increase in gross profit was partially 16 offset by higher information technology costs , as well as lower fixed overhead absorption , at our safety and security systems group . gross profit margin in 2013 increased by 0.5 % to 24.1 % largely due to the factors noted above . selling , engineering , general and administrative expenses selling , engineering , general and administrative ( “ seg & a ” ) expenses decreased by $ 3.1 million for the year ended december 31 , 2013. the overall decrease is primarily due to a $ 3.7 million reduction in corporate expenses , largely due to reduced employee incentive compensation expense and lower medical expenses , and a $ 1.3 million decline in seg & a expenses in our safety and security systems group , offset by increases of $ 1.3 million and $ 0.6 million at our environmental solutions group and fire rescue group , respectively . restructuring charges in 2013 , the company recorded expenses of $ 1.2 million and $ 0.3 million related to severance costs in the safety and security systems group and corporate , respectively . in 2012 , the company recorded expenses of $ 0.9 million and $ 0.6 million related to severance costs in the safety and security systems group and corporate , respectively . based upon further developments in 2013 , it was determined that the $ 0.6 million of corporate restructuring costs were not required and this charge was reversed in the year ended december 31 , 2013. operating income operating income increased by $ 19.1 million , or 37 % , for the year
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fiber infrastructure segment : represents the operations of our fiber business , uniti fiber , which is a leading provider of infrastructure solutions , including cell site backhaul and dark fiber , to the telecommunications industry . towers segment : represents the operations of our former towers business , uniti towers , through which we acquired and constructed tower and tower-related real estate and leased space on communications towers to wireless service providers and other tenants in the united states . starting in 2019 , the company completed a series of transactions to largely divest of its towers business : on april 2 , 2019 , may 23 , 2019 and june 1 , 2020 , the company completed the sales of its latin american business , substantially all of its u.s. ground lease business , and its u.s. tower business ( see “ significant business developments — sale of u.s. towers business ” below ) , respectively . portions of our former towers business were a component of our reit operations , while the remainder were owned and operated by our trss . consumer clec segment : represents the operations of talk america through which we operated the consumer clec business that , prior to the spin-off , was reported as an integrated operation within windstream . talk america provided local telephone , high-speed internet and long-distance services to customers in the eastern and central united states . as of the end of the second quarter of 2020 , we have substantially completed a wind down of our consumer clec business . corporate operations : represents our corporate office and shared service functions . certain costs and expenses , primarily related to headcount , information technology systems , insurance , professional fees and similar charges , that are directly attributable to operations of our business segments are allocated to the respective segments . we evaluate the performance of each segment based on adjusted ebitda , which is a segment performance measure we define as net income determined in accordance with gaap , before interest expense , provision for income taxes , depreciation and amortization , stock-based compensation expense and the impact , which may be recurring in nature , of transaction and integration related costs , costs associated with windstream 's bankruptcy , costs associated with litigation claims made against us , and costs associated with the implementation of our enterprise resource planning system , costs related to the settlement with windstream , amortization of non-cash rights-of-use , the write off of unamortized deferred financing costs , costs incurred as a result of the early repayment of debt , including early tender premiums and costs associated with the termination of related hedging activities , gains or losses on dispositions , changes in the fair value of contingent consideration and financial instruments , and other similar or infrequent items ( although we may not have had such charges in the periods presented ) . adjusted ebitda includes adjustments to reflect the company 's share of adjusted ebitda from unconsolidated entities . for more information on adjusted ebitda , see “ non-gaap financial measures. ” detailed information about our segments can be found in note 1 6 to our consolidated financial statements contained in part ii , item 8 financial statements and supplementary data . 30 significant business developments windstream emergence and settlement . on july 25 , 2019 , in connection with windstream 's bankruptcy , windstream holdings and windstream services , llc ( “ windstream services ” ) filed a complaint with the bankruptcy court in an adversary proceeding against uniti and certain of its affiliates , alleging , among other things , that the master lease should be recharacterized as a financing arrangement , that certain rent payments and tcis made by windstream under the master lease constitute constructive fraudulent transfers , that the master lease is a lease of personal property and that uniti breached certain of its obligations under the master lease . on september 21 , 2020 , windstream emerged from bankruptcy . in connection with windstream 's emergence from bankruptcy , uniti entered into several agreements and consummated the transactions , each as described below , to implement its settlement of the above-mentioned litigation ( the “ settlement ” ) with windstream pursuant to the settlement agreement ( the “ settlement agreement ” ) dated as of may 12 , 2020 between uniti and windstream . the settlement resolves any and all claims and causes of action that have been or may be asserted in the future by uniti and windstream regarding the spin-off of uniti and related sale-leaseback transaction , including all litigation brought against uniti by windstream and certain of its creditors during windstream 's bankruptcy proceedings . the release from claims applies to any windstream successor and is binding going forward , including in any future windstream bankruptcy . we estimated fair value of the litigation settlement to be $ 650.0 million and we recorded a corresponding charge in the second quarter of 2020. under the settlement agreement , in addition to completing the transactions and executing the windstream leases described below , uniti is required to make $ 490.1 million in cash payments to windstream in equal installments over 20 consecutive quarters beginning october 2020 , and uniti may prepay any installments falling due on or after the first anniversary of the settlement 's effective date ( discounted at a 9 % rate ) . as of the date of this annual report on form 10-k , the company made the first two quarterly payments totaling $ 49.0 million . windstream leases on september 18 , 2020 , in connection with windstream 's emergence from bankruptcy and the implementation of the settlement with windstream described in note 17 to our accompanying consolidated financial statements , uniti and windstream bifurcated the master lease and entered into two structurally similar master leases that each expire on april 30 , 2030 ( collectively , the “ windstream leases ” ) , which amended and restated the master lease in its entirety . story_separator_special_tag the windstream leases consist of ( a ) a master lease ( the “ ilec mla ” ) that governs uniti owned assets used for windstream 's incumbent local exchange carrier ( “ ilec ” ) operations and ( b ) a master lease ( the “ clec mla ” ) that governs uniti owned assets used for windstream 's competitive local exchange carrier ( “ clec ” ) operations . the aggregate initial annual rent under the windstream leases is equal to the annual rent under the master lease previously in effect . the tenants under the ilec mla are windstream holdings ii , llc ( “ windstream holdings ii , ” successor in interest to windstream holdings ) windstream services ii , llc ( “ windstream services ii , ” successor in interest to windstream services ) , and certain subsidiaries and or newly formed affiliated entities operating windstream 's ilec operations and the landlords under the ilec mla are the uniti entities that own the applicable ilec assets . similarly , the tenants under the clec mla are windstream holdings ii , windstream services ii , and certain subsidiaries and or newly formed affiliated entities operating windstream 's clec operations , and the landlords under the clec mla are the uniti entities that own the clec assets . the windstream leases contain cross-guarantees and cross-default provisions , which will remain effective as long as windstream or an affiliate is the tenant under both of the windstream leases and unless and until the landlords under the ilec mla are different from the landlords under the clec mla . the windstream leases permit uniti to transfer its rights and obligations and otherwise monetize or encumber the windstream leases , together or separately , so long as uniti does not transfer interests in either windstream lease to a windstream competitor . in addition , the windstream leases impose certain financial restrictions on windstream if windstream fails to maintain certain financial covenants . see note 5 to our consolidated financial statements contained in part ii , item 8 financial statements and supplementary data . stock purchase agreements on september 9 , 2020 , uniti entered into stock purchase agreements ( each , a “ stock purchase agreement ” ) with certain first lien creditors of windstream to replace and codify the terms set forth in the previously-filed binding 31 letters of intent , pursuant to which on september 18 , 2020 uniti sold an aggregate of 38,633,470 shares of uniti common stock , par value $ 0.0001 per share ( the “ settlement common stock ” ) , at $ 6.33 per share , which represents the closing price of uniti common stock on the date when an agreement in principle of the basic outline of the settlement was first reached . uniti transferred the proceeds from the sale of the settlement common stock to windstream as consideration relating to the asset purchase agreement , further described below . asset purchase agreement on september 18 , 2020 , and in furtherance of the settlement agreement , uniti and windstream closed an asset purchase agreement ( the “ asset purchase agreement ” ) , pursuant to which : ( a ) uniti paid to windstream approximately $ 284.6 million ; and ( b ) windstream granted or transferred to uniti ( i ) exclusive rights to use 1.8 million fiber strand miles leased by windstream under the clec mla , which fiber strands are either unutilized or utilized under certain dark fiber indefeasible rights of use ( “ irus ” ) that were simultaneously transferred to uniti , ( ii ) fiber assets ( and underlying rights ) consisting of 0.4 million fiber strand miles ( covering 4,000 route miles ) owned by windstream , and ( iii ) dark fiber irus relating to ( x ) the fiber strand miles granted to uniti under the clec mla ( and described in clause ( i ) ) and ( y ) the fiber assets ( and underlying rights ) for the 0.4 million fiber strand miles conveyed to uniti ( and described in clause ( ii ) ) , which irus generated $ 28.9 million of annual ebitda in the aggregate as of closing of the asset purchase agreement . in addition , upon the transfer of the windstream-owned fiber assets ( described in clause ( b ) ( ii ) above ) , uniti granted to windstream a 20-year iru for certain strands included in the transferred fiber assets . uniti used the proceeds from the sale of settlement common stock as a portion of the consideration paid to windstream in connection with the closing of the asset purchase agreement and settlement described above . everstream solutions llc operating company-property company transaction . on november 9 , 2020 , the company announced that it has entered into an opco-propco transaction with everstream solutions llc ( “ everstream ” ) . as part of the transaction , uniti will enter into two 20-year iru lease agreements with everstream on uniti owned fiber . concurrently , uniti has agreed to sell its uniti fiber northeast operations and certain dark fiber iru contracts generating approximately $ 24 million of annualized revenue , which were acquired as part of the windstream settlement to everstream . total cash consideration , including upfront iru payments , is approximately $ 135 million . in addition to the upfront proceeds , uniti will receive fees of approximately $ 3 million annually from everstream over the initial 20-year term of the iru lease agreements , subject to an annual escalator of 2 % . the transaction is subject to regulatory approval and other customary closing conditions and is expected to close in the second quarter of 2021. sale of midwest fiber network . on july 1 , 2020 , the company completed the sale of an ownership stake in the entity that controls the company 's midwest fiber network assets ( the “ propco ” ) to macquarie infrastructure partners ( “ mip ” ) for total cash consideration of approximately $ 168 million .
| 42 operating expense operating expense for the year ended december 31 , 2020 , totaled $ 159.3 million compared to $ 160.0 million for the year ended december 31 , 2019. operating expense for our reportable segments for the years ended december 31 , 2020 and 2019 consisted of the following : replace_table_token_14_th leasing – leasing operating expense was $ 4.4 million and $ 2.1 million for the years ended december 31 , 2020 and 2019 , respectively . the increase is primarily driven by a $ 2.2 million increase in network expenses due to ( i ) $ 1.0 million in expenses related to new dark fiber arrangements , ( ii ) $ 1.0 million related to the asset purchase agreement and ( iii ) $ 0.2 million related to the bluebird acquisition , completed august 30 , 2019. fiber infrastructure – for the year ended december 31 , 2020 , fiber infrastructure operating expenses totaled $ 150.2 million as compared to $ 139.5 million for the year ended december 31 , 2019. operating expense consists of network related costs , such as dark fiber and tower rents , and lit service and maintenance expense . in addition , costs associated with our construction activities are presented within operating expenses . the increase in operating expenses is primarily attributable to ( i ) increased personnel expenses of $ 5.1 million , ( ii ) increased information transport solutions , inc. ( “ its ” ) expenses of $ 7.0 million , and ( iii ) increased network and facilities expenses of $ 1.3 million , offset by a decrease of $ 7.0 million in construction expenses . towers – our towers segment operating expense primarily consists of ground rent , some or all of which may be passed to our tenants , as well as property taxes , regulatory fees and maintenance and repairs expenses . for the years ended december 31 , 2020 and 2019 , towers operating expense was $ 3.7 million and $ 9.8 million , respectively . the decrease in operating expense is primarily attributable to the april 2 , 2019 sale of the latin american business and the completed sale of our u.s. towers business of june 1 , 2020. consumer clec – the consumer clec business operating expense was $ 1.0 and $ 8.7 million for the years ended
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the following events and accomplishments occurred during 2014 : on july 16 , 2014 , we completed the acquisition of evolution1 for $ 532.2 million , net of cash acquired . evolution1 developed and operates an all-in-one , multi-tenant technology platform , card products , and mobile offering that support a full range of healthcare account types . this includes consumer-directed payments for health savings accounts , health reimbursement arrangements , flexible spending accounts , voluntary employee beneficiary associations , and defined contribution and wellness programs . the company acquired evolution1 to enhance the company 's capabilities and positioning in the growing healthcare market . on july 29 , 2014 , we sold our wholly owned subsidiary pacific pride for approximately $ 49.7 million , which resulted in a pre-tax gain of $ 27.5 million . the company decided to sell the operations of pacific pride as it did not align with the long-term strategy of the core fleet business . the operations of pacific pride are not material to the company 's annual revenue , net income or earnings per share . the company has entered into a multi-year agreement with the buyer that will continue to allow wex branded card acceptance at pacific pride locations . the company does not view this divestiture as a strategic shift in its fleet payment solution segment . on august 22 , 2014 , we entered into agreements to modify certain terms of our existing bank borrowing agreements in order to permit the additional financing and investments necessary to facilitate the consummation of the esso portfolio in europe transaction . on december 1 , 2014 , wex acquired the assets of exxonmobil 's european esso portfolio in europe through its majority owned subsidiary , wex europe services limited . under the terms of the transaction , we purchased exxonmobil 's commercial fleet fuel card program which included operations , funding , pricing , sales and marketing in nine countries in europe for approximately $ 378.5 million in aggregate consideration . during the third quarter of 2014 , an advance payment was made to exxonmobil of approximately $ 80.0 million for a portion of the acquisition consideration , per the terms of the purchase agreement . as part of this transaction , both parties agreed to enter into a long term supply agreement to serve the current and future esso card customers and to grow the business . as a result of this transaction , we are making investments relating to the integration of operations and systems . it is anticipated that these investments will continue to occur into 2015 , and are expected to impact 2015 earnings by $ 11 to $ 14 million of after-tax losses related to the esso portfolio in europe . we purchased approximately 200,000 shares of our common stock for $ 19.8 million during the first half of 2014. our company 's management believes the following metrics were important to our overall performance in 2014 : total fleet transactions processed increased 4 percent from 2013 to 385.4 million in 2014 . payment processing transactions increased 7 percent from 2013 to 311.3 million in 2014 , and transaction processing transactions decreased 6 percent from 2013 to 74.1 million in 2014 . our payment solutions purchase volume grew to $ 18.0 billion in 2014 , a 38 percent increase from 2013 . this increase is primarily due to our single use account product used for online travel-related purchases . 31 domestic fuel prices averaged $ 3.55 per gallon during 2014 , down from an average of $ 3.67 per gallon during 2013 . australian fuel prices decreased 5 percent in 2014 as compared to 2013 , to u.s. $ 5.14 per gallon . as of december 31 , 2014 , the average price of domestic fuel was $ 2.59 per gallon . although we have partially hedged against the impact of domestic fuel price fluctuations on our earnings , if prices remain low , our future revenue and earnings will be negatively impacted . in the second half of 2014 we experienced fluctuations in foreign currency exchange rates that resulted in a significant devaluation of major currencies to which our business is exposed , including the australian dollar , the euro and the british pound . our foreign currency exchange exposure is primarily related to the re-measurement of our cash , receivable and payable balances that are denominated in these foreign currencies . furthermore , the recent addition of the esso portfolio has increased this type of exposure . movements in the foreign currency exchange rates resulted in a pre-tax loss of $ 13 million during 2014 , as compared to a pre-tax gain of $ 1 million during 2013. our effective tax rate was 33.7 percent for 2014 as compared to 37.8 percent for 2013 . during the third quarter of 2014 , we completed a strategic tax review project which resulted in a change in estimate to reflect the tax impacts of the domestic production activities deduction and research and development credits in our income tax provision . we amended prior year tax returns as a result of this change in estimate which reduced the third quarter 's tax expense by approximately $ 11.3 million . in addition , the current year to date tax provision was reduced by $ 2.4 million as a result of the change in estimate . future tax rates may fluctuate due to changes in the mix of earnings among different tax jurisdictions . our tax rate may also fluctuate due to the impacts that rate and mix changes have on our net deferred tax assets . we anticipate that our future gaap effective tax rate should be within the range of our historical rates . recent events on january 7 , 2015 , we sold our operations of rapid ! paycard for $ 20 million , subject to a working capital adjustment , which resulted in an estimated pre-tax gain of approximately $ 4 million . story_separator_special_tag our primary focus in the u.s. continues to be in the fleet , travel , and healthcare industries . as such , we divested the operations of rapid ! paycard . the operations of rapid ! paycard were not material to our annual revenue , net income or earnings per share . 32 results of operations year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 fleet payment solutions segment the following table reflects comparative operating results and key operating statistics within our fleet payment solutions segment : replace_table_token_4_th nm - not meaningful ( a ) as of december 1 , 2014 , these key operating statistics include fuel related payment processing transactions and gallons of fuel from the esso portfolio in europe . revenues payment processing revenue increased $ 8.8 million for 2014 , as compared to 2013 . this increase is primarily due to the organic growth of our domestic fleet business as our transaction volume increased 7 % in 2014 from 2013 , as well as an increase due to the esso portfolio acquisition in europe . reducing the overall increase was a 3 percent decrease in the average domestic price per gallon of fuel in 2014 , as compared to 2013 . account servicing revenue increased $ 6.1 million for 2014 , as compared to 2013 . this increase is primarily due to growth in our wex telematics business and the number of fleet customers , as compared to the prior year . our finance fees increased $ 16.2 million for 2014 , as compared to 2013 . minimum late fee charges were increased in the third quarter of 2013. payments for customer receivables , or trade receivables , are due within thirty days or less . late fee revenue , which is included in finance fees , is earned when a customer 's receivable balance becomes delinquent . the late fee is calculated using a stated late fee rate based on the outstanding balance . the absolute amount of such outstanding balances can be attributed to ( i ) changes in fuel prices ; ( ii ) customer specific transaction volume ; and ( iii ) customer specific delinquencies . late fee revenue can also be impacted by changes in ( i ) late fee rates and ( ii ) increases or decreases in the number of customers with overdue balances . the change in 2014 is primarily due to ( i ) an increase in the minimum late fee charges , ( ii ) an increase in factoring revenue and ( iii ) higher accounts receivable balances , as a result of higher transaction volumes . 33 other revenue increased $ 4.7 million for 2014 as compared to 2013. the increase is primarily due to increases in our equipment sales due to customer upgrades of our equipment as well as international expansion of our fuel related products . expenses the following table compares selected expense line items within our fleet payment solutions segment : replace_table_token_5_th salary and other personnel expenses increased $ 16.8 million for 2014 , as compared to 2013 . the increase is primarily due to an increase in headcount to support our growing operations , primarily related to the acquisition of the esso portfolio in europe , as well as an increase in stock-based incentive compensation expense . service fees increased $ 9.4 million during 2014 , as compared to 2013 . service fees increased compared to the prior year primarily due to expenses associated with the acquisition and integration of the esso portfolio in europe and the fees related to the increase in the number of wex telematics units being serviced . provision for credit losses increased $ 11.0 million for 2014 , as compared to 2013 . we use a roll rate methodology to calculate the amount necessary for our ending receivable reserve balance . this methodology takes into account total receivable balances , recent charge off experience , recoveries on previously charged off accounts , and the dollars that are delinquent to calculate the total reserve . in addition , management undertakes a detailed evaluation of the receivable balances to help ensure further overall reserve adequacy . we generally measure our credit loss performance by calculating credit losses as a percentage of total fuel expenditures on payment processing transactions . our credit losses as a percentage of customers spend increased to 11.7 basis points as compared to 7.9 basis points for 2013 . beginning in the third quarter of 2013 , we tested less restrictive credit standards for the approval of certain new customer applications and experienced an increase in delinquency rates during the first quarter of 2014. after monitoring the impact to our credit loss reserve , we returned to our prior stricter credit standards beginning in the second quarter of 2014. we also experienced an increase in a number of our low risk accounts that were in early stage delinquency . the expense we recognized in 2014 is the amount necessary to bring the reserve to its required level after net charge offs . technology leasing and support expenses increased $ 3.1 million in 2014 , as compared to 2013 . the increase is primarily the result of additional expenses related to the consolidation of data centers and additional fees associated with the general expansion of operations . depreciation , amortization and impairments expenses increased $ 3.3 million in 2014 , as compared to 2013 . this increase is primarily related to hardware that was placed in service in conjunction with our data center consolidation as well as an increase in depreciation and amortization expense related to the acquisition of the esso portfolio in europe . other expenses increased $ 7.2 million in 2014 , as compared to 2013 . this increase is due to an increase in expenses related to the consolidation of data centers and additional fees associated with the general growth of operations .
| on may 11 , 2012 , we acquired all of the stock of corporatepay , a provider of corporate prepaid solutions to the travel industry in the united kingdom for $ 27.8 million , net of cash acquired . the acquisition was funded through our revolving credit facility and term loan . on august 30 , 2012 , we acquired a 51 percent ownership interest in unik , a privately-held provider of payroll cards in brazil , for $ 22.8 million . the acquisition was funded through our revolving credit facility and term loan . on october 4 , 2012 , we acquired certain assets of fleetone a privately-held provider of value-based business payment processing and information management solutions for $ 376.3 million , net of cash acquired . the acquisition was funded through our revolving credit facility and term loan . we used $ 11.3 million during 2012 to repurchase our own common stock . during 2012 , we had $ 28.0 million of capital expenditures . liquidity general in general , our trade receivables provide for payment terms of 30 days or less . we do not extend revolving credit to our customers with respect to these receivables . receivables not paid within the terms of the customer agreement are generally subject to finance fees based upon the outstanding customer receivable balance . at december 31 , 2014 , approximately 94 percent of the outstanding balance of $ 1,879 million of total trade accounts receivable was current and approximately 98 percent of the outstanding balance of total trade accounts receivable was less than 60 days past due . the outstanding balance is made up of receivables from a wide range of industries . no one customer accounted for 10 percent or more of the outstanding receivables at december 31 , 2014 . our short-term cash requirements consist primarily of payments to major oil companies for purchases made by our fleet customers , payments to merchants for other payment solutions , payments on maturing and withdrawals of brokered deposits and borrowed federal funds , interest
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because these customers may use our products in connection with a variety of defense programs or other projects of different sizes and durations , a customer 's orders for one quarter generally do not indicate a trend for future orders by that customer . additionally , order patterns do not necessarily correlate amongst customers and , therefore , we generally can not identify sequential quarterly trends . 31 b usiness d evelopments : f iscal 2017 on june 27 , 2017 , we amended our revolving credit facility ( `` revolving credit facility '' ) , increasing and extending the facility into a $ 400.0 million , 5-year revolving credit line expiring in june 2022. in connection with the amendment , we repaid the remaining principal on our term loan using cash on hand . the revolving credit facility remained undrawn at june 30 , 2017 , other than for outstanding letters of credit . on april 3 , 2017 , we acquired delta microwave , llc ( `` delta '' ) . delta is a leading designer and manufacturer of high-value rf , microwave and millimeter wave sub-assemblies and components for the military , aerospace and space markets . the acquisition and transaction related expenses were funded with cash on hand . on january 26 , 2017 , we announced the commencement of an underwritten public offering of our common stock , par value $ 0.01 per share . on february 1 , 2017 , we closed the offering , including the full over-allotment allocation , selling an aggregate of 6.9 million shares of common stock at a price to the public of $ 33.00 for total net proceeds of $ 215.7 million . on november 4 , 2016 , we acquired ces creative electronic systems , s.a. ( `` ces '' ) . based in geneva , switzerland , ces is a leading provider of embedded solutions for military and aerospace mission-critical computing applications . ces specializes in the design , development and manufacture of safety-certifiable product and subsystems solutions including : primary flight control units , flight test computers , mission computers , command and control processors , graphics and video processing and avionics-certified ethernet and io . ces has decades of experience designing subsystems deployed in applications certified up to the highest levels of design assurance . ces products and solutions are used on platforms such as aerial refueling tankers and multi-mission aircraft , as well as several types of unmanned platforms . f iscal 2016 on may 2 , 2016 , we acquired the custom microelectronics , rf and microwave solutions , and embedded security operations of microsemi corporation ( the “ carve-out business ” ) , resulting in the entities comprising the carve-out business becoming 100 % owned direct or indirect subsidiaries of mercury ( the “ acquisition ” ) . the carve-out business is a leader in the design , development , and production of sophisticated electronic subsystems and components for use in high-technology products for defense and aerospace markets . the carve-out business ' defense electronics solutions include high-density memory modules , secure solid-state drives , secure gps receiver modules , high-power rf amplifiers , millimeter-wave modules and subsystems , and specialized software and firmware for anti-tamper applications . the carve-out business ' customers , which include many significant defense prime contractors , outsource many of their electronic design and manufacturing requirements to the carve-out business as a result of its specialized capabilities in packaging electronics for swap-constrained environments , its focus on security and the unique requirements of defense applications , and its expertise in rf and microwave technologies . the carve-out business ' products and technologies are used in a variety of defense applications , including missiles and precision munitions , fighter and surveillance aircraft , airport security portals , and advanced electronic systems for radar and ew . on december 16 , 2015 , we acquired lewis innovative technologies , inc. ( “ lit ” ) . embedded systems security has become a requirement for new and emerging military programs , and lit 's security solutions significantly extend our capabilities and leadership in secure embedded computing , a critical differentiator from our traditional competition . lit 's solutions , combined with our next-generation secure intel server-class product line , together with increasingly frequent mandates from the government to secure electronic systems for domestic and foreign military sales , position us well to capitalize on dod program protection security requirements . f iscal 2015 during fiscal 2015 , we successfully completed the final phase of integration activities relating to our acquisition integration plan primarily associated with the micronetics , inc. acquisition . the acquisition integration plan included the consolidation of manufacturing facilities , centralization of administrative and manufacturing functions using common information systems and processes , and realignment of research and development resources . restructuring and other charges in fiscal 2015 amounted to $ 3.2 million . during fiscal 2015 , we completed the sale of our former mis business . since the fourth quarter of fiscal 2014 , mis has been reported as a discontinued operation for all periods presented . 32 story_separator_special_tag million foreign exchange gain compared to $ 0.2 million loss during the same period in fiscal 2016. we incurred bank operating fees of $ 0.6 million and $ 0.4 million during fiscal 2017 and 2016 , respectively . 34 i ncome t axes we recorded an income tax provision of $ 6.2 million in fiscal 2017 compared to $ 5.5 million in fiscal 2016 . the effective tax rates for fiscal 2017 and fiscal 2016 were 19.9 % and 21.9 % , respectively . our effective tax rate for fiscal 2017 differed from the federal statutory rate primarily due to benefits related to research and development tax credits , domestic manufacturing deductions , excess tax benefits for equity compensation and releases for reserves for tax contingencies , partially offset by non-deductible equity compensation . story_separator_special_tag the difference in the effective tax rates between fiscal 2017 and fiscal 2016 is mainly driven by additional excess tax benefits for equity compensation , and a portion of the legal settlement of the escrow litigation associated with our acquisition of kor electronics that was classified as a reduction of cost basis in an investment for income tax purposes which occurred in fiscal 2016. f iscal 2016 v s . f iscal 2015 results of operations for the twelve month period ended june 30 , 2016 include two months results for the carve-out business . accordingly , the periods presented below are not directly comparable . the following tables set forth , for the periods indicated , financial data from the consolidated statement of operations : replace_table_token_8_th r evenues replace_table_token_9_th total revenues increased $ 35.4 million , or 15 % , to $ 270.2 million during fiscal 2016 compared to $ 234.8 million during fiscal 2015. the increase in total revenues is primarily attributed to higher sewip and f16/sabr program revenues and the inclusion of $ 16.6 million of acquired revenue from the carve-out business . acquired revenue represents net revenue from acquisitions for the first four full quarters since the entities ' acquisition date ( which excludes any intercompany transactions ) . 35 international revenues , which consist of foreign military sales through prime defense contractor customers and direct sales to non-u.s. based customers , increased by $ 4.6 million to $ 49.9 million during fiscal 2016 compared to $ 45.3 million during fiscal 2015 . international revenues represented 19 % of total revenues during both fiscal 2016 and 2015 . g ross m argin gross margin was 47.2 % for fiscal 2016 , a decrease of 140 basis points from the 48.6 % gross margin achieved in fiscal 2015 . the lower gross margin in fiscal 2016 was primarily due to inventory step-up amortization related to the acquisition of the carve-out business . s elling , g eneral and a dministrative selling , general and administrative expenses increased $ 3.9 million , or 8 % , to $ 52.9 million during fiscal 2016 as compared to $ 49.0 million during fiscal 2015 . the increase was primarily due to increased headcount driven by the acquisition of the carve-out business and higher compensation related costs . selling , general and administrative expenses decreased as a percentage of revenue to 19.6 % during fiscal 2016 from 20.9 % during fiscal 2015 due to higher revenues in fiscal 2016. r esearch and d evelopment research and development expenses decreased $ 0.1million , or less than 1 % , to $ 36.4 million during fiscal 2016 compared to $ 36.5 million for fiscal 2015 . the decrease was primarily due to increased customer funded development . research and development expenses accounted for 13.4 % and 15.6 % of our revenues during fiscal 2016 and fiscal 2015 , respectively . a mortization of i ntangible a ssets amortization of intangible assets increased $ 1.8 million to $ 8.8 million during fiscal 2016 compared to $ 7.0 million for fiscal 2015 , primarily due to the amortization of intangible assets resulting from the acquisition of the carve-out business . r estructuring and o ther c harges restructuring and other charges decreased $ 1.9 million , or 61 % , to $ 1.2 million during fiscal 2016 compared to $ 3.2 million in fiscal 2015 . the decrease was driven by lower facility restructuring costs in fiscal 2016 as our acquisition integration activities were completed during fiscal 2015. fiscal 2015 restructuring and other charges included the second and final phases of the former chelmsford , massachusetts headquarters consolidation and related severance activities . restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities . a cquisition c osts and o ther r elated e xpenses we incurred $ 4.0 million of acquisition costs and other related expenses during fiscal 2016 , compared to $ 0.1 million during fiscal 2015 . $ 2.0 million of the fiscal 2016 costs related to the acquisition of the carve-out business . i nterest i ncome interest income increased to $ 0.1 million in fiscal 2016 , compared to less than $ 0.1 million in fiscal 2015. i nterest e xpense interest expense for fiscal 2016 increased $ 1.1 million to $ 1.2 million compared to less than $ 0.1 million in fiscal 2015. the increase was primarily driven by $ 1.2 million cash and non-cash interest expenses related to the term loan entered into in connection with acquisition of the carve-out business during the fourth quarter of fiscal 2016. o ther i ncome , n et other income increased $ 2.0 million to $ 2.4 million during fiscal 2016 compared to $ 0.4 million in fiscal 2015 . the increase was a result of a $ 1.9 million gain on the settlement of escrow litigation associated with our fiscal 2012 acquisition of kor electronics . i ncome t axes we recorded an income tax provision of $ 5.5 million in fiscal 2016 compared to $ 4.4 million in fiscal 2015 . the effective tax rates for fiscal 2016 and fiscal 2015 were 21.9 % and 23.2 % , respectively . our effective tax rate for fiscal 2016 differed from the federal statutory rate primarily due to benefits related to research and development tax credits , domestic manufacturing deductions , excess tax benefits for equity compensation and releases for reserves for tax contingencies , partially offset by non-deductible equity compensation .
| million , and $ 0.2 million , respectively , partially offset by production cost efficiencies and acquisition 33 integration synergies , as well as the continuing ramp up of our insourced u.s. manufacturing operations . the remaining $ 0.6 million of inventory step-up will be amortized into cost of goods sold over the first 4 months of fiscal 2018. s elling , g eneral and a dministrative selling , general and administrative expenses increased $ 23.5 million , or 44 % , to $ 76.5 million during fiscal 2017 as compared to $ 53.0 million during fiscal 2016 . the increase was primarily due to increased headcount driven by the full year impact of the carve-out business , as well as the acquisitions of ces and delta in the second and fourth quarters of fiscal 2017 , respectively , and higher compensation related costs . selling , general and administrative expenses decreased as a percentage of revenue to 18.7 % during fiscal 2017 from 19.6 % during fiscal 2016 due to higher revenues in fiscal 2017. r esearch and d evelopment research and development expenses increased $ 17.7 million , or 49 % , to $ 54.1 million during fiscal 2017 compared to $ 36.4 million for fiscal 2016 . the increase was primarily due to increased headcount from the full year impact of the carve-out business , as well as the acquisitions of ces and delta in the second and fourth quarters of fiscal 2017 , respectively . the increase was also due to higher compensation related costs , partially offset by increased customer funded development . research and development expenses accounted for 13.2 % and 13.4 % of our revenues during fiscal 2017 and fiscal 2016 , respectively . a mortization of i ntangible a ssets amortization of intangible assets increased $ 10.9 million to $ 19.7 million during fiscal 2017 compared to $ 8.8 million for fiscal 2016 , primarily due to the full year
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bally 's atlantic city - bally 's atlantic city is operating at 25 % capacity with 58 % of vlts and all table games ( with a four - player limit ) available , and the hotel is currently operating with all rooms available to guests . shreveport - shreveport is operating at 50 % capacity with 56 % of vlts and about half of table games ( with a four - player limit ) available , and the hotel is currently operating with all rooms available to guests . 30 while we are working closely with government officials on operational aspects of our re-opened properties and our desire to get additional amenities online , we can not predict the duration of any limitations the government or we may impose on our operations . though our operations are partially open in each of our markets , continuing restrictions on our operations , the economic uncertainty that covid-19 continues to cause and the personal risk tolerances of our customers have caused , and may continue to cause , our business to be negatively impacted . in light of the foregoing , we are unable to determine when , or if , our properties will return to pre-pandemic demand . as a result of the current restrictions on our properties related to the covid-19 pandemic and the uncertainty regarding when we will return to pre-pandemic demand , we have established a multi-faceted plan to slow the usage of our available liquidity , foc us on employee and community matters and prepare our facilities for full re-opening . liquidity we are proactively managing expenses carefully in an effort to retain sufficient liquidity to last through these uncertain times and to fund the purchase prices for acquisitions . on may 11 , 2020 , we increased our term loan facility by $ 275 million , a portion of the proceeds of which was utilized to repay the outstanding borrowings under our revolving credit facility . on october 9 , 2020 , we issued an additional $ 125 million aggregate principal amount of 6.75 % senior notes for a total of $ 525 million of senior notes due 2027. though the timing of when or if we will be able to return to pre-pandemic demand is uncertain , we believe we are prepared for sustained restriction on cash flow from operations and believe that our current available cash balances and availability under our revolving credit facility are sufficient to provide necessary liquidity to meet all of our obligations including debt service and required capital expenditures for the foreseeable future . throughout 2020 , we carefully managed expenses in an effort to minimize variable costs and fixed property level costs and corporate expenses to protect our financial position . these efforts included the following : the suspension of all major capital projects and significant reduction of our expected capital expenditure spend , excluding our cash outlay for acquisitions during the year ; renegotiation of certain service and vendor agreements to reduce or eliminate certain recurring fees and or defer payments ; reduction of employee costs through measured levels of re-hiring aimed at matching demand based on our properties ' operating status and offerings ; the suspension of employer 401 ( k ) matching contributions ; and suspension of dividend payments on our common stock as well as share repurchases under our capital return program , each of which was a condition of the amendment we signed to our credit facility on april 24 , 2020. employee and community matters we have taken a series of employee-and community-focused actions . among other things , we continued health coverage at no cost to employees who were furloughed . we have also established a fund to provide financial assistance to employees who experience severe hardship during the shutdown period and are working diligently to bring employees back to work at levels that correspond to demand for our offerings . our twin river casino property also served as a host site for a drive through rapid covid-19 testing during the second quarter . we continue to collaborate with community and employee leaders , health officials and regulatory authorities . health and safety efforts at re-opened facilities as we have reopened our facilities we have actively engaged in a comprehensive sanitization of all properties with an emphasis on public spaces and 'touchpoints ' such as handrails , vlts , countertops and elevator buttons along with a chip sanitizing program . additionally , we established a multi-phased approach to re-open each of our facilities . the plans include , among other things , screening of team members and guests upon arrival at our properties , thermal imaging cameras , enforcement of social distancing guidelines , including spacing between vlts and limited or no table games to start , frequent cleaning and sanitizing protocols for all areas , mask protection , and public awareness signage . we expect that the current restrictions on operations and amenities as a result of the covid-19 pandemic will continue to negatively impact our results of operations . we do not expect to see a return to pre-pandemic levels until our properties are allowed to fully re-open with all amenities to the public , which is indeterminable at this time and is dependent on the length and severity of the pandemic , the duration of the restrictions in our markets and the speed and depth of vaccinations . 31 the covid-19 pandemic has caused , and is continuing to cause , significant disruption in the financial markets both globally and in the u.s. , and will continue to impact , possibly materially , our business , financial condition and results of operations . we can not predict the degree or duration to which our operations will be affected by the covid-19 pandemic , and the effects could be material . story_separator_special_tag while we believe that strong liquidity position , valuable unencumbered assets and aggressive cost reduction initiatives will enable us to fund our current obligations , the covid-19 pandemic has resulted in significant disruption of global financial markets , which could have a negative impact on our ability to access capital in the future . we continue to monitor the rapidly evolving situation and guidance from authorities , including federal , state and local public health authorities and may take additional actions based on their recommendations . in these circumstances , there may be developments outside our control requiring us to further adjust our operating plan , including ongoing restrictions to operations and potential future closings of our properties . because the situation is ongoing , and because the duration and severity of the pandemic remain unclear , it is difficult to forecast any impacts on our future results . we currently expect the covid-19 pandemic to continue to impact our operations negatively throughout 2021. cares act on march 27 , 2020 , the coronavirus aid , relief , and economic security act ( the “ cares act ” ) was signed into law . the cares act provides opportunities for additional liquidity , loan guarantees , and other government programs to support companies affected by the covid-19 pandemic and their employees , including those like us that operate in the gaming area . based on our analysis of the cares act , the benefits we believe will be available to us include : refund of federal income taxes due to five-year carryback of net operating loss incurred in 2020 when our 2020 tax return is filed ; relaxation of interest expense deduction limitation for income tax purposes ; the employee retention credit , providing a refundable federal tax credit equal to 50 % of the first $ 10,000 of qualified wages and benefits , including qualified medical plan contributions , paid to employees while they are not performing services after march 12 , 2020 and before january 1 , 2021 ; and deferral of all employer federal insurance contributions act ( “ fica ” ) taxes for the remainder of 2020 , 50 % payable by december 2021 and the remainder payable by december 2022. recent and pending acquisitions , development projects and other we seek to continue to grow our business by actively pursuing the acquisition and development of new gaming opportunities and reinvesting in our existing operations . we believe that interactive gaming , including mobile sports betting and igaming represent a significant strategic opportunity for our future growth . in addition , we seek to increase revenues at our brick and mortar casinos through enhancing the guest experience by providing popular games , restaurants , hotel accommodations , entertainment and other amenities in attractive surroundings with high-quality guest service . our recent and pending business acquisitions are summarized above in “ our strategy-recent and pending acquisitions , development projects and other. ” acquisition of bally 's atlantic city details of transaction on november 18 , 2020 we completed our acquisition of bally 's atlantic city from caesars entertainment , inc. and vici properties inc. total cash consideration at closing was approximately $ 27 million , subject to customary adjustments . as part of the regulatory approval process with the state of new jersey , we committed to capital improvements to the property of $ 90 million over a five-year period , which was a condition for approval for our temporary operating license . refer to note 5 “ acquisitions ” for further information . 32 historical and current performance prior to our acquisition of bally 's atlantic city , its operations were run by caesars as a single entity inclusive of the operations of wild wild west casino , which we did not acquire . historically , the results of bally 's atlantic city and wild wild west casino were reported on a combined basis and the ability to accurately produce historical financials on a carved out basis was determined to be difficult to produce without undue effort . based on diligence procedures performed , it is believed that prior to covid-19 related shut downs experienced in 2020 , the bally 's atlantic city property , excluding the operations of wild wild west casino , generated approximately $ 170 million of annual revenues and adjusted ebitda of approximately $ 12 million in 2019. as a result of covid-19 restrictions , bally 's atlantic city closed its operations from march 2020 through july 2020. since july 2020 , the property has continued to operate at limited capacity and under restricted hours based on local state-mandated restrictions . bally 's atlantic city has historically generated a majority of its profit in the summer , as it is located on the new jersey boardwalk , and has generated losses during the winter . additionally , at the time of closing , our it systems had not yet been converted and it was determined that we would operate the property under a transition services agreement ( “ tsa ” ) using caesars it systems and the player rewards programs tied to caesars total rewards until we were able to convert to our own systems , which ultimately occurred in mid-february 2021. the combination of covid related restrictions , seasonality and increased overhead costs under the tsa and caesars total rewards resulted in increased losses from the acquisition date through december 31 , 2020. we expect those losses to continue into february 2021 , when these systems were converted . planned capital improvements as noted above , we expect to invest capital into the property over an initial five - year period , which we believe will transform the property resulting in increased revenue and profitability . construction is expected to include a permanent sportsbook facility , on which we have partnered with fanduel , refurbished hotel rooms , new food and beverage offerings , a new boardwalk facade , and other cosmetic upgrades to the property .
| the 2020 year also includes a $ 4.0 million deposit paid in connection with our acquisition of jumer 's in september 2020 , $ 2.0 million of which is nonrefundable . financing activities net cash provided by financing activities for the year ended december 31 , 2020 was $ 366.4 million compared to net cash provided by financing activities of $ 48.9 million for 2019. cash provided by financing activities in 2020 was driven by $ 261.2 million of borrowings , net of fees , on our additional term loan , $ 122.5 million of senior notes proceeds and borrowings under our revolver , all of which were used to fund current year acquisitions . we also spent $ 33.3 million on share repurchases and paid cash dividends of $ 3.2 million under our capital return program . during 2019 , cash provided by financing activities was driven by proceeds received from the term loan facility and senior notes ( defined below ) , net of fees incurred , of $ 683.2 million , partially offset by debt repayments of $ 343.9 million on our previous term loan and the required quarterly payments on our new term loan facility . we also paid $ 223.1 million for share repurchases , including shares repurchased in connection with our dutch auction tender offer in july 2019 under our capital return program . working capital at december 31 , 2020 , net working capital balance was $ 145.8 million , compared to $ 155.2 million at december 31 , 2019 a decrease of $ 9.5 million . this decrease is primarily attributable to a decrease in our cash and cash equivalents balance to $ 123.4 million as of december 31 , 2020 compared to $ 182.6 million as a result of the timing of transactions in each respective period , as noted above . 41 capital return program and quarterly cash dividend during the second quarter of 2019 , we announced that our board approved a capital return program
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our long-term strategic plans are focused on our goal to create long-term shareholder value through a balance of growth , profitability , and liquidity . in executing such plans , we are focusing on providing utility-scale pv solar energy solutions using our modules in key geographic markets that we believe have a compelling need for mass-scale pv electricity , including markets throughout the americas , the asia-pacific region , europe , and certain other strategic markets . additionally , we are focusing on opportunities in which our pv solar energy solutions can compete directly with traditional forms of energy generation on an lcoe or similar basis , or complement such generation offerings . our focus on our core module and utility-scale offerings exists within a current market environment that includes rooftop and distributed generation solar , particularly in the united states . while it is unclear how rooftop and distributed generation solar might impact our core utility-scale based offerings in the next several years , we believe that utility-scale solar will continue to be a compelling solar offering for companies with technology and cost leadership and will continue to represent an increasing portion of the overall electricity generation mix . additionally , our ability to provide 51 utility-scale offerings on economically attractive terms depends , in part , on certain market factors outside of our control , such as interest rate fluctuations , domestic or international trade policies , and government support programs . adverse changes in these factors could increase the cost of utility-scale systems , which could reduce demand for such systems and limit the number of potential buyers . we are closely evaluating and managing the appropriate level of resources required as we pursue the most advantageous and cost effective projects and partnerships in our key markets . we have dedicated , and intend to continue to dedicate , significant capital and human resources to reduce the total installed cost of pv solar energy , to optimize the design and logistics around our pv solar energy solutions , and to ensure that our solutions integrate well into the overall electricity ecosystem of each specific market . we expect that , over time , the majority of our consolidated net sales , operating income , and cash flows will come from solar offerings in the key geographic markets described above . the timing , execution , and financial impacts of our long-term strategic plans are subject to risks and uncertainties , as described in item 1a . “ risk factors , ” and elsewhere in this annual report on form 10-k. we are focusing our resources in those markets and energy applications in which solar power can be a least-cost , best-fit energy solution , particularly in regions with significant current or projected electricity demand , relatively high existing electricity prices , strong demand for renewable energy generation , and high solar resources . creating or maintaining a market position in certain strategically targeted markets and energy applications also requires us to adapt to new and changing market conditions . for example , our offerings from time to time may need to be competitively priced at levels associated with minimal gross profit margins , which may adversely affect our results of operations . we expect the profitability associated with our various sales offerings to vary from one another over time , and possibly vary from our internal long-range profitability expectations and targets , depending on the market opportunity and the relative competitiveness of our offerings compared with other energy solutions , traditional or otherwise , that are available to potential customers . in addition , as we execute on our long-term strategic plans , we will continue to monitor and adapt to any changing dynamics in emerging technologies , such as commercially viable energy storage solutions , which are expected to further enable pv solar power systems to compete with traditional forms of energy generation by shifting the delivery of energy generated by such systems to periods of greater demand . storage solutions continue to evolve in terms of technology and cost , and cumulative global deployments of storage capacity are expected to exceed 900 gw dc by 2040 , representing a significant increase in the potential market for renewable energy . we will also continue to monitor and adapt to changing dynamics in the market set of potential buyers of solar projects . market environments with few potential project buyers and a higher cost of capital would generally exert downward pressure on the potential revenue from the solar projects we are developing , whereas , conversely , market environments with many potential project buyers and a lower cost of capital would likely have a favorable impact on the potential revenue from such solar projects . on occasion , we may temporarily own and operate certain systems with the intention to sell them at a later date . we may also enter into business arrangements with strategic partners that result in us temporarily retaining an ownership interest in the underlying systems projects we develop , supply modules to , or construct , potentially for a period of up to several years . in these situations , we may retain such ownership interests in a consolidated or unconsolidated separate entity . we may also elect to construct and temporarily retain ownership interests in partially contracted or uncontracted systems for which there is a partial or no ppa with an off-taker , such as a utility , but rather an intent to sell a portion or all of the electricity produced by the system on an open contract basis until the system is sold . expected revenue from projects without a ppa for the full offtake of the system is subject to greater variability and uncertainty based on market factors and is typically lower than projects with a ppa for the full offtake of the system . furthermore , all system pricing is effected by the pricing of energy to be sold on an open contract basis following the termination of the ppa ( i.e. story_separator_special_tag , merchant pricing curves ) , and changes in market assumptions regarding future open contract sales may also result in significant variability and uncertainty in the value of our systems projects . we continually evaluate forecasted global demand , competition , and our addressable market and seek to effectively balance manufacturing capacity with market demand and the nature and extent of our competition . during 2018 , we commenced commercial production of series 6 modules at our manufacturing facilities in perrysburg , ohio ; kulim , malaysia ; and our previously idled manufacturing plant in ho chi minh city , vietnam . in early 2019 , we commenced 52 commercial production at our second manufacturing facility in ho chi minh city , vietnam . we are also in the process of constructing an additional series 6 manufacturing plant in lake township , ohio , a short distance from our plant in perrysburg , ohio . these additional manufacturing plants , and any other potential investments to add or otherwise modify our existing manufacturing capacity in response to market demand and competition , may require significant internal and possibly external sources of liquidity , and may be subject to certain risks and uncertainties described in item 1a . “ risk factors , ” including those described under the headings “ our future success depends on our ability to effectively balance manufacturing production with market demand , convert existing production facilities to support new product lines , such as our transition to series 6 module manufacturing , and , when necessary , continue to build new manufacturing plants over time in response to such demand and add production lines in a cost-effective manner , all of which are subject to risks and uncertainties ” and “ if any future production lines are not built in line with committed schedules , it may adversely affect our future growth plans . if any future production lines do not achieve operating metrics similar to our existing production lines , our solar modules could perform below expectations and cause us to lose customers . ” systems project pipeline the following tables summarize , as of february 21 , 2019 , our approximately 2.6 gw ac advanced-stage project pipeline . the actual volume of modules installed in our projects will be greater than the project size in mw ac as module volumes required for a project are based upon mw dc , which will be greater than the mw ac size pursuant to a dc-ac ratio typically ranging from 1.2 to 1.3. such ratio varies across different projects due to various system design factors . projects are typically removed from our advanced-stage project pipeline tables below once we substantially complete construction of the project and after substantially all of the associated project revenue is recognized . projects , or portions of projects , may also be removed from the tables below in the event an epc-contracted or partner-developed project does not obtain permitting or financing , a project is not able to be sold due to the changing economics of the project or other factors , or we decide to temporarily own and operate , or retain interests in , such projects based on strategic opportunities or market factors . projects under sales agreements ( includes uncompleted sold projects , projects under sales contracts subject to conditions precedent , and epc agreements , including partner developed projects that we will be or are constructing . ) replace_table_token_2_th 53 projects with executed ppas not under sales agreements replace_table_token_3_th ( 1 ) previously known as the twiggs county solar project ( 2 ) approximately 55 mw ac of the plant 's capacity is contracted with transport for nsw ( 3 ) utility-owned generation ( 4 ) contracted but not specified ( 5 ) approximately 70 mw ac of the plant 's capacity is contracted under various ppas ( 6 ) tokyo electric power company – 27 mw ac and hokuriku electric power company – 17 mw ac ( 7 ) gulbarga electricity supply co. – 20 mw ac and chamundeshwari electricity supply co. – 20 mw ac 54 results of operations the following table sets forth our consolidated statements of operations as a percentage of net sales for the years ended december 31 , 2018 , 2017 , and 2016 : replace_table_token_4_th segment overview we operate our business in two segments . our modules segment involves the design , manufacture , and sale of cdte solar modules to third parties , and our systems segment includes the development , construction , operation , maintenance , and sale of pv solar power systems , including any modules installed in such systems and any revenue from energy generated by such systems . see note 22 . “ segment and geographical information ” to our consolidated financial statements for more information on our operating segments . see also item 7 . “ management 's discussion and analysis of financial condition and results of operations – systems project pipeline ” for a description of the system projects in our advanced-stage project pipeline . net sales modules business we generally price and sell our solar modules per watt of nameplate power . during 2018 , m.a . mortenson company , rcr o'donnell griffin pty , ltd , and tampa electric company each accounted for more than 10 % of our modules business net sales , and the majority of our solar modules were sold to integrators and operators of systems in the united states , australia , and france . substantially all of our modules business net sales during 2018 were denominated in u.s. dollars . we recognize revenue for module sales at a point in time following the transfer of control of the modules to the customer , which typically occurs upon shipment or delivery depending on the terms of the underlying contracts . the revenue recognition policies for module sales are further described in note 2 . “ summary of significant accounting policies ” to our consolidated financial statements .
| the decrease in net sales was primarily attributable to the sale of the moapa and switch station projects in 2017 , which were substantially complete when we entered into the associated sales contracts with the customers , the sale of the california flats project in 2017 relative to revenue recognized on the project in 2018 from ongoing construction activities , and a decrease in third-party module sales , partially offset by the sale of the willow springs , rosamond , mashiko , manildra , and certain india projects in 2018 , and the completion of substantially all construction activities on the balm solar , payne creek , and grange hall projects in 2018 . gross profit decreased 1.2 percentage points to 17.5 % during 2018 from 18.7 % during 2017 primarily due to higher under-utilization and certain other charges associated with the initial ramp of series 6 manufacturing lines and a reduction to our product warranty liability in 2017 due to lower legacy module replacement costs , partially offset by the mix of higher gross profit projects sold during the period and the settlement of a tax examination with the state of california , which affected our estimates of sales and use taxes due for certain projects . during 2018 , we commenced commercial production of series 6 modules at our manufacturing facilities in perrysburg , ohio ; kulim , malaysia ; and ho chi minh city , vietnam , bringing our total installed annual nameplate production capacity across all our facilities to 5.0 gw dc . in early 2019 , we commenced commercial production at our second manufacturing facility in ho chi minh city , vietnam . we produced 2.7 gw dc of solar modules during 2018 , which represented an 18 % increase from 2017 . the increase in production was primarily driven by the incremental series 6 production capacity added in 2018 , partially offset by the ramp down of certain series 4 production lines . we expect to produce between 5.2 gw dc and 5.5 gw dc of solar modules during 2019 , including approximately 2 gw dc of series 4 modules . market overview the solar industry continues to be characterized by intense pricing competition , both at the module and system levels . in particular , module average selling prices in global markets
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the business realignment expenses incurred during the fiscal year ended september 30 , 2014 include cash costs of $ 1.8 million in employee severance and benefit costs . these actions address the new scope of our dod surplus program and advance our future vision of building an integrated global business and marketplace platform with a singular and superior user experience backed by focused leadership and innovative products and services . our revenue . we offer our sellers three primary transaction models : a profit-sharing model , a consignment model and a purchase model . profit-sharing model . under our profit-sharing model , we purchase inventory from our suppliers and share with them a portion of the profits received from a completed sale in the form of a distribution . distributions are calculated based on the value received from the sale after deducting allowable costs , such as sales and marketing , technology and operations and other general and administrative costs . because we are the primary obligor , and take general and physical inventory risks and credit risk under this transaction model , we recognize as revenue the sale price paid by the buyer upon completion of a transaction . revenue from our profit-sharing model accounted for approximately 16.1 % , 13.5 % , and 14.4 % of our total revenue for the fiscal years ended september 30 , 2012 , 2013 and 2014 , respectively . the merchandise sold under our profit-sharing model accounted for approximately 8.9 % , 7.0 % , and 7.7 % of our gmv for the fiscal years ended september 30 , 2012 , 2013 and 2014 , respectively . consignment modelfee revenue . under our consignment model , we recognize commission revenue from sales of merchandise in our marketplaces that is owned by others . these 36 commissions , which we refer to as seller commissions , represent a percentage of the sale price the buyer pays upon completion of a transaction . we vary the percentage amount of the seller commission depending on the various value-added services we provide to the seller to facilitate the transaction . for example , we generally increase the percentage amount of the commission if we take possession , handle , ship and / or provide enhanced product information for the merchandise . we collect the seller commission by deducting the appropriate amount from the sales proceeds prior to their distribution to the seller after completion of the transaction . revenue from our consignment model , as well as other fee revenue , accounted for approximately 12.5 % , 20.1 % , and 21.6 % of our total revenue for the fiscal years ended september 30 , 2012 , 2013 and 2014 , respectively , and is recorded as fee revenue in the consolidated statement of operations . the merchandise sold under our consignment model accounted for approximately 52.3 % , 59.1 % , and 57.7 % of our gmv for the fiscal years ended september 30 , 2012 , 2013 and 2014 , respectively . purchase model . under our purchase model , we offer our sellers a fixed amount or the option to share a portion of the proceeds received from our completed sales in the form of a distribution . distributions are calculated based on the value we receive from the sale after deducting a required return to us that we have negotiated with the seller . because we are the primary obligor , and take general and physical inventory risks and credit risk under this transaction model , we recognize as revenue the sale price paid by the buyer upon completion of a transaction . revenue from our purchase model accounted for approximately 71.4 % , 66.5 % , and 64.0 % of our total revenue for the fiscal years ended september 30 , 2012 , 2013 and 2014 , respectively . the merchandise sold under our purchase model accounted for approximately 38.8 % , 33.9 % , and 34.6 % of our gmv , for the fiscal years ended september 30 , 2012 , 2013 and 2014 , respectively . we collect a buyer premium on substantially all of our transactions under all of our transaction models . buyer premiums are calculated as a percentage of the sale price of the merchandise sold and are paid to us by the buyer . buyer premiums are in addition to the price of the merchandise . under our profit-sharing model , we typically share the proceeds of any buyer premiums with our sellers . industry trends . we believe there are several industry trends impacting the growth of our business including : ( 1 ) the increase in the adoption of the internet by businesses to conduct e-commerce both in the united states and abroad ; ( 2 ) in the near term the decrease in the volume , innovation , and price of consumer electronic products , resulting in lower supply from our retail clients and lower per unit prices and margins in our retail goods marketplace , although in the long term product we expect innovation in the retail supply chain will increase the pace of product obsolescence and , therefore , the supply of surplus assets ; ( 3 ) the increase in the volume of returned merchandise handled by both online and offline retailers ; ( 4 ) the increase in government regulations and the need for corporations to have sustainability solutions is necessitating verifiable recycling and remarketing of surplus assets ; ( 5 ) the increase in outsourcing by corporate and government organizations of disposition activities for surplus and end-of-life assets as they focus on reducing costs , improving transparency , compliance and working capital flows , and increasingly prefer service providers with a proven track record , innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain , which we expect to increase our seller base ; and ( 6 ) an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases , which results story_separator_special_tag in lower per unit prices and margins in our retail goods vertical . 37 our seller agreements our dod agreements . we have two material contracts with the dod pursuant to which we acquire , manage and sell excess property : surplus contract . in june 2001 , we were awarded the first surplus contract , a competitive-bid exclusive contract under which we acquire , manage and sell all usable dod surplus personal property turned into the dla disposition services . surplus property generally consists of items determined by the dod to be no longer needed , and not claimed for reuse by , any federal agency , such as computers , electronics , office supplies , scientific and medical equipment , aircraft parts , clothing and textiles . we responded to a rfp from the dla disposition services regarding a renewal of the surplus contract , and we were awarded the contract . we executed the second contract on december 18 , 2008. the second surplus contract was to expire in february 2014. in january 2014 , the dod awarded the company with a follow-on contract to extend the terms of the second surplus contract for a base term of ten months with two one-month renewal option periods . the dod , in accordance with the award of the next ( third ) surplus contract , split the contract into a rolling stock and a non-rolling stock contract , with bidding on these two surplus contracts held on april 1 and 2 , 2014. on april 1 , 2014 , we were the high bidder for the non-rolling stock surplus contract with a bid equal to 4.35 % of the dod 's original acquisition value ( oav ) . the non-rolling stock surplus contract has a base term of two years with four one-year renewal options . following the bidding event on april 2 , 2014 for the dod rolling stock contract , we withdrew from the live auction bidding for this contract . bidding reached a level that we determined would be economically unsustainable under the terms of the new contract , jeopardizing the high level of service we have historically provided the agency client . revenue from our surplus contract ( including buyer premiums ) accounted for approximately 27.2 % , 27.7 % , and 26.8 % of our total revenue for the fiscal years ended september 30 , 2012 , 2013 and 2014 , respectively . the property sold under our surplus contract accounted for approximately 15.5 % , 15.0 % , and 14.3 % of our gmv for the fiscal years ended september 30 , 2012 , 2013 and 2014 , respectively . under the current surplus contract , as amended , we are obligated to purchase all dod surplus property at 1.8 % of disposition services ' original acquisition value . the dod has broad discretion to determine what property will be made available for sale to us under the second surplus contract and may retrieve or restrict property previously sold to us for national security reasons or if the property is otherwise needed to support the mission of the dod . the surplus property flow from the dod continues to be higher than historical levels . the mix of property has shifted to lower value smaller unit items , requiring us to rent more space , increase the number of shifts in our distribution centers , and increase our staff . scrap contract . in june 2005 , we were awarded a competitive-bid exclusive contract under which we acquire , manage and sell substantially all scrap property of the dod turned into the dla disposition services . scrap property generally consists of items determined by the dod to have no use beyond their base material content , such as metals , alloys , and building materials . revenue from our scrap contract ( including buyer premiums ) accounted for approximately 16.1 % , 13.5 % , and 14.4 % of our total revenue for the fiscal years ended september 30 , 2012 , 2013 and 2014 , respectively . the property sold under our scrap contract accounted for approximately 8.9 % , 7.0 % , and 7.7 % of our gmv for the fiscal years ended september 30 , 2012 , 2013 and 2014 , respectively . we were required to pay $ 5.7 million to the dod in fiscal 2005 for the right to manage the operations and remarket scrap material in connection with the scrap contract . the scrap contract base term expired in august 2012 , subject to dod 's right to 38 extend it for three additional one-year terms . the dod has exercised all three of the renewal options . under the scrap contract , we acquire scrap property at a per pound price and we are entitled to 23 % of the profits of sale ( defined as gross proceeds of sale less allowable operating expenses ) and distribute the remaining profits to dod . we refer to these disbursement payments to dod as profit-sharing distributions . as a result of this arrangement , we recognize as revenue the gross proceeds from these sales . dod also reimburses us for actual costs incurred for packing , loading and shipping property under the scrap contract that we are obligated to pick up from non-dod locations . under the second surplus contract , executed on december 18 , 2008 , we are not required to distribute any portion of the profits realized under the contract , as the second contract contains a higher fixed percentage price of 1.8 % of the dla disposition services ' acquisition value to be paid for the property . the dod has broad discretion to determine what property will be made available for sale to us under the surplus contract and may retrieve or restrict property previously sold to us for national security reasons or if the property is otherwise needed to support the mission of the dod .
| profit-sharing distributions decreased $ 0.8 million , or 2.5 % , to $ 35.1 million for the year ended september 30 , 2014 from $ 35.9 million for the year ended september 30 , 2013. as a percentage of revenue , these expenses were consistent at 7.1 % . these decreases are not significant . technology and operations expenses . technology and operations expenses increased $ 18.9 million , or 21.0 % , to $ 108.9 million for the year ended september 30 , 2014 from $ 90.1 million for the year ended september 30 , 2013. as a percentage of revenue , these expenses increased to 22.0 % from 17.8 % . these increases are primarily due to ( 1 ) expenses of $ 11.0 million in staff and temporary wages , including stock based compensation , and consultant fees associated with technology marketplace integration and 45 enhancement projects ; ( 2 ) expenses of $ 7.1 million for additional warehouse space due to the increase in our inventory ; and ( 3 ) expenses of $ 0.8 million in business realignment costs . sales and marketing expenses . sales and marketing expenses increased $ 1.8 million , or 4.4 % , to $ 42.0 million for the year ended september 30 , 2014 from $ 40.2 million for the year ended september 30 , 2013. as a percentage of revenue , these expenses increased to 8.4 % from 7.9 % . these increases are primarily due to ( 1 ) expenses of $ 1.3 million in marketing activities ; and ( 2 ) expenses of $ 0.5 million in severance costs related to the business realignment . general and administrative expenses . general and administrative expenses increased $ 0.5 million , or 1.0 % , to $ 49.4 million for the year ended september 30 , 2014 from $ 48.9 million for the year ended september 30 , 2013. as a percentage of revenue , these expenses increased to 10.0 % from 9.7 % . these increases are primarily due to expenses of $ 0.5 million in business realignment costs . amortization of contract intangibles . amortization of contract intangibles was consistent at $ 7.3 million for the years ended september 30 , 2014 and september 30 , 2013 and is primarily related to the contract intangible assets created in conjunction with the jacobs trading acquisition
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the $ 75.0 million term loan was accounted for as a modification of our existing line of credit . the funds from the term loan were used to pay down the $ 25.0 million balance on our existing line of credit , as well as to purchase the right , title , and interest in the ndas and the u.s. rights to market atacand , atacand hct , arimidex , and casodex , for $ 46.5 million in cash . as of december 31 , 2017 , we had not drawn on the revolving credit facility . we incurred approximately $ 2.7 million of debt issuance costs in relation to the credit agreement . cortrophin gel re-commercialization update in the fourth quarter of 2017 , we continued to advance the manufacture of corticotropin api , manufacturing three intermediate scale batches of api . all three intermediate scale batches of api exhibit lot-to-lot consistency across many different chemical and biological test methods that we continue to employ in building our comprehensive characterization package . these methods are also being utilized to demonstrate comparability to historically manufactured commercial lots of api . we have ordered the capital equipment necessary for commercial scale api manufacturing and soon plan to qualify this equipment for cgmp commercial scale manufacturing . we plan to initiate commercial scale api manufacturing in early 2018 and hope to initiate process validation and registration batch manufacturing by the end of 2018. we executed a long-term commercial supply agreement with our existing corticotropin api manufacturer . we have now secured the long-term supply for both corticotropin api and for the finished goods - cortrophin gel drug product . we began to manufacture development scale batches of both cortrophin gel and placebo in the fourth quarter of 2017 , whereby the cortrophin gel batches are using the api from our recently manufactured intermediate scale batches . we requested a type c meeting with the fda in the fourth quarter of 2017 to provide the regulatory plan for re-commercialization of cortrophin gel . the fda granted the type c meeting with an fda response scheduled to occur by the end of the first quarter of 2018. vancocin oral solution update we are currently advancing a commercialization effort for vancocin oral solution . following completion of ongoing formulation and manufacturing optimization , we intend to file a prior approval supplement ( “ pas ” ) in the second half of 2018. this product will be manufactured at our site in baudette , minnesota . the launch of this product will fulfill a currently unmet patient need for an fda approved liquid oral dosage form of the vancomycin molecule . 41 story_separator_special_tag our own label in the second quarter of 2016. we anticipate an increase in contract services and other income in 2018 related to royalties we expect to receive on sales of the atacand , atacand hct , arimidex , and casodex products prior to launching the products through our own distribution channels . as described in item 1. business – government regulations – unapproved products , we receive royalties on the net sales of a group of contract-manufactured products , which are marketed by the customer without an fda-approved nda . if the fda took enforcement action against such customer , the customer may be required to seek fda approval for the group of products or withdraw them from the market . our royalties on the net sales of these unapproved products were less than 1 % of total revenues for the years ended december 31 , 2017 and 2016. cost of sales ( excluding depreciation and amortization ) years ended december 31 , ( in thousands ) 2017 2016 change % change cost of sales ( excl . depreciation and amortization ) $ 79,032 $ 48,780 $ 30,252 62.0 % cost of sales consists of direct labor , including manufacturing and packaging , active and inactive pharmaceutical ingredients , freight costs , packaging components , and royalties related to profit-sharing arrangements . cost of sales does not include depreciation and amortization expense , which is reported as a separate component of operating expenses on our consolidated statements of operations . for the year ended december 31 , 2017 , cost of sales increased to $ 79.0 million from $ 48.8 million for the same period in 2016 , an increase of $ 30.3 million or 62.0 % , primarily as a result of increased sales of products subject to profit-sharing arrangements , as well as increased volumes and the impact on cost of sales of the excess of fair value over cost for inderal xl and innopran xl inventory acquired during the first three months of 2017 through asset acquisition transactions and subsequently sold during the period . cost of sales as a percentage of net revenues increased to 44.7 % during the year ended december 31 , 2017 , from 37.9 % during same period in 2016 , primarily as a result of increased sales of products subject to profit-sharing arrangements and the $ 10.4 million net impact on cost of sales ( 5.9 % as a percent of net revenues ) of the excess of fair value over cost for inderal xl and innopran xl inventory sold during the period . this trend will continue until such time that the inventory acquired as components of the inderal xl and innopran xl asset purchases is consumed . during the year ended december 31 , 2016 , cost of sales included $ 5.9 million ( 4.6 % as a percent of net revenue ) related to the excess of fair value over cost for inderal la and propranolol er inventory sold during the period . during the second quarter 2017 , we completed sales of the inderal la inventory acquired as a component of the inderal la asset purchase . we anticipate that our cost of sales will continue to increase in 2018 , due to new product launches and the full year impact of sales of certain products launched in 2017 that are subject to profit-sharing arrangements . story_separator_special_tag 44 we source the raw materials for our products from both domestic and international suppliers , which we carefully select . generally , we qualify only a single source of api for use in each product due to the cost and time required to validate and qualify a second source of supply . any change in one of our api suppliers must usually be approved through a pas by the fda . the process of obtaining an approval of such a pas can require between four and 18 months . while we also generally qualify a single source for non-api raw materials , the process required to qualify an alternative source of a non-api raw material is typically much less rigorous . if we were to change the supplier of a raw material for a product , the cost for the material could be greater than the amount we paid with the previous supplier . changes in suppliers are rare , but could occur as a result of a supplier 's business failing , an issue arising from an fda inspection , or failure to maintain our required standards of quality . as a result , we select suppliers with great care , based on various factors including quality , reliability of supply , and long-term financial stability . certain of the apis for our drug products , including those that are marketed without approved ndas or andas , such as eemt , are sourced from international suppliers . from time to time , we have experienced temporary disruptions in the supply of certain of such imported api due to fda inspections . during the year ended december 31 , 2017 , we purchased 23 % of our inventory from two suppliers . as of december 31 , 2017 , amounts payable to these suppliers was $ 0.2 million . in the year ended december 31 , 2016 , we purchased 25 % of our inventory from one supplier . in order to manufacture opium tincture , oxycodone hydrochloride oral solution ( 5 mg/5 ml ) , oxycodone hydrochloride oral solution ( 100 mg/5 ml ) , and oxycodone capsules , we must submit a request to the drug enforcement agency ( “ dea ” ) for a quota to purchase the amount of opium and oxycodone needed to manufacture the respective products . without approved quotas from the dea , we would not be able to purchase these ingredients from our suppliers . as a result , we are dependent upon the dea to annually approve a sufficient quota of api to support the continued manufacture of opium tincture , oxycodone hydrochloride oral solution ( 5 mg/5 ml ) , oxycodone hydrochloride oral solution ( 100 mg/5 ml ) , and oxycodone capsules . other operating expenses replace_table_token_6_th other operating expenses consist of research and development costs , selling , general , and administrative expenses , depreciation and amortization , and impairment charges . for the year ended december 31 , 2017 , other operating expenses increased to $ 69.5 million from $ 59.8 million for the same period in 2016 , an increase of $ 9.7 million , or 16.3 % , primarily as a result of the following factors : · research and development expenses increased from $ 2.9 million to $ 9.1 million , an increase of 212.1 % , due to timing of work on development projects , primarily the cortrophin gel re-commercialization project and the vancocin oral solution project . current projects also include work on the andas purchased in 2014 and 2015. we anticipate that research and development costs will continue to increase in 2018 , in support of our strategy to expand our product portfolio and as we continue to focus on the development of our cortrophin product . · selling , general , and administrative expenses increased from $ 27.8 million to $ 31.6 million , an increase of 13.5 % , primarily due to increases in personnel and related costs and $ 0.5 million of expenses related to a proposed transaction that we ultimately decided not to pursue further . these increases were partially offset by the lack of the $ 1.3 million of expenses related to the transition of our cfo in the second quarter of 2016. we anticipate that selling , general , and administrative expenses will continue to increase in 2018 , as we support anticipated additional revenue growth . 45 · depreciation and amortization increased from $ 22.3 million to $ 27.9 million , an increase of 25.0 % , due primarily to the amortization of the distribution license and trademark for inderal xl , which were acquired in february 2017 , the amortization of the product rights for innopran xl , which were acquired in february 2017 , and the amortization of the rights , title , and interest in the nda for inderal la , which were acquired in april 2016. we anticipate that depreciation and amortization expense will continue to increase in 2018 , as a result of our amortization of the ndas for atacand , atacand hct , arimidex , and casodex , acquired in late december 2017 . · as discussed under intangible assets in our critical accounting estimates , we recognized an impairment charge of $ 0.9 million and $ 6.7 million in relation to our testosterone gel nda asset during the years ended december 31 , 2017 and 2016 , respectively . other expense , net replace_table_token_7_th for the year ended december 31 , 2017 , we recognized other expense , net of $ 12.0 million versus other expense , net of $ 11.4 million for the same period in 2016 , an increase of $ 0.6 million . interest expense , net for both periods consists primarily of interest expense on our convertible debt and , in 2017 , included interest expense on borrowings under our line of credit . for the years ended december 31 , 2017 and 2016 , there was $ 0.6 million and $ 0.2 million of interest capitalized into construction in progress , respectively .
| in 2018 , we anticipate increases in generic pharmaceutical product revenues related to our recently-launched products , as well as additional products we expect to launch in 2018. as described in item 1. business – government regulations – unapproved products , we market eemt and opium tincture without fda approved ndas . the fda 's policy with respect to the continued marketing of unapproved products appears in the fda 's september 2011 compliance policy guide sec . 440.100 titled `` marketed new drugs without approved ndas or andas . '' under this policy , the fda has stated that it will follow a risk-based approach with regard to enforcement against marketing of unapproved products . the fda evaluates whether to initiate enforcement action on a case-by-case basis , but gives higher priority to enforcement action against products in certain categories , such as those with potential safety risks or that lack evidence of effectiveness . while we believe that , so long as we comply with applicable manufacturing standards , the fda will not take action against us under the current enforcement policy , we can offer no assurances that the fda will continue this policy or not take a contrary position with any individual product or group of products . our combined net revenues for these products for the years ended december 31 , 2017 and 2016 were $ 27.6 million and $ 34.3 million , respectively . · net revenues for branded pharmaceutical products were $ 50.9 million during the year ended december 31 , 2017 an increase of 92.6 % compared to the $ 26.4 million for the same period in 2016. the primary reason for the increase was sales of inderal xl and innopran xl , both of which were launched in first quarter of 2017 , as well as sales of inderal la , which was launched in the second quarter of 2016. these increases were partially offset by decreased unit sales for vancocin . we experience periodic larger orders for our vancocin product that relate to clinical trials . such orders constituted $
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we update the assumptions underlying the estimate of unpaid policy claims regularly and incorporate our historical experience as well as other data that provides information regarding our outstanding liability . our insurance products provide fixed-benefit amounts per occurrence that are not subject to medical-cost inflation . furthermore , our business is widely dispersed in both the united states and japan . this geographic dispersion and the nature of our benefit structure mitigate the risk of a significant unexpected increase in claims payments due to epidemics and events of a catastrophic nature . claims incurred under aflac 's policies are generally reported and paid in a relatively short time frame . the unpaid claims liability is sensitive to morbidity assumptions , in particular , severity and frequency of claims . severity is the ultimate size of a claim , and frequency is the number of claims incurred . our claims experience is primarily related to the demographics of our policyholders . as a part of our established financial reporting and accounting practices and controls , we perform actuarial reviews of our policyholder liabilities on an ongoing basis and reflect the results of those reviews in our results of operations and financial condition as required by gaap . our review in 2012 indicated that we needed to strengthen the liability associated primarily with a block of care policies and a closed block of dementia policies in japan , primarily due to low investment yields . we strengthened our future policy benefits liability by $ 81 million in 2012 as a result of this review . our review in 2011 indicated that we needed to strengthen the liability associated primarily with a closed block of cancer policies and a block of care policies in japan , primarily due to low investment yields . we strengthened our future policy benefits liability by $ 123 million in 2011 as a result of this review . the table below reflects the growth of the future policy benefits liability for the years ended december 31. future policy benefits replace_table_token_13_th as of december 31 , 2012 , the decrease in total consolidated future policy benefits liability in dollars was primarily driven by the weakening of the yen against the u.s. dollar , compared with december 31 , 2011. the growth of the future policy benefits liability in yen for aflac japan and in dollars for aflac u.s. has been due to the aging of our in-force block of business and the addition of new business . in computing the estimate of unpaid policy claims , we consider many factors , including the benefits and amounts available under the policy ; the volume and demographics of the policies exposed to claims ; and internal business practices , such as incurred date assignment and current claim administrative practices . we monitor these conditions closely and make adjustments to the liability as actual experience emerges . claim levels are generally stable from period to period ; however , fluctuations in claim levels may occur . in calculating the unpaid policy claim liability , we do not calculate a range of estimates . the following table shows the expected sensitivity of the unpaid policy claims liability as of december 31 , 2012 , to changes in severity and frequency of claims . for the years 2010 through 2012 , our assumptions changed on average by approximately 1 % in total , and we believe that a variation in assumptions in a range of plus or minus 1 % in total is reasonably likely to occur . 33 sensitivity of unpaid policy claims liability replace_table_token_14_th other policy liabilities , which accounted for 18 % of total policy liabilities as of december 31 , 2012 , consisted primarily of discounted advance premiums on deposit from policyholders in conjunction with their purchase of certain aflac japan insurance products . these advanced premiums are deferred upon collection and recognized as premium revenue over the contractual premium payment period . advanced premiums represented 56 % and 43 % of the december 31 , 2012 and 2011 other policy liabilities balances , respectively . the increase in 2012 of other policy liabilities was due to the increase in sales of policies in japan that have discounted advance premiums . see the aflac japan segment subsection of this md & a for further information . income taxes income tax provisions are generally based on pretax earnings reported for financial statement purposes , which differ from those amounts used in preparing our income tax returns . deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities , based on enacted tax laws and statutory tax rates applicable to the periods in which we expect the temporary differences to reverse . the evaluation of a tax position in accordance with gaap is a two-step process . under the first step , the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination by taxing authorities . the second step is measurement , whereby a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements . a valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized . see note 9 of the notes to the consolidated financial statements for additional information . new accounting pronouncements as of january 1 , 2012 , we retrospectively adopted the amended accounting guidance on accounting for dac , costs associated with acquiring or renewing insurance contracts . under the previous guidance , we capitalized costs that varied with and were primarily related to the acquisition of a policy . under the amended accounting guidance , only incremental direct costs associated with the successful acquisition of new or renewal contracts may be capitalized , and direct-response advertising costs may be capitalized under certain conditions . story_separator_special_tag approximately 70 % of our deferred acquisition costs balance prior to the adoption of this guidance was related to compensation paid to third party agents for successful sales and remains deferrable under the amended accounting guidance . the remaining 30 % of the deferred acquisition costs balance was evaluated for deferral under the amended accounting guidance . the retrospective adoption of this accounting standard resulted in an after-tax cumulative reduction to retained earnings of $ 391 million and an after-tax cumulative reduction to unrealized foreign currency translation gains in accumulated other comprehensive income of $ 67 million , resulting in a total reduction to shareholders ' equity of $ 458 million as of december 31 , 2009 , the opening balance sheet date presented in this report . the adoption of this accounting standard had an immaterial impact on net income in 2011 and all preceding years . during the last three years , various accounting standard-setting bodies have been active in soliciting comments and issuing statements , interpretations and exposure drafts . for additional information on new accounting pronouncements and the impact , if any , on our financial position or results of operations , see note 1 of the notes to the consolidated financial statements . results of operations the following discussion includes references to our performance measures , operating earnings and operating earnings per diluted share , that are not based on accounting principles generally accepted in the united states of america ( “ gaap ” ) . after-tax operating earnings ( operating earnings ) is the measure of segment profit or loss we use to evaluate segment performance and allocate resources . consistent with gaap accounting guidance for segment 34 reporting , operating earnings is our measure of segment performance . aflac believes that an analysis of operating earnings is vitally important to an understanding of our underlying profitability drivers . aflac defines operating earnings ( a non-gaap financial measure ) as the profits derived from operations before realized investment gains and losses ( securities transactions , impairments , and derivative and hedging activities ) as well as nonrecurring items . aflac 's derivative activities include : foreign currency , interest rate and credit default swaps in variable interest entities that are consolidated ; foreign currency swaps associated with our senior notes and subordinated debentures ; and foreign currency forwards used in hedging foreign exchange risk on u.s. dollar-denominated securities . nonrecurring items are infrequent activities that are not directly associated with the company 's insurance operations . our management uses operating earnings to evaluate the financial performance of aflac 's insurance operations because realized investment gains and losses ( securities transactions , impairments , and derivative and hedging activities ) as well as nonrecurring items , tend to be driven by general economic conditions and events or are related to infrequent activities not directly associated with our insurance operations , and therefore may obscure the underlying fundamentals and trends in aflac 's insurance operations . the following table is a reconciliation of items impacting operating and net earnings and operating and net earnings per diluted share for the years ended december 31. reconciliation of operating earnings to net earnings replace_table_token_15_th prior-year amounts have been adjusted for the adoption of accounting guidance on january 1 , 2012 related to deferred policy acquisition costs . realized investment gains and losses our investment strategy is to invest in fixed-income securities to provide a reliable stream of investment income , which is one of the drivers of the company 's profitability . this investment strategy incorporates asset-liability matching ( alm ) to align the expected cash flows of the portfolio to the needs of the company 's liability structure . we do not purchase securities with the intent of generating capital gains or losses . however , investment gains and losses may be realized as a result of changes in the financial markets and the creditworthiness of specific issuers , tax planning strategies , and or general portfolio maintenance and rebalancing . the realization of investment gains and losses is independent of the underwriting and administration of our insurance products , which are the principal drivers of our profitability . securities transactions and impairments during 2012 , we recognized pretax other-than-temporary impairment losses of $ 977 million ( $ 635 million after-tax ) . we realized pretax investment gains , net of losses , of $ 474 million ( $ 309 million after-tax ) from sales and redemptions of securities . these net gains primarily resulted from sales of japanese government bonds ( jgbs ) in a bond-swap program in the third quarter of 2012 and sales resulting from our efforts to reduce risk exposure in our investment portfolio . in 2011 , we recognized pretax other-than-temporary impairment losses of $ 1.9 billion ( $ 1.2 billion after-tax ) . we realized pretax investment gains , net of losses , of $ 594 million ( $ 386 million after-tax ) from the sale of securities . the impairments and many of the sales were the result of an implemented plan to reduce the risk exposure in our investment 35 portfolio , coupled with the continued decline in the creditworthiness of certain issuers . the sales gains were primarily driven by the sale of u.s. treasury strips and jgbs that were part of a bond-swap program . in 2010 , we recognized pretax other-than-temporary impairment losses of $ 459 million ( $ 298 million after-tax ) . we realized pretax investment gains , net of losses , of $ 38 million ( $ 25 million after-tax ) from securities sold or redeemed in the normal course of business . see note 3 of the notes to the consolidated financial statements for more details on these investment activities .
| for further information regarding these capital transactions , see note 8 of the notes to the consolidated financial statements and the analysis of financial condition section of this md & a . we repurchased 1.9 million shares of our common stock in the open market during 2012. critical accounting estimates we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) . these principles are established primarily by the financial accounting standards board ( fasb ) . in this md & a , references to gaap issued by the fasb are derived from the fasb accounting standards codification tm ( asc ) . the preparation of financial statements in conformity with gaap requires us to make estimates based on currently available information when recording transactions resulting from business operations . the estimates that we deem to be most critical to an understanding of aflac 's results of operations and financial condition are those related to the valuation of investments and 30 derivatives , deferred policy acquisition costs ( dac ) , liabilities for future policy benefits and unpaid policy claims , and income taxes . the preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management 's analyses and judgments . the application of these critical accounting estimates determines the values at which 96 % of our assets and 73 % of our liabilities are reported as of december 31 , 2012 , and thus has a direct effect on net earnings and shareholders ' equity . subsequent experience or use of other assumptions could produce significantly different results . investments and derivatives aflac 's investments in debt , perpetual and equity securities include both publicly issued and privately issued securities . for publicly issued securities , we determine the fair values from quoted market prices readily available from public exchange markets and price quotes and valuations from third party pricing vendors . for privately issued securities , we determine the majority of the fair values using a discounted cash flow pricing model and for
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amended and restated limited liability company agreement of freshrealm , llc effective july 31 , 2013 , calavo and certain noncontrolling members have entered into an amended and restated limited liability company agreement ( the agreement ) of freshrealm , llc ( freshrealm ) . the purpose of freshrealm is to engage in activities relating to the marketing of food products directly to consumers or other entities . freshrealm 's technology platform is currently being developed and is expected to allow participants such as traditional retailers , large and small enterprises , communities and food banks to enter into a platform resembling a national fresh food cooperative . freshrealm will serve as a way to connect participants to a network of regional fresh food producers . pursuant to this agreement , freshrealm issued approximately 1.3 million units , with calavo owning 71.5 % of freshrealm for a capital contribution of $ 0.9 million . the noncontrolling members , representing the remaining 28.5 % ownership , contributed either cash ( totaling approximately $ 0.1 million ) or a full-recourse promissory note payable to calavo ( totaling approximately $ 0.3 million ) in exchange for their units . the percentage interest of each member may be subject to pro rata adjustments through october 31 , 2013 based on participation of the anticipated initial member group . each full-recourse promissory note described above will be due and payable in full on may 1 , 2016 , with interest at 4 % per annum , to be due on may 1 , 2016. if , prior to may 1 , 2016 , freshrealm terminates an employee 's employment for cause , as defined , or the employee terminates his employment other than ( a ) for good reason , as defined , or ( b ) as a result of the employee 's death or disability , notwithstanding whether prior to such date the employee repaid his note in full , then all of the employee 's units will be transferred to calavo . members have limited voting rights . in any matters presented to the members for approval , each member will have one vote for each unit held by such member . for situations for which the approval of the members is required , the members shall act by majority vote . members may make loans to freshrealm with the consent of the board of directors of freshrealm ( the fr board ) . the board of calavo growers approved loans of up to $ 3,000,000 from calavo to freshrealm under the line of credit and security agreement between calavo and freshrealm . subject to certain limitations , the fr board has the sole discretion regarding the amounts and timing of distributions to members . after making tax distributions required for a given fiscal year , all distributions will be made to the members pro rata , pari passu in accordance with their respective percentage interests , except freshrealm will first apply distributions ( other than tax distributions ) to each member who is an employee against such member 's promissory note until the promissory note is paid in full . freshrealm 's losses and income that are determined for accounting purposes will also be allocated for each fiscal year , including for the full 2013 fiscal year , to the members in accordance with the allocation principles for net loss and net income . as a result , a $ 0.6 million loss has been allocated to the noncontrolling members as of october 31 , 2013. see additional discussion below . freshrealm started operating as a development stage company in the second quarter of 2013. as of october 31 , 2013 , planned , principal operations have not commenced . as a result , freshrealm has no sales or cost of sales . when principal operations commence , freshrealm is expected to become our fourth segment . freshrealm has incurred $ 1.9 million of expenses related to its development as of october 31 , 2013 , which are included in selling , general and administrative expenses . of the $ 1.9 million in selling , general and administrative expenses , $ 1.3 million has been attributed to calavo and a $ 0.6 million loss has been attributed to the noncontrolling members . we record the noncontrolling interest outside of permanent equity to highlight the potential future cash receivable related to this entity . 19 amendment no.1 to rfg acquisition agreement effective july 31 , 2013 , calavo , rfg and liberty fresh foods , llc , kenneth catchot , cut fruit , llc , james catchot , james gibson , jose o. castillo , donald l. johnson and rfg nominee trust ( collectively , the sellers ) entered into amendment no . 1 of the agreement and plan of merger ( the amendment ) . calavo , rfg and the sellers are parties to an agreement and plan of merger dated as of may 25 , 2011 ( the merger agreement ) pursuant to which , among other things , calavo acquired rfg from the sellers and calavo agreed to make earn-out payments to the sellers upon the satisfaction of certain performance requirements specified in the merger agreement . the merger agreement states that , upon the attainment of the stage 2 maximum earn-out trigger prior to the end of the earn-out period , calavo shall be obligated to pay the stage 2 maximum earn-out consideration to the sellers . the merger agreement states that the stage 2 maximum earn-out consideration shall be $ 5,000,000 in cash and 827,000 shares of calavo common stock . story_separator_special_tag the merger agreement states that the stage 2 maximum earn-out trigger shall be met if , for any 12-month period during the earn-out period , ( 1 ) the ebitda for rfg is equal to or greater than $ 8,000,000 and ( 2 ) the revenue for rfg is equal to or greater than $ 130,000,000. calavo , rfg and the sellers have amended the merger agreement by the amendment to provide , among other things , that : ( 1 ) calavo shall deliver $ 5,000,000 of common stock to the sellers , as part of the stage 2 maximum earn-out consideration instead of delivering $ 5,000,000 of cash to the sellers ; ( 2 ) the sellers shall receive specified price protection from calavo with respect to the sale of such common stock ; and ( 3 ) calavo shall file with the securities and exchange commission ( the sec ) a registration statement on form s-3 ( the registration statement ) which shall cover the public resale of such common stock by the sellers during the period specified in the amendment . during our fourth fiscal quarter , rfg attained the stage 2 maximum earn-out trigger . as such , pursuant to this amendment , we filed the registration statement and issued 172,117 shares of common stock , valued at $ 29.05 , to the sellers in october 2013. from october 2013 to november 2013 , the sellers sold all 172,117 shares for $ 5.0 million . amendment no.2 to rfg acquisition agreement effective october 1 , 2013 , calavo , rfg and liberty fresh foods , llc , kenneth catchot , cut fruit , llc , james catchot , james gibson , jose o. castillo , donald l. johnson and rfg nominee trust ( collectively , the sellers ) entered into amendment no . 2 of the agreement and plan of merger ( the second amendment ) . calavo , rfg and the sellers are parties to an agreement and plan of merger dated as of may 25 , 2011 , as amended by amendment no . 1 thereto , dated july 31 , 2013 ( as so amended the merger agreement ) , pursuant to which , among other things , calavo acquired rfg from the sellers and calavo agreed to make earn-out payments to the sellers upon the satisfaction of certain performance requirements specified in the merger agreement . the merger agreement provides that , upon the attainment of the stage 3 maximum earn-out trigger or the stage 3 scale earn-out trigger , as applicable , calavo shall be obligated to make a stage 3 earn-out payment to the sellers consisting of either the stage 3 maximum earn-out consideration or the stage 3 scale earn-out consideration , each of which shall consist of a specified amount of cash and a specified number of merger shares . pursuant to the second amendment , calavo , rfg and the sellers amended the merger agreement to provide , among other things , that : ( 1 ) with respect to the portion of the stage 3 maximum earn-out consideration or the stage 3 scale earn-out consideration , as applicable , that is currently required by the merger agreement to be paid in cash to the sellers , calavo shall have the right to elect to pay all or a portion of such cash amount by delivery of additional merger shares to the rfg nominee trust ( the trust ) , for the benefit of the sellers ; ( 2 ) the sellers shall receive specified price protection from calavo with respect to the trust 's sale of shares of common stock on the nasdaq stock market , up to the total number of shares of common stock issued to the trust pursuant to this second amendment ; and ( 3 ) calavo shall file with the sec a registration statement on form s-3 covering the trust 's resale on the nasdaq stock market of any additional merger shares issued pursuant to the second amendment for sales that occur during the period specified in this second amendment . any additional merger shares issued by calavo in lieu of cash payments to the sellers will be valued for this purpose at the closing price of calavo common stock as reported on the nasdaq stock market at the time of issuance . 20 investment in unconsolidated entity in october 2013 , we contributed $ 1.0 million to the purchase of 60 hectares of property in jalisco , mexico , for the development of facilities to grow tomatoes . in the first quarter of 2014 , we expect to enter into a joint venture agreement with agricola belher ( belher ) . such joint venture is expected to operate under the name of agricola don memo . belher and calavo are expected to have equal one-half ownership interests in agricola don memo , but belher will ultimately have overall management responsibility for the operations of agricola don memo . the contribution of $ 1.0 million has been recorded as an investment in unconsolidated entities on our consolidated financial statements . critical accounting 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 . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we re-evaluate all of our estimates , including those related to the areas of customer and grower receivables , inventories , useful lives of property , plant and equipment , promotional allowances , income taxes , retirement benefits , and commitments and contingencies .
| fiscal year 2013 decreases in operating cash flows , caused by working capital changes , includes an increase in accounts receivable of $ 16.2 million , an increase in inventory of $ 5.7 million , an increase in prepaid expenses and other current assets of $ 3.6 million , and an increase in advances to suppliers of $ 0.8 million , partially offset by a decrease in income tax receivable of $ 8.2 million , an increase in payable to growers of $ 7.7 million , an increase in trade accounts payable and accrued expenses of $ 5.0 million , and a decrease in other assets of $ 0.1 million . the increase in our accounts receivable balance as of october 31 , 2013 , when compared to october 31 , 2012 , primarily reflects an increase in sales across all segments in the month of october 2013 , as compared to october 2012. the increase in our inventory balance is primarily related to an increase in mexico avocado inventory on hand at october 31 , 2013 , as compared to the same prior year period . the increase in prepaid expenses and other current assets is primarily due to an increase in the receivable of mexican iva taxes related to the increase of purchases of mexican avocados as compared to prior year . the increase in advances to suppliers is primarily due to an increase in pre-season advances to our tomato grower agricola belher . the increase in payable to our growers primarily reflects an increase in california fruit delivered in the month of october 2013 , as compared to the month of october 2012. the increase in our trade accounts payable and accrued expenses is mainly due to an increase in purchases of mexican avocados from co-packers in the month of october 2013 , as compared to october 2012. in addition , this increase is also attributed to an increase in freight accruals due to an overall increase in the volume of mexican avocados in the month of october 2013 , as compared to october 2012. cash used in investing activities was $ 7.7 million , $ 7.2 million , and $ 20.9 million for fiscal years 2013 , 2012 , and 2011. fiscal year 2013 cash flows used in investing activities include capital expenditures of $ 6.7 million and an investment of $ 1.0 million to the new joint venture which is expected to operate under the name of agricola don memo . cash used in financing activities was $ 5.1 million and $ 10.2 million
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it is useful to read the business segment information in conjunction with note 16 , business segment of the notes to consolidated financial statements . critical accounting policies the preparation of our consolidated financial statements in accordance with generally accepted accounting principles , or “ gaap , ” 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 . we consider an accounting estimate to be critical if : ( 1 ) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made , and ( 2 ) changes in the estimates that are likely to occur from period to period , or use of different estimates that we reasonably could have used in the current period , would have a material impact on our financial condition or results of operations . on an on-going basis , we evaluate our estimates , including those related to revenue recognition , impairment of long-lived assets , capitalization of costs , profit recognition related to land sales , stock compensation , our future ability to utilize deferred tax assets , and defined benefit retirement plans . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management has discussed the development and selection of these critical accounting estimates with the audit committee of our board of directors and the audit committee has reviewed the foregoing disclosure . in addition , there are other items within our financial statements that require estimation , but are not deemed critical as defined above . changes in estimates used in these and other items could have a material impact on our financial statements . see also note 1 , summary of significant accounting policies of the notes to the consolidated financial statements , which discusses accounting policies that we have selected from acceptable alternatives . we believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements : 23 revenue recognition – the company 's revenue is primarily derived from lease revenue from our rental portfolio , royalty revenue from mineral leases , sales of farm crops , sales of water , and land sales . revenue from leases with rent concessions or fixed escalations is recognized on a straight-line basis over the initial term of the related lease unless there is a considerable risk as to collectibility . the financial terms of leases are contractually defined . lease revenue is not accrued when a tenant vacates the premises and ceases to make rent payments or files for bankruptcy . royalty revenues are contractually defined as to the percentage of royalty and are tied to production and market prices . our royalty arrangements generally require payment on a monthly basis with the payment based on the previous month 's activity . we accrue monthly royalty revenues based upon estimates and adjust to actual as we receive payments . from time to time the company sells easements over its land . the easements are either in the form of rights of access granted for such things as utility corridors or are in the form of conservation easements that generally require the company to divest its rights to commercially develop a portion of its land , but do not result in a change in ownership of the land or restrict the company from continuing other revenue generating activities on the land . sales of conservation easements are accounted for in accordance with staff accounting bulletin topic 13 - revenue recognition , or sab topic 13. since conservation easements generally do not impose any significant continuing performance obligations on the company , revenue from conservation easement sales have been recognized when the four criteria outlined in sab topic 13 have been met , which generally occurs in the period the sale has closed and consideration has been received . in recognizing revenue from land sales , the company follows the provisions in accounting standards codification 976 , or asc 976 , “ real estate – retail land ” to record these sales . asc 976 provides specific sales recognition criteria to determine when land sales revenue can be recorded . for example , asc 976 requires a land sale to be consummated with a sufficient down payment of at least 20 % to 25 % of the sales price depending upon the type and timeframe for development of the property sold , and that any receivable from the sale can not be subject to future subordination . in addition , the seller can not retain any material continuing involvement in the property sold or be required to develop the property in the future . at the time farm crops are harvested , contracted , and delivered to buyers and revenues can be estimated , revenues are recognized and any related inventoried costs are expensed , which traditionally occurs during the third and fourth quarters of each year . it is not unusual for portions of our almond or pistachio crop to be sold in the year following the harvest . orchard ( almond and pistachio ) revenues are based upon the contract settlement price or estimated selling price , whereas vineyard revenues are typically recognized at the contracted selling price . estimated prices for orchard crops are based upon the quoted estimate of what the final market price will be by marketers and handlers of the orchard crops . these market price estimates are updated through the crop payment cycle as new information is received as to the final settlement price for the crop sold . story_separator_special_tag these estimates are adjusted to actual upon receipt of final payment for the crop . this method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community . actual final crop selling prices are not determined for several months following the close of our fiscal year due to supply and demand fluctuations within the orchard crop markets . adjustments for differences between original estimates and actual revenues received are recorded during the period in which such amounts become known . capitalization of costs - the company capitalizes direct construction and development costs , including predevelopment costs , interest , property taxes , insurance , and indirect project costs that are clearly associated with the acquisition , development , or construction of a project . costs currently capitalized that in the future would be related to any abandoned development opportunities will be written off if we determine such costs do not provide any future benefits . should development activity decrease , a portion of interest , property taxes , and insurance costs would no longer be eligible for capitalization , and would be expensed as incurred . allocation of costs related to land sales and leases – when we sell or lease land within one of our real estate developments and we have not completed all infrastructure development related to the total project , we follow asc 976 to determine the appropriate costs of sales for the sold land and the timing of recognition of the sale . in the calculation of cost of sales or allocations to leased land , we use estimates and forecasts to determine total costs at completion of the development project . these estimates of final development costs can change as conditions in the market and costs of construction change . in preparing these estimates , we use internal budgets , forecasts , and engineering reports to help us estimate future costs related to infrastructure that has not been completed . these estimates become more accurate as the development proceeds forward , due to historical cost numbers and to the continued refinement of the development plan . these estimates are updated periodically throughout the year so that , at the ultimate completion of development , all costs have been allocated . any increases to our estimates in future years will negatively impact net profits and liquidity due to an increased need for funds to complete development . if , however , this estimate decreases , net profits as well as liquidity will improve . 24 we believe that the estimates used related to cost of sales and allocations to leased land are critical accounting estimates and will become even more significant as we continue to move forward as a real estate development company . the estimates used are very susceptible to change from period to period , due to the fact that they require management to make assumptions about costs of construction , absorption of product , and timing of project completion , and changes to these estimates could have a material impact on the recognition of profits from the sale of land within our developments . impairment of long-lived assets – we evaluate our property and equipment and development projects for impairment when events or changes in circumstances indicate that the carrying value of assets contained in our financial statements may not be recoverable . the impairment calculation compares the carrying value of the asset to the asset 's estimated future cash flows ( undiscounted ) . if the estimated future cash flows are less than the carrying value of the asset , we calculate an impairment loss . the impairment loss calculation compares the carrying value of the asset to the asset 's estimated fair value , which may be based on estimated future cash flows ( discounted ) . we recognize an impairment loss equal to the amount by which the asset 's carrying value exceeds the asset 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset will be its new cost basis . for a depreciable long-lived asset , the new cost basis will be depreciated ( amortized ) over the remaining useful life of that asset . restoration of a previously recognized impairment loss is prohibited . we currently operate in four segments , commercial/industrial real estate development , resort/residential real estate development , mineral resources , and farming . at this time , there are no assets within any of our segments that we believe are in danger of being impaired due to market conditions . we believe that the accounting estimate related to asset impairment is a critical accounting estimate because it is very susceptible to change from period to period ; it requires management to make assumptions about future prices , production , and costs , and the potential impact of a loss from impairment could be material to our earnings . management 's assumptions regarding future cash flows from real estate developments and farming operations have fluctuated in the past due to changes in prices , absorption , production and costs and are expected to continue to do so in the future as market conditions change . in estimating future prices , absorption , production , and costs , we use our internal forecasts and business plans . we develop our forecasts based on recent sales data , historical absorption and production data , input from marketing consultants , as well as discussions with commercial real estate brokers and potential purchasers of our farming products . if actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values , we may be exposed to impairment losses that could be material to our results of operations . defined benefit retirement plans – the plan obligations and related assets of our defined benefit retirement plan are presented in note 15 retirement plans of the notes to consolidated financial statements .
| at december 31 , 2014 , the outstanding amount of the credit was $ 68,000. our expectations are that percentage rent from this lease will continue to range between $ 400,000 and $ 600,000 as it has traditionally done . the decrease in commercial/industrial segment revenues was also attributed to a decrease of $ 151,000 in cattle grazing range leases and other ancillary commercial revenues . commercial/industrial real estate segment expenses were $ 13,204,000 during 2014 , an increase of $ 302,000 or 2 % compared to the same period in 2013 , primarily due to a $ 587,000 increase in general and administrative allocations in line with higher corporate expenses , a $ 147,000 decrease in costs capitalized to construction in progress as a result of increased activity within our joint ventures , such as the tejon/rock outlet center llc , and $ 161,000 higher employee compensation including stock compensation expense and bonus incentives associated with growth in this segment . these increases were partially offset by a $ 447,000 decrease in assessments from tejon-castac water district , a $ 93,000 decrease in depreciation , a decline in professional service fees , and a $ 129,000 decrease in marketing expense , as our marketing efforts have been directed to the outlets at tejon , where costs are shared with our joint venture partner . during 2013 , our commercial/industrial segment profits improved $ 576,000 compared to 2012. commercial/industrial segment revenues increased $ 1,207,000 during 2013 compared to 2012 primarily due to a $ 1,036,000 increase in hunting revenues . the hunting program re-opened in september 2012 after an eight month closure . additionally , percentage rent from our calpine power plant increased $ 551,000. percentage rent is based on a spark spread arrangement that is tied to the price of electricity and natural gas . these increases were partially offset by a $ 648,000 decrease in land sale revenue recognized in the first half of 2012 related to the deferred gain from the land sale to caterpillar that occurred
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license agreements are structured with fixed , variable or a hybrid of fixed and variable royalty payments over certain defined periods ranging for periods of up to ten years . leading consumer product , semiconductor and system companies such as amd , broadcom , cisco , freescale , fujitsu , ge , ibm , intel , lsi , micron , nanya , panasonic , qualcomm , renesas , samsung , sk hynix , stmicroelectronics and toshiba have licensed our patents for use in their own products . the majority of our intellectual property in mid was developed in-house and we have expanded our business strategy of monetizing our mid intellectual property to include the sale of select intellectual property . as any sales executed under this expanded strategy represent a component of our ongoing major or central operations and activities , we will record the related proceeds as revenue . we also offer our customers technology licenses to support the implementation and adoption of our technology in their products or services . our customers include leading companies such as eaton , ge , ibm , panasonic , qualcomm , samsung , sony and toshiba . our technology license offerings include a range of technologies for incorporation into our customers ' products and systems . we also offer a range of services as part of our technology licenses which can include know-how and technology transfer , product design and development , system integration , and other services . these technology license agreements may have both a fixed price ( non-recurring ) component and ongoing royalties . further , under technology licenses , our customers typically receive licenses to our patents necessary to implement these solutions in their products with specific rights and restrictions to the applicable patents elaborated in their individual contracts with us . 26 the remainder of our revenue is contract services revenue which includes license fees and engineering services fees , although we expect the acquisition of smart card software to be accretive to revenue within the first twelve months . the timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenue or account receivables in any given period . we intend to continue making significant expenditures associated with engineering , sales , general and administration and expect that these costs and expenses will continue to be a significant percentage of revenue in future periods . whether such expenses increase or decrease as a percentage of revenue will be substantially dependent upon the rate at which our revenue or expenses change . executive summary during 2015 , we signed and renewed key license agreements with ibm , renesas , sk hynix and toshiba . we also revealed our smart data acceleration research program which improves data center performance . additionally , we initiated a $ 100 million accelerated share repurchase program . furthermore , we introduced the r+ ddr4 server memory chipset , rcd26 , for rdimms and lrdimms . engineering expenses continues to play a key role in our efforts to maintain product innovations . our engineering expenses for the year ended december 31 , 2015 increased $ 4.4 million as compared to 2014 primarily due to increased expenses related to software design tools of $ 3.5 million , increased headcount related expenses of $ 2.1 million , increased bonus accrual expense of $ 1.5 million and increased cost of sales associated with increased sales of light guides and security products and engineering services of $ 1.5 million , offset by decreased accrual of retention bonuses of $ 1.5 million , decreased amortization costs of $ 1.5 million and decreased equipment and software maintenance costs of $ 0.7 million . sales , general and administrative expenses for the year ended december 31 , 2015 decreased $ 4.2 million as compared to 2014 primarily due to decreased consulting costs of $ 3.1 million , decreased depreciation expense of $ 1.3 million , decreased software and equipment maintenance costs of $ 0.9 million and decreased litigation costs of $ 0.5 million , offset by increased headcount related expenses of $ 0.9 million and increased stock-based compensation expense of $ 0.8 million . trends there are a number of trends that may have a material impact on us in the future , including but not limited to , the evolution of memory technology , adoption of leds in general lighting , the use and adoption of our inventions or technologies and global economic conditions with the resulting impact on sales of consumer electronic systems . we have a high degree of revenue concentration , with our top five customers representing approximately 65 % , 62 % and 62 % of our revenue for the years ended december 31 , 2015 , 2014 and 2013 , respectively . as a result of renewing with samsung in 2013 and settling with sk hynix and micron in 2013 , as well as extending our license agreement with sk hynix in june 2015 , samsung , sk hynix and micron are expected to account for a significant portion of our ongoing licensing revenue . for both of the years ended december 31 , 2015 and 2014 , revenue from micron , samsung and sk hynix each accounted for 10 % or more of our total revenue . for the year ended december 31 , 2013 , revenue from samsung accounted for 10 % or more of our total revenue in each year . the particular customers which account for revenue concentration have varied from period to period as a result of the addition of new contracts , expiration of existing contracts , renewals of existing contracts , industry consolidation and the volumes and prices at which the customers have recently sold to their customers . these variations are expected to continue in the foreseeable future . our licensing cycle is lengthy , costly and unpredictable with any degree of certainty . we may incur costs in any particular period before any associated revenue stream begins , if at all . story_separator_special_tag our lengthy license negotiation cycles could make our future revenue difficult to predict because we may not be successful in entering into licenses with our customers in the amounts projected , or on our anticipated timelines . in addition , while some of our license agreements provide for fixed , quarterly royalty payments , many of our license agreements provide for volume-based royalties , and may also be subject to caps on royalties in a given period . the sales volume and prices of our customers ' products in any given period can be difficult to predict . as a result , our actual results may differ substantially from analyst estimates or our forecasts in any given quarter or over the next year . the semiconductor industry is intensely competitive and highly cyclical , limiting our visibility with respect to future sales . to the extent that macroeconomic fluctuations negatively affect our principal customers , the demand for our technology may be significantly and adversely impacted and we may experience substantial period-to-period fluctuations in our operating results . the royalties we receive from our semiconductor customers are partly a function of the adoption of our technologies by system companies . many system companies purchase semiconductors containing our technologies from our customers and do not have a direct contractual relationship with us . our customers generally do not provide us with details as to the identity or volume of 27 licensed semiconductors purchased by particular system companies . as a result , we face difficulty in analyzing the extent to which our future revenue will be dependent upon particular system companies . system companies face intense competitive pressure in their markets , which are characterized by extreme volatility , frequent new product introductions and rapidly shifting consumer preferences . global demand for effective security technologies continues to increase . in particular , highly integrated devices such as smart phones and tablets are increasingly used for applications requiring security such as mobile payments , content protection , corporate information and user data . our crd is primarily focused on positioning its dpa countermeasures , cryptofirewall and cryptomanager technology solutions , and the introduction of mobile payments and smart ticketing solutions to our offerings to capitalize on these trends and growing adoption among technology partners and customers . the highly fragmented general lighting industry is undergoing a fundamental shift from incandescent technology to cold cathode fluorescent lights and led driven technology due to the need to reduce energy consumption and to comply with government mandates . led lighting typically saves energy costs as compared to existing installed lighting . our ldt group 's patents in led edge-lit light guide technology can be applied in the design of next generation led lighting products . the strategy of the ldt group focuses on providing the market with novel , patented light guide technologies and products to customers who are leading the transition to solid-state led-based general lighting fixtures . in 2013 , we sold a set of patent assets related to our core display patents where the purchaser of the patents can proceed independently with a licensing program . we have a net proceeds-sharing program in place with the purchaser of the patents upon their licensing of these patent assets . we retain the rights to use certain application techniques and may selectively engage with customers to license our intellectual property and technology for use and applications as permitted under our agreement , including without limitation , display panel and designs . during the third quarter of 2015 we announced that we are in technical development of the buffer chipset which we are currently sampling to key potential customers and critical ecosystem partners . we are currently working to make the chipset commercially available , but we do not expect any material contribution to revenue from the chipset through 2016. our revenue from companies headquartered outside of the united states accounted for approximately 60 % , 63 % and 70 % of our total revenue for the years ended december 31 , 2015 , 2014 and 2013 , respectively . we expect that revenue derived from international customers will continue to represent a significant portion of our total revenue in the future . to date , all of the revenue from international customers has been denominated in u.s. dollars . however , to the extent that such customers ' sales to their customers are not denominated in u.s. dollars , any revenue that we receive as a result of such sales could be subject to fluctuations in currency exchange rates . in addition , if the effective price of licensed products sold by our foreign customers were to increase as a result of fluctuations in the exchange rate of the relevant currencies , demand for licensed products could fall , which in turn would reduce our revenue . we do not use financial instruments to hedge foreign exchange rate risk . for additional information concerning international revenue , see note 6 , “ segments and major customers , ” of notes to consolidated financial statements of this form 10-k. engineering costs in the aggregate and as a percentage of revenue increased during the year ended december 31 , 2015 as compared to the prior year . in the near term , we expect engineering costs in the aggregate to be higher as we intend to continue to make investments in the infrastructure and technologies required to maintain our product innovation in semiconductor , lighting , security and other technologies , including the acquisition of smart card software in january 2016. sales , general and administrative expenses in the aggregate and as a percentage of revenue decreased during the year ended december 31 , 2015 as compared to the prior year . in the past , our litigation expenses have been high and difficult to predict .
| segment operating loss from the other segment decreased approximately $ 4.9 million to $ 8.3 million for the year ended december 31 , 2015 from $ 13.2 million for the year ended december 31 , 2014. the decrease was primarily due to increase in revenue as discussed above and lower prototyping costs . revenue from the mid reportable segment decreased approximately $ 5.7 million to $ 226.3 million for the year ended december 31 , 2014 from $ 232.0 million for the year ended december 31 , 2013. the decrease was primarily due to lower royalty revenue from samsung , nvidia and xdr dram associated with decreased shipments of the sony playstation ® 3 product . the decreased revenue was partially offset by revenue from license agreements signed with sk hynix , micron , nanya and qualcomm . segment operating income from the mid reportable segment decreased approximately $ 11.7 million to $ 185.5 million for the year ended december 31 , 2014 from $ 197.2 million for the year ended december 31 , 2013. the decrease was primarily due to decrease in revenue as discussed above and increased headcount related costs due to higher number of employees in 2014. revenue from the crd reportable segment increased approximately $ 16.7 million to $ 49.3 million for the year ended december 31 , 2014 from $ 32.6 million for the year ended december 31 , 2013. the increase was primarily due to the license agreement signed with qualcomm during 2014 , the license agreement signed with samsung during 2013 and new technology development contracts during 2014. segment operating income from the crd reportable segment increased approximately $ 9.4 million to $ 21.7 million for the year ended december 31 , 2014 from $ 12.3 million for the year ended december 31 , 2013. the increase was primarily due to increase in revenue as discussed above , partially offset by increased headcount related costs from additional employees to support our cryptography development efforts . revenue from the other segment increased approximately $ 14.1 million to $ 20.9 million for the year ended december 31 , 2014 from $ 6.8 million
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we also reduced our backlog by $ 1.0 million for the grant that we received from ente vasco de la energia ( “ eve ” ) a basque regional energy agency that would have provided partial funding for the deployment of the pb40 powerbuoy off the coast of spain . this grant expires on december 31 , 2015 and will likely not be utilized as we have no planned deployment in spain at this time . it is our intent to deploy the pb40 powerbuoy off the coast of new jersey as discussed above . currently our contract with mitsui engineering & shipbuilding ( mes ) is undergoing a stage-gate review process and activity has been suspended until we receive further notification from mes . stage-gate reviews are used in product development to gather key information needed to advance the project to the next gate or decision point . this process has been utilized by other customers such as the department of energy . mes has indicated that work under this contract could resume upon passing the stage-gate review . during the quarter ended april 30 , 2015 , we billed and have been paid for all eligible costs incurred under the contract . our revenues recorded reflect the total amount paid on the contract . in addition , depending on the outcome of the stage-gate review , the scope of the project may be decreased or increased and other terms , including schedule , of the project may change . a significant reduction in the remaining scope of the project could have a material adverse effect on our future revenue and backlog . for fiscal 2015 , we generated revenues of $ 4.1 million and incurred a net loss attributable to ocean power technologies , inc. of $ 13.1 million , and for fiscal 2014 , we generated revenues of $ 1.5 million and incurred a net loss attributable to ocean power technologies , inc. of $ 11.0 million . as of april 30 , 2015 , our accumulated deficit was $ 164.8 million . we have not been profitable since inception , and we do not know whether or when we will become profitable because of the significant uncertainties with respect to our ability to successfully commercialize our powerbuoys in the emerging renewable energy market . the timing , scope and size of new government programs for renewable energy are uncertain , and there can be no assurances that we or our customers will be successful in obtaining any additional government funding or that projects will be profitable even with available funding . included in our strategic pivot is the use of powerbuoy technology for the autonomous applications markets . such applications require open ocean power sources that operate independently of the utility grid by supplying electric power to payloads that are integrated directly in the powerbuoy and or located in its vicinity . based on market research and available public data , we believe considerable business opportunity exists in six markets that would have a direct need for our autonomous powerbuoys : ocean observing , offshore wind , defense and security , oil and gas , communications , and ocean aquaculture . based on power needs , sensor types and other considerations , we believe our apb-350 could have the ability to satisfy several application requirements within these six markets . it is designed to offer a substantial amount of persistent power while also providing a simple and stable integration platform that is deployable using readily available vessels and skills . the apb-350 is currently undergoing a design iteration focusing on improving its commercial viability , its reliability and endurance . based on our product and technology roadmap , we expect the apb-350 will undergo a significant in-ocean testing and by summer of 2016 , we believe that it will achieve a maturity level that allows us to proceed with our commercial launch . our intention is to perform first product demonstrations with early adopters and launch customers near the same timeframe . we anticipate that the apb-350 will have sufficient power to address application needs in all six markets such as metrological data collection , wind and environmental data collection for offshore wind , and sensors and communications for homeland defense . with additional power available , we believe new applications will be enabled through the development of new sensors and hardware that were not feasible or financially viable with incumbent power sources such as generators , solar , wind and battery based sources . 29 the amount of contract backlog is not necessarily indicative of future revenue because modifications to or terminations of present contracts and production delays can provide additional revenue or reduce anticipated revenue . a substantial portion of our revenue is recognized using the percentage-of-completion method , and changes in estimates from time to time may have a significant effect on revenue and backlog . our backlog is also typically subject to large variations from time to time due to the timing of new awards . financial operations overview the following describes certain line items in our statement of operations and some of the factors that affect our operating results . revenues generally , we recognize revenue using the percentage-of-completion method based on the ratio of costs incurred to total estimated costs at completion . in certain circumstances , revenue under contracts that have specified milestones or other performance criteria may be recognized only when our customer acknowledges that such criteria have been satisfied . in addition , recognition of revenue ( and the related costs ) may be deferred for fixed-price contracts until contract completion if we are unable to reasonably estimate the total costs of the project prior to completion . some revenue contracts may contain complex criteria or uncertainty surrounding the terms of performance and customer acceptance . these contracts are subject to interpretation , and management may make a judgment as to the amount of revenue earned and recorded . story_separator_special_tag because we have a small number of contracts , revisions to the percentage-of-completion determination , management interpretation or delays in meeting performance and contractual criteria or in completing projects may have a significant effect on our revenue for the periods involved . upon anticipating a loss on a contract , we recognize the full amount of the anticipated loss in the current period . generally , our contracts are either cost plus or fixed price contracts . under cost plus contracts , we bill the customer for actual expenses incurred plus an agreed-upon fee . revenue is typically recorded using the percentage-of-completion method based on the maximum awarded contract amount . in certain cases , we may choose to incur costs in excess of the maximum awarded contract amounts resulting in a loss on the contract . currently , we have two types of fixed price contracts , firm fixed price and cost-sharing . under firm fixed price contracts , we receive an agreed-upon amount for providing product development and services that are specified in the contract . revenue is typically recorded using the percentage-of-completion method based on the contract amount . depending on whether actual costs are more or less than the agreed-upon amount , there is a profit or loss on the project . under cost-sharing contracts , the fixed amount agreed upon with the customer is only intended to fund a portion of the costs on a specific project . we fund the remainder of the costs as part of our product development efforts . revenue is typically recorded using the percentage-of-completion method based on the amount agreed upon with the customer . an amount corresponding to the revenue is recorded in cost of revenues resulting in gross profit on these contracts of zero . our share of the costs is recorded as product development expense . some of our revenue for fiscal 2015 and 2014 was from cost-sharing contracts . the following table provides information regarding the breakdown of our revenues by customer for fiscal years 2015 and 2014 : replace_table_token_3_th the revenue increase for fiscal 2015 reflected significant increases in revenue from our project with mes that is currently undergoing a stage-gate review , revenue from the doe primarily related to costs for the removal of the anchoring and mooring equipment from the seabed off the coast of oregon and revenue under our contract with the eu related to the completion of our waveport contract . mes was our largest customer in fiscal 2015 and 2014 , and accounted for 40 % of our revenues in fiscal 2015 and 38 % of our revenues in fiscal 2014 . 30 we currently focus our sales and marketing efforts on north america , europe , australia and japan . the following table shows the percentage of our revenues by geographical location of our customers for fiscal years 2015 and 2014 : replace_table_token_4_th cost of revenues our cost of revenues consists primarily of incurred material , labor and manufacturing overhead expenses , such as engineering expense , equipment depreciation and maintenance and facility related expenses , and includes the cost of powerbuoy parts and services supplied by third-party suppliers . cost of revenues also includes powerbuoy delivery and deployment expenses and may include anticipated losses at completion on certain contracts . some of our revenue recorded for fiscal 2015 was generated from cost-sharing contracts , which result in zero gross profit ; however , in fiscal 2015 our firm fixed price contract with mes recorded under the percentage-of-completion method had an increase in estimated total costs of the project . this increase in estimated project costs resulted in a gross loss and we recorded an accrual for the future anticipated loss on the contract . our ability to generate a gross profit will depend on the nature of future contracts , our success at increasing sales of our powerbuoys and our ability to manage costs incurred on fixed price commercial contracts . product development costs our product development costs consist of salaries and other personnel-related costs and the costs of products , materials and outside services used in our product development and unfunded research activities . our product development costs relate primarily to our efforts to increase the power output and reliability of our powerbuoy , and to our research and development of new products , product applications and complementary technologies . we expense all of our product development costs as incurred . over the next several years , it is our intent to fund the majority of our research and development expenses , including cost-sharing arrangements , with sources of external funding . if we are unable to obtain external funding , we may curtail our research and development expenses and scope as necessary . change in contract loss reserve change in contract loss reserve represents a reversal of a previous project-specific reserve where the underlying project had encountered technical issues during deployment . while the company had no specific legal obligation to continue work on the project , management 's intention had been to complete certain elements of the project . effective as of april 30 , 2014 , management made a determination not to pursue its efforts to complete the project and reversed the contract loss reserve . selling , general and administrative costs our selling , general and administrative costs consist primarily of professional fees , salaries and other personnel-related costs for employees and consultants engaged in sales and marketing and support of our powerbuoys , as well as costs for executive , accounting and administrative personnel and other general corporate expenses . interest ( expense ) income , net interest income consists of interest received on cash and cash equivalents , investments in commercial bank-issued certificates of deposit and us treasury bills and notes and interest expense paid on certain obligations to third parties .
| we plan to market our autonomous powerbuoy , which is designed to generate power for use independent of the power grid , to customers that require electricity in remote locations . we believe there are a variety of potential applications for our autonomous powerbuoy , including ocean observing , offshore wind , defense and security , oil and gas , communications and ocean aquaculture . we were incorporated in new jersey in 1984 , began business operations in 1994 , and were re-incorporated in delaware in 2007. we currently have three wholly-owned subsidiaries : ocean power technologies ltd. , organized under the laws of the united kingdom , reedsport opt wave park llc , organized under the laws of oregon , and oregon wave energy partners i , llc , organized under the laws of delaware . we also own approximately 88 % of the ordinary shares of ocean power technologies ( australasia ) pty ltd ( “ opta ” ) , organized under the laws of australia . opta owns 100 % of victorian wave partners pty . ltd. ( “ vwp ” ) , which is also organized under the laws of australia . the development of our technology has been funded by capital we raised and by development engineering contracts we received starting in fiscal 1995. in fiscal 1996 , we received the first of several research contracts with the us navy to study the feasibility of wave energy . as a result of those research contracts , we entered into our first development and construction contract with the us navy in fiscal 2002 under a project for the development and testing of our wave power systems at the us marine corps base in oahu , hawaii . this project included the grid-connection of one of our utility-grade powerbuoys at the marine corps base . we generated our first revenue relating to our autonomous powerbuoy from contracts with lockheed martin corporation ( “ lockheed martin ” ) , in fiscal 2003 , and in fiscal 2004 we entered into our first development and construction
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north american business solutions division replace_table_token_13_th sales in our north american business solutions division decreased 1 % in 2012 , 1 % in 2011 and 6 % in 2010. the 53 rd week added approximately $ 34 million of sales to the division in 2011. total sales in both the direct and contract channels decreased slightly in 2012 after considering the 53 rd week in 2011. direct channel sales increased in 2011 , while contract sales were lower compared to 2010. sales to large and global accounts increased in both 2012 and 2011. however , sales to state and local government accounts decreased in both periods reflecting continuation of budgetary pressures . sales to small-to medium-sized businesses decreased in 2012 and increased in 2011 , reflecting the 53 rd week of sales in 2011. during 2011 , through alternative non-exclusive purchasing arrangements , the division retained approximately 87 % of the revenue from customers formerly associated with a legacy public sector purchasing cooperative . this retention rate is inclusive of declines due to public sector spending and budget constraints , which impacted these customers as well as our other public sector customers . sales in the contract channel , other than to customers buying under these purchasing arrangements , were positive for 2011. on a product category basis , in 2012 , copy and print , cleaning and breakroom comparable sales increased , while sales in the supplies category decreased . furniture sales decreased slightly . for 2011 , sales of cleaning and break room products and certain office supplies increased while ink and toner , furniture , paper and other office supply categories decreased . division operating income totaled $ 193 million in 2012 , $ 145 million in 2011 , and $ 97 million in 2010. the 2012 increase in division operating income reflects gross margin benefits from reduced promotions and margin improvement initiatives , as well as lower supply chain , advertising and other costs , partially offset by certain severance and process improvement costs . the increase in 2011 reflects the impact of a change in the mix of product sales to the direct channel , lower operating expenses , a change of mix of customers in the contract channel , and positive impacts from our margin improvement initiatives . lower selling , distribution and advertising expenses were incurred in 2011 compared to 2010. many of these operating expense reductions reflect initiatives put in place in prior periods to improve efficiency and productivity . also , fiscal year 2011 included benefits discrete to the period from removing recourse provisions and changing terms and conditions in the office depot private label credit card program and adjustments relating to customer incentives . the impact of the 53 rd week was relatively neutral to the division 's overall operating income for 2011. international division replace_table_token_14_th 27 sales in our international division in u.s. dollars decreased 10 % in 2012 , 1 % in 2011 and 5 % in 2010. constant currency sales decreased 5 % in 2012 , 5 % in 2011 and 2 % in 2010. the 53 rd week added approximately $ 28 million to total division sales in 2011. the comparison of sales in 2011 to 2010 is also impacted by the sale and deconsolidation of operations in israel and japan in the fourth quarter of 2010 and the acquisition of operations in sweden in the first quarter of 2011. contract channel sales in constant currencies decreased 2 % in 2012 and increased 3 % in 2011. the 2012 decrease reflects competitive pressures and soft economic conditions in europe . the 2011 increase reflects growth in field sales as a result of added staff , as well an acquisition in sweden . constant currency sales in the direct channel declined 10 % in 2012 and 6 % in 2011. addressing this trend in the direct channel sales has been a point of focus throughout 2012 and improvements have been seen in both the third and fourth quarters of the year . we will continue to dedicate resources to improving sales in this channel . division operating income totaled approximately $ 49 million in 2012 , $ 93 million in 2011 , and $ 111 million in 2010. division operating income for 2012 and 2011 includes charges of approximately $ 49 million and $ 31 million , respectively . the 2012 charges relate to restructuring-related activities , as well as $ 14 million of asset impairments . as a result of slowing economic conditions in sweden and certain integration difficulties , in the third quarter of 2012 , we re-evaluated remaining balances of acquisition-related intangible assets . based on this analysis , which included a decline in projected sales and profitability for this acquired business , we concluded that cash flows would be insufficient to recover the assets over their expected use period . the 2011 charges primarily related to severance and other costs associated with facility closures and streamlining processes . the decreases in division operating income in 2012 , 2011 and 2010 were impacted by the flow through impact of lower sales levels . gross profit as a percent of sales decreased in 2012 and increased in 2011. the decrease in 2012 primarily reflects a shift in the mix of sales away from the direct channel . the increase in 2011 results from acquisition and disposition activity and a change in the mix of direct and contract sales , product costs not passed along to customers , partially offset by lower occupancy costs . operating expenses decreased across the division in both 2012 and 2011 , reflecting benefits from restructuring activities initiated in prior periods . for u.s. reporting , the international division 's sales are translated into u.s. dollars at average exchange rates experienced during the year . the division 's reported sales were negatively impacted by approximately $ 160 million in 2012 and positively impacted by $ 147 million in 2011 from changes in foreign currency exchange rates . story_separator_special_tag internally , we analyze our international operations in terms of local currency performance to allow focus on operating trends and results . corporate and other asset impairments , severance , other charges and credits in recent years , we have taken actions to adapt to changing and increasingly competitive conditions experienced in the markets in which the company serves . these actions include closing stores and distribution centers ( dcs ) , consolidating functional activities , disposing of businesses and assets , and taking actions to improve process efficiencies . additionally , during 2012 , we recognized significant asset impairment charges in the north american retail division and international division and recognized a gain from the resolution of a dispute related to a 2003 acquisition . 28 the impact of asset impairments , severance and other charges and credits on operating income ( loss ) recognized by line item presentation in the consolidated statements of operations are as follows . replace_table_token_15_th the 2012 charges and credits relate to $ 68.3 million recovery of purchase price , $ 138.5 million asset impairments , restructuring-related activity , store closures , and process improvement actions at the corporate level . non-cash asset impairment charges of $ 138.5 million includes $ 123.4 million in the north american retail division related to the na retail strategy and under-performing stores and $ 15.1 million recognized in the international division , as discussed above . refer to note i of the consolidated financial statements for additional information . recovery of purchase price the sale and purchase agreement ( spa ) associated with a 2003 european acquisition included a provision whereby the seller was required to pay an amount to the company if a specified acquired pension plan was calculated to be underfunded based on 2008 plan data . the amount calculated by the plan 's actuary was disputed by the seller but upheld by an independent arbitrator . the seller continued to dispute the award until both parties reached a settlement agreement in january 2012 and the seller paid approximately gbp 37.7 million to the company , including gbp 5.5 million placed in escrow in 2011. under the terms of the spa , and in agreement with the pension plan trustees , the company contributed the cash received , net of certain fees , to the pension plan . this contribution caused the plan to go from a net liability position at the end of 2011 to a net asset position of approximately $ 8 million at december 29 , 2012. because goodwill associated with this transaction was fully impaired in 2008 , this recovery is recognized in the 2012 statement of operations . also , consistent with the presentation in 2008 , this recovery is reported at the corporate level and not included in the determination of international division operating income . the $ 68.3 million recovery of purchase price includes recognition of the cash received from the seller , certain fees incurred and reimbursed , as well as the release of an accrued liability as the settlement agreement releases any and all claims under the spa . an additional expense of approximately $ 5.2 million related to this arrangement is included in general and administrative expenses , resulting in a net increase in operating income for 2012 of $ 63.1 million . the transaction is treated as a non-taxable return of purchase price for tax purposes . the cash payment from the seller was received by a subsidiary of the company with the euro as its functional currency and the pension plan funding was made by a subsidiary with pound sterling as its functional currency , resulting in certain translation differences between amounts reflected in the consolidated statements of operations and the consolidated statements of cash flows for 2012. the receipt of cash from the seller is presented as a source of cash in investing activities . the contribution of cash to the pension plan is presented as a use of cash in operating activities . refer to note h of the consolidated financial statements for additional information . charges in 2011 and 2010 the 2011 charges primarily relate to the consolidation and elimination of functions in europe , the closure of stores in canada and company-wide process improvement initiatives . in the consolidated statements of operations , for comparability to the 2012 presentation , we have reclassified $ 11.4 million related to 2011 store level impairment to asset impairments line , which was previously reported in store and warehouse operating and selling expenses in the consolidated statements of operations . however , those asset impairment charges have not been reflected in the table above . 29 the charges in 2010 include $ 51 million for the abandonment of a certain software application , $ 23 million for losses on the disposal of operating entities in israel and japan , as well as $ 13 million of compensation-related costs following the departure of the company 's former ceo . the following table indicates the amount of charges and credits included in the determination of division operating income and recognized at the corporate level : replace_table_token_16_th general and administrative expenses total general and administrative expenses ( g & a ) decreased to $ 673 million in 2012 from $ 689 million in 2011. the portion of g & a expenses considered directly or closely related to division activity is included in the measurement of division operating income . other companies may charge more or less g & a expenses and other costs to their segments , and our results therefore may not be comparable to similarly titled measures used by other companies . the remainder of the total g & a expenses are considered corporate expenses .
| our decision to reduce promotions in select categories contributed to lower sales in both 2012 and 2011. the north american retail division reported operating income of approximately $ 12 million in 2012 , $ 135 million in 2011 and $ 128 million in 2010. division operating income in 2012 included approximately $ 123 million of asset impairment charges , compared to $ 11 million in 2011 and $ 2 million in 2010. additional information on the 2012 impairment charge is provided in the retail strategy discussion below . division operating income for 2012 included approximately $ 2 million of severance and other charges , while 2011 included approximately $ 12 million of charges associated with the closure of stores in canada . gross margins increased in both 2012 and 2011 from lower promotional activity and a change in the mix of sales away from technology products , as well as continuing benefits from lower occupancy costs . operating expenses in 2012 included lower supply chain costs and lower payroll and variable pay . operating expenses in 2011 included severance and other costs associated with the store closures in canada , higher variable based pay and incremental costs incurred to drive increased customer focused selling activities . these costs were offset by a positive contribution from the 53 rd week in 2011 , decreased advertising expenses and other favorable items including benefits recognized from changes to our private label credit card program . division operating income in all periods was negatively affected by the impact our sales volume decline had on gross margin and operating expenses ( the flow through impact ) . at the end of 2012 , we operated 1,112 retail stores in the u.s. we opened 4 new stores during 2012 and 9 stores during 2011. we closed 23 stores in north america during 2012. we closed 25 stores in north america during 2011 , including the 12 stores in canada . 25 retail strategy as consumers have shifted their buying patterns , we have been developing new store formats to satisfy changing customer needs and shopping behavior . we now have almost
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except as required by law , we undertake no obligation to update or announce any revisions to forward-looking statements contained in this report , whether as a result of new information , future events or otherwise . current market conditions demand for our products and services to the oil refining and chemical industries depends on capital investment for new capacity , retrofit and debottlenecking projects and for planned or unplanned maintenance activity . increased volatility and significant reduction in global crude oil prices beginning in the second half of calendar 2014 has caused uncertainty in the oil refining and chemical industries . the dramatic reduction and increased volatility in global crude oil prices has caused a significant slowdown in investment by our oil refining and chemical industry customers . these markets have altered their investment timing over the past year due to this sustained lower price and volatility of crude oil . capital investment within global refining and chemical industries contracted during fiscal 2016 compared with fiscal 2015 and is projected to be down further in fiscal 2017. in the near term , we believe that the catalyst for increased investment would likely be higher or more stable crude oil prices . however , if crude oil prices remain low for a sustained period , we expect increased global energy demand would eventually drive additional investment regardless of crude oil prices . 19 demand for our products and services in the nuclear power utility market is affected by investment in maintenance , repair , life extension and nuclear regulatory mandated investment along with global investment in new capacity . global investment in new cap acity is affected by regional legislative policy and comparative cost per unit of power output with other energy sources , such as natural gas , oil or alternative energies . although the nuclear market which we serve is very fragmented , we continue to believ e that it provides an important opportunity for our growth , especially via market share gains . our naval nuclear propulsion market has demand tied to aircraft carrier and submarine vessel construction schedules of the primary shipyards who service the u.s. navy . we expect growth in our naval nuclear propulsion business based on our strategic actions to increase our market share and expected demand . strategic investment and continued concentration of effort on oil refining and chemical markets will have a long-term perspective , notwithstanding the severity of the current downturn in these markets . we believe that long-term demand drivers for energy requirements are unchanged and have not been affected by the recent price of crude oil . we believe that such demand , which is driven by population growth and an expanding middle class in emerging markets , requires an increase in global energy capacity and investment . our strategy is to continue to leverage our investments and expand our capabilities and execution capacity to grow market share in the oil refining , chemical and nuclear markets , as well as our business with the u.s. navy . for more information , refer to the heading “ strategy and outlook ” within this item 7 of this annual report on form 10-k. we believe the long-term outlook in our key markets supports our strategy to grow our revenue to over $ 200,000 across the next business cycle in our markets . in the near term , new order levels are expected to remain volatile , resulting in both relatively strong and weak periods . the chart below shows the impact of our diversification strategy . over 60 % of our backlog at the end of fiscal year 2016 is from markets not served in the fiscal 2007-2009 time frame . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > selling , general and administrative , or sg & a , expense for fiscal 2015 was $ 18,512 , up 8 % or $ 1,317 , compared with $ 17,195 in fiscal 2014. however , sg & a as a percentage of sales in fiscal 2015 was 13.7 % of sales compared with 16.8 % of sales in fiscal 2014. we incurred a pre-tax restructuring charge of $ 1,718 ( $ 1,164 after tax ) for severance costs related largely to a voluntary early retirement program we offered in the fourth quarter of fiscal 2015 and to certain involuntary headcount reductions which occurred in the same quarter . our reduction in headcount was approximately 10 % of our global workforce . approximately 20 % of the headcount reductions occurred in the fourth quarter of fiscal 2015. the remaining headcount reductions occurred in the first four months of fiscal 2016. the expected annual savings from these reductions was approximately $ 3,000 , of which $ 2,000 was realized in fiscal 2016. interest income for fiscal 2015 was $ 189 , up from $ 94 in fiscal 2014. interest expense for fiscal 2015 was $ 11 compared with $ 1 in fiscal 2014. our effective tax rate in fiscal 2015 was 32 % compared with an effective tax rate of 31 % for fiscal 2014. net income for fiscal 2015 and income per diluted share was $ 14,735 and $ 1.45 , respectively . net income , excluding the impact of the restructuring charge , was $ 15,899 or $ 1.57 per diluted share , up 57 % compared with $ 10,145 and $ 1.00 , respectively , in fiscal 2014. stockholders ' equity the following discussion should be read in conjunction with our consolidated statements of changes in stockholders ' equity that can be found in item 8 of part ii of this annual report on form 10-k. the following table shows the balance of stockholders ' equity on the dates indicated : march 31 , 2016 march 31 , 2015 march 31 , 2014 $ 109,380 $ 116,551 $ 105,908 fiscal 2016 compared with fiscal 2015 stockholders ' equity decreased $ 7,171 or 6 % , at march 31 , 2016 compared with march 31 , 2015. this decrease was primarily due story_separator_special_tag to our repurchase of 539 shares at a cost of $ 9,441 , partially offset by net income earned in fiscal 2016. see item 5 of this annual report on form 10-k for more information on our stock repurchase program . on march 31 , 2016 , our net book value per share was $ 11.34 , down 1 % over march 31 , 2015. fiscal 2015 compared with fiscal 2014 stockholders ' equity increased $ 10,643 or 10 % , at march 31 , 2015 compared with march 31 , 2014. this increase was primarily due to our income earned in fiscal 2015. on march 31 , 2015 , our net book value per share was $ 11.50 , up 10 % over march 31 , 2014. liquidity and capital resources the following discussion should be read in conjunction with our consolidated statements of cash flows and consolidated balance sheets appearing in item 8 of part ii of this annual report on form 10-k : 22 replace_table_token_5_th ( 1 ) working capital equals current assets minus current liabilities . ( 2 ) working capital ratio equals current assets divided by current liabilities . we use the above ratios to measure our liquidity and overall financial strength . net cash generated by operating activities for fiscal 2016 was $ 18,751 , compared with $ 6,279 for fiscal 2015. cash generated from changes in unbilled revenues , customer deposits , and accounts receivables reversed cash usage in those categories in fiscal 2015. these were partially offset by lower net income , and decreases in accounts payable and accrued compensation . capital spending in fiscal 2016 was $ 1,153 , compared with $ 5,300 in fiscal 2015. the fiscal 2015 capital spending included the capital expansion at our batavia , ny manufacturing facility , which started in the middle of fiscal 2014 and was completed in the middle of fiscal 2015. this expansion was to support our growth strategies in the refining , petrochemical and for the u.s. navy markets . capital expenditures in fiscal 2016 were approximately 90 % for facilities along with machinery and equipment and the remaining 10 % for all other items . share repurchases of $ 9,441 , to repurchase 539 shares , and dividend payments of $ 3,296 occurred in fiscal 2016. there w ere no share repurchases in fiscal 2015 and dividend payments were $ 2,026. cash and investments were $ 65,072 on march 31 , 2016 compared with $ 60,271 on march 31 , 2015 , up $ 4,801 or 8 % . we invest net cash generated from operations in excess of cash held for near-term needs in short-term , less than 365 days , certificates of deposit , money market accounts or u.s. government instruments , generally with maturity periods of up to 180 days . our money market account is used to securitize our outstanding letters of credit , which reduces our cost on those letters of credit . approximately 95 % of our cash and investments is held in the u.s. the remaining 5 % is invested in our china operations . capital expenditures for fiscal 2017 are expected to be between approximately $ 2,000 and $ 2,500. approximately 85 % of our fiscal 2017 capital expenditures are expected to be for machinery and equipment , with the remaining amounts expected to be used for other items . on december 2 , 2015 , we entered into a new senior revolving credit facility agreement with jp morgan chase bank , n.a . this revolving credit facility replaced our previous facility , which was with bank of america , n.a . the new facility is of equivalent size as the one it replaced , providing us with a line of credit of $ 25,000 , including letters of credit and bank guarantees . in addition , our jp morgan chase agreement allows us to increase the line of credit , at our discretion , up to another $ 25,000 , for total availability of $ 50,000. borrowings under this credit facility are secured by all of our assets . we also have a $ 5,000 unsecured line of credit with hsbc , n.a . letters of credit outstanding on march 31 , 2016 and march 31 , 2015 were $ 11,982 and $ 10,903 , respectively . the outstanding letters of credit as of march 31 , 2016 were issued by jp morgan chase , hsbc , as well as bank of america , under our previous credit facility . jp morgan letters of credit were $ 1,749 and hsbc letters of credit were $ 1,921 on march 31 , 2016. bank of america letters of credit were $ 8,312 on march 31 , 2016 and were cash secured . the bank of america letters of credit do not reduce the availability on our credit facility with jp morgan chase . the borrowing rate under our jp morgan chase facility as of march 31 , 2016 was the bank 's prime rate , or 3.50 % . availability under the jp morgan chase and hsbc lines of credit was $ 26,330 at march 31 , 2016. the availability under the bank of america and hsbc lines , which were in place , on march 31 , 2015 , was $ 19,097. we believe that cash generated from operations , combined with our investments and available financing capacity under our credit facility , will be adequate both to meet our cash needs for the immediate future and to support our growth strategies . contractual obligations as of march 31 , 2016 , our contractual and commercial obligations for the next five fiscal years ending march 31 and thereafter were as follows : 23 replace_table_token_6_th ( 1 ) for additional information , see note 6 to the consolidated financial statements in item 8 of part ii of this annual report on form 10-k. ( 2 ) amounts represent anticipated contributions during fiscal 2016 to our postretirement medical benefit plan , which provides healthcare benefits for eligible retirees and eligible survivors of retirees .
| gross profit for fiscal 2016 decreased $ 18,549 , or 44 % compared with fiscal 2015 due to lower sales volume as well as the items which affected gross margin . selling , general and administrative , or sg & a , expense for fiscal 2016 was $ 16,565 , down 11 % or $ 1,947 , compared with $ 18,512 in fiscal 2015. sg & a as a percentage of sales in fiscal 2016 increased to 18.4 % of sales compared with 13.7 % of sales in fiscal 2015. the increase as a percent of sales was due to lower sales levels in fiscal 2016 , partly offset by cost reductions . in the prior year , fiscal 2015 , we also incurred a pre-tax restructuring charge of $ 1,718 ( $ 1,164 after tax ) for severance costs related largely to a voluntary early retirement program we offered in the fourth quarter of fiscal 2015 and to certain involuntary headcount reductions which occurred in the same quarter . the cost reductions in fiscal 2016 sg & a were partly due to this restructuring as well as lower selling , commission and other compensation expenses related to lower sales and earnings . other income in fiscal 2016 was $ 1,789. this was due to cancellation fees received from customers primarily for two orders totaling $ 7,168 which were cancelled in fiscal 2016. there was no other income in fiscal 2015. interest income for fiscal 2016 was $ 261 , up from $ 189 in fiscal 2015. interest expense for fiscal 2016 was $ 10 compared with $ 11 in fiscal 2015. our effective tax rate in fiscal 2016 was 30 % compared with an effective tax rate of 32 % for fiscal 2015. this decrease in rates was due to the retroactive reinstatement of the r & d tax credit . net income for fiscal 2016 and income per diluted share was $ 6,131 and $ 0.61 , respectively . net income in fiscal 2015 was $ 14,735 or $ 1.45 per
| 14,806 |
we believe our current cash , balance sheet resources and line of credit availability are sufficient to pay off the outstanding balance of the 3.50 % convertible subordinated notes due november 15 , 2015 ( “ 3.50 % notes ” ) , operate the business and fund additional growth opportunities . for additional information regarding our 3.50 % notes , refer to the section below captioned `` liquidity and capital resources . '' results we had total revenue of $ 553.1 million in fiscal 2015 , which is essentially flat compared to fiscal 2014. this is the net result of increased revenue from scale-out storage solutions , disk backup systems and service , offset by decreased tape automation systems and devices and media revenue and a $ 15.0 million royalty received in fiscal 2014 in connection with finalizing an intellectual property agreement that is not expected to recur . we had record revenue from scale-out storage solutions due to increased branded revenue in all geographies - asia-pacific ( apac ) , europe , the middle east and africa ( emea ) and north america . our total branded product and service revenue increased 7 % from fiscal 2014 and our continued focus on our branded business is reflected in a greater proportion of non-royalty revenue from branded products and services , which grew to 88 % in fiscal 2015 compared to 84 % in fiscal 2014 and 83 % in fiscal 2013. our gross margin percentage increased 90 basis points from fiscal 2014 to 44.2 % , the net result of higher service revenue driven by the growth in scale-out storage and the improvements we have made in our business model over the past year-and-a -half , offset by lower royalty revenue . operating expenses decreased $ 20.9 million , or 8 % , from fiscal 2014 primarily due to cost controls and spending reductions that were implemented over the past year . restructuring charges decreased by $ 9.5 million compared to fiscal 2014 , primarily related to lower severance and benefits . compensation and benefits also decreased due to reduced staffing levels . intangible amortization expense decreased due to certain intangibles becoming fully amortized during fiscal 2015. our operating results improved by $ 26.2 million , from a loss of $ 11.8 million in fiscal 2014 to $ 14.4 million of income from operations in fiscal 2015. net income improved by $ 38.2 million , from a net loss of $ 21.5 million in fiscal 2014 to net income of $ 16.8 million in fiscal 2015 , which included a gain of $ 13.6 million resulting from the sale of our investment in a privately held company . story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000709283/000162828015004907/ # s720a38912f9938ccc212c7d6406f116b '' style= '' font-family : inherit ; font-size:10pt ; '' > fiscal 2014 compared to fiscal 2013 product revenue from tape automation systems revenue decreased 15 % in fiscal 2014 compared to fiscal 2013 , primarily due to decreased enterprise tape automation system sales , with a 24 % decrease in branded enterprise sales and a 20 % decline in oem enterprise revenue . midrange and entry-level tape automation sales also contributed to the decrease due to declines in both oem and branded revenue from these products . revenue from disk backup systems decreased 32 % from fiscal 2013 primarily due to decreased sales of enterprise dxi systems in addition to decreased midrange disk revenue . we had lower enterprise and midrange disk system revenue primarily due to fewer large orders , or orders over $ 200,000 , during fiscal 2014. product revenue from devices and media , which includes tape drives , removable hard drives and non-royalty media , increased modestly from fiscal 2013 primarily due to increased branded media sales in addition to increased revenue from devices . revenue from scale-out storage solutions increased 6 % due to increased revenue from stornext appliances compared to fiscal 2013. service revenue service revenue is primarily comprised of hardware service contracts , which are typically purchased by our customers to extend the warranty or to provide faster service response time , or both . service revenue increased in both fiscal 2015 and 2014 primarily due to increased revenue from branded service contracts for our stornext appliances . service revenue for our data protection products experienced slight decreases in both fiscal 2015 and 2014. royalty revenue royalty revenue decreased in fiscal 2015 and increased in fiscal 2014 primarily due to a $ 15.0 million royalty received in connection with an intellectual property agreement in fiscal 2014. we also experienced expected decreases in dlt ® media royalties in both fiscal 2015 and 2014 as customers chose to not use this older technology . gross margin replace_table_token_6_th * fiscal 2014 total gross margin includes $ 0.5 million of restructuring expense related to cost of revenue . the 90 basis point increase in gross margin percentage in fiscal 2015 compared to fiscal 2014 was primarily driven by an increase in the service gross margin rates and to a lesser extent , product gross margin rates . the improvement in the overall gross margin rate reflects the impact of the changes we have implemented in our operations , repair and service business models , partially offset by the decline in royalty revenue . over half of the 230 basis point increase in gross margin percentage in fiscal 2014 compared to fiscal 2013 was due to the $ 13.2 million net increase in royalty revenue , and to a lesser extent , due to the improvements in our service delivery model . these increases were partially offset by decreases in our product margin , largely as a result of decreased product revenue . 30 product margin fiscal 2015 compared to fiscal 2014 product gross margin dollars increased $ 6.7 million , or 6 % in fiscal 2015 , and our product gross margin rate increased 130 basis points in fiscal 2015. the increase in the product gross margin rate was primarily due to shifting to an outsourced manufacturing model during the second half of fiscal 2014. story_separator_special_tag outsourcing our manufacturing has created a more variable cost model , reducing costs during fiscal 2015 that were relatively fixed during most of fiscal 2014 when the majority of our products were manufactured in our facilities . notable cost decreases from fiscal 2014 driven by the implementation of outsourced manufacturing include compensation and benefits and facility expenses . fiscal 2014 compared to fiscal 2013 product gross margin dollars decreased $ 20.4 million , or 15 % , compared to fiscal 2013 , and our product gross margin rate decreased 110 basis points primarily due to a 13 % decrease in product revenue which was mostly offset by decreased costs as a result of several items . product material costs decreased the most , commensurate with the decrease in product revenue , and we also had decreased freight costs as a result of fewer shipments . a number of expenses decreased compared to fiscal 2013 as a result of cost reduction initiatives that began in the second half of fiscal 2013 and continued throughout fiscal 2014. the most significant decreased cost as a result of these initiatives was compensation and benefits expense from reduced staffing levels in addition to decreased facility expenses from additional reductions to our warehouse footprint . we also had lower intangible amortization in fiscal 2014 from certain intangible assets becoming fully amortized . service margin service gross margin dollars increased $ 13.7 million , or 19 % , in fiscal 2015 compared to fiscal 2014 , and service gross margin percentage increased 620 basis points compared to fiscal 2014 on a 6 % increase in service revenue . service gross margin dollars increased $ 6.8 million , or 11 % , in fiscal 2014 compared to fiscal 2013 , and service gross margin percentage increased 370 basis points on a 2 % increase in service revenue . the increase in service gross margin rate in both periods was primarily due to reduced costs as a result of continued improvements to our service delivery model , including outsourcing geographies with lower service and repair volumes and improving utilization of our service team and service parts inventories . in addition , our service activities continue to reflect a larger proportion of branded products under contract , which have margins that are relatively higher than for oem repair services . royalty margin royalties typically do not have related cost of sales and have a 100 % gross margin percentage . therefore , royalty gross margin dollars vary directly with royalty revenue . the royalty gross margin dollar decrease in fiscal 2015 and increase in fiscal 2014 were both primarily due to a $ 15.0 million royalty received in fiscal 2014 which is not expected to recur . research and development expenses replace_table_token_7_th fiscal 2015 compared to fiscal 2014 the decrease in research and development expenses compared to fiscal 2014 was primarily due to implementing cost controls and spending reductions that resulted in a $ 4.7 million decrease in compensation and benefits from reduced staffing levels . additionally , there was a $ 1.2 million decrease in depreciation expense due to declining capital expenditures . 31 fiscal 2014 compared to fiscal 2013 the decrease in research and development expenses compared to fiscal 2013 was primarily due to cost reduction measures that resulted in a $ 6.6 million decrease in compensation and benefits from reduced staffing levels due to focusing investments in scale-out storage technology while continuing to invest in targeted future generation tape and disk technology . we also had a decrease of $ 1.5 million in external service provider expense and a decrease of $ 0.9 million in depreciation expense due to equipment becoming fully depreciated . additionally , there was a $ 0.3 million decrease in project material expenses due to the nature of projects under development and specific development activities in the prior year periods that were not repeated at the same levels and a $ 0.3 million decrease in expensed equipment . sales and marketing expenses replace_table_token_8_th fiscal 2015 compared to fiscal 2014 the most significant factor driving the decrease in sales and marketing expense compared to fiscal 2014 was a $ 4.6 million decrease in intangible amortization expense due to certain intangibles becoming fully amortized during fiscal 2015. we had a $ 2.5 million decrease in compensation and benefits from decreased staffing levels . additionally , spending reductions in fiscal 2015 resulted in decreases of $ 0.8 million in advertising costs , $ 0.8 million in travel expense and $ 0.8 million in external service provider expense compared to fiscal 2014. these decreases were partially offset by a $ 4.8 million increase in commission expense related to increased branded product revenue . fiscal 2014 compared to fiscal 2013 the decrease in sales and marketing expense compared to fiscal 2013 was primarily due to cost reduction initiatives that resulted in decreases of $ 12.8 million in compensation and benefits , including commissions , from decreased staffing levels and reduced revenue compared to fiscal 2013. we had a $ 2.1 million decrease in intangible amortization due to certain intangibles becoming fully amortized in the first half of fiscal 2014. other decreases from cost reduction initiatives included declines of $ 1.8 million in travel expenses , $ 0.8 million in advertising and marketing costs and $ 0.7 million in recruiting expenses . these decreases were partially offset by a $ 1.1 million increase in external service provider expense . general and administrative expenses replace_table_token_9_th fiscal 2015 compared to fiscal 2014 the decrease in general and administrative expense was primarily due to a $ 1.6 million decrease in facility-related expenses from vacating portions of various facilities in fiscal 2014 and continuing into fiscal 2015. additionally , we had a $ 0.8 million decrease in depreciation expense due to declining capital expenditures .
| prevailing economic uncertainty also impacted fiscal 2014 results , as did the u.s. federal government shut down during fiscal 2014 , which we believe negatively impacted sales . revenue from branded data protection products and services decreased $ 41.5 million , or 10 % , from fiscal 2013. revenue from branded scale-out storage solutions products and services increased $ 6.5 million , or 12 % , from fiscal 2013. oem product and service revenue decreased $ 12.4 from fiscal 2013. royalty revenue increased $ 13.2 million from fiscal 2013. product revenue total product revenue , which includes sales of our hardware and software products sold through both our quantum branded and oem channels , increased $ 7.3 million in fiscal 2015 compared to fiscal 2014. the increase in product revenue was primarily due to increased sales of scale-out storage solutions ; revenue from disk backup systems also increased . these increases were partially offset by decreased sales of oem and branded tape automation systems and devices and media . revenue from sales of branded products increased 8 % in fiscal 2015 , and sales of products to our oem customers decreased 20 % compared to fiscal 2014. total product revenue decreased 13 % in 2014 from fiscal 2013 , primarily due to decreased sales of tape automation systems followed by lower revenue from disk backup systems , partially offset by increased revenue from scale-out storage solutions and devices and media . revenue from sales of branded products decreased 12 % primarily due to lower sales of disk backup systems followed by tape automation systems decreases , and oem product revenue decreased 14 % in fiscal 2014 compared to fiscal 2013 largely due to decreased tape automation revenue . replace_table_token_5_th * revenue from disk backup systems and scale-out storage solutions was previously included in a caption entitled disk systems and software solutions . previously reported amounts have been reclassified to conform to current period presentation . fiscal 2015 compared to fiscal 2014 our branded tape automation business performed better in fiscal 2015 than our oem
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overall we believe market conditions are marginally better than a year ago but still remain uneven . on a regional basis , north american demand has remained strong , the european market continues to stabilize , the emerging markets are growing , and asia remains uneven . for 2014 , based on the company 's current outlook , we anticipate 3 to 5 percent organic revenue growth in 2014 and eps of $ 3.33 to $ 3.43. story_separator_special_tag business acquired in july 2012. as a percentage of sales , sg & a expenses were 23.6 % for 2013 and 22.7 % for 2012 . during 2012 , the company recorded pre-tax restructuring expenses totaling $ 32.5 million . these restructuring expenses were mainly attributable to employee severance related to employee reductions across various functional areas , the termination of a defined benefit pension plan and facility rationalization resulting from the company 's cost savings initiatives . these initiatives included exit costs related to five facility closures and severance benefits for 491 employees in 2012 . operating income of $ 395.5 million in 2013 increased from the $ 128.2 million recorded in 2012 , primarily reflecting an increase in volume , improved productivity and the impact of the $ 198.5 million asset impairment charges and the $ 32.5 million of restructuring-related charges recorded in 2012. operating margin of 19.5 % in 2013 was up from 6.6 % in 2012 primarily due to volume leverage , productivity and the impact of asset impairment charges and restructuring-related charges in 2012. interest expense decreased slightly to $ 42.2 million in 2013 from $ 42.3 million in 2012 . the decrease was principally due to lower debt levels . the provision for income taxes is based upon estimated annual tax rates for the year applied to federal , state and foreign income . the provision for income taxes increased to $ 97.9 million in 2013 compared to $ 48.6 million in 2012 . the effective tax rate decreased to 27.7 % in 2013 compared to 56.3 % in 2012 , mainly due to the 2012 nonrecurring asset impairment charge recorded in the fourth quarter of 2012 . the impairment charge increased our 2012 effective tax rate by 26.9 % . our effective tax rate was also impacted by recognition of the 2012 u.s. r & d credit in 2013 due to the enactment of the american taxpayer relief act of 2012 on january 2 , 2013 which reinstated the u.s. r & d credit retroactively to january 1 , 2012 , recognition of additional uk r & d tax benefits , revaluation of the uk deferred tax liability due to the reduction in the uk statutory tax rate , the settlement of the contingent consideration agreement related to the matcon business acquired in july 2012 , and the mix of global pre-tax income among jurisdictions . net income for the year of $ 255.2 million increased from the $ 37.6 million earned in 2012 . diluted earnings per share in 2013 of $ 3.09 increased $ 2.64 from $ 0.45 in 2012 . 15 fluid & metering technologies segment replace_table_token_8_th sales of $ 871.8 million increased $ 38.5 million , or 5 % , in 2013 compared with 2012 . this increase reflected 4 % organic growth and 1 % favorable foreign currency translation . the increase in organic sales was attributable to growth across all our platforms and groups within the segment . in 2013 , organic sales increased approximately 3 % domestically and 6 % internationally . organic sales to customers outside the u.s. were approximately 46 % of total segment sales in 2013 , compared with 47 % in 2012 . sales within our energy platform increased compared to 2012 , due to the strength of oem truck builds and electronic retrofits in north america . additional growth has been driven by growth across the lpg market , including north america , china , india and russia . sales within our cfp platform increased compared to 2012 on continued strength in the chemical markets , particularly with project opportunities in the middle east and asia , coupled with solid aftermarket performance . the cfp north american industrial distribution market started the year soft , but gradually recovered in the second half of 2013. sales increases within our agriculture group were driven by strong oem demand in north america , new product introductions and an increase in market share . the sales increase in wst was driven by share gains and strong global project activity , specifically for projects in the us and japan . ddpt saw only modest sales growth due to softness in several core markets , but this was offset by a pickup in the middle east and the semiconductor markets . operating income and operating margin of $ 211.3 million and 24.2 % , respectively , were higher than the $ 146.7 million and 17.6 % recorded in 2012 , primarily due to volume leverage and productivity initiatives as well as the impact of the $ 27.7 million of impairment charges and $ 6.3 million of restructuring charges recorded in 2012. health & science technologies segment replace_table_token_9_th sales of $ 714.7 million increased $ 19.4 million , or 3 % , in 2013 compared with 2012 . this increase reflected 6 % growth from acquisitions ( erc , matcon and ftl ) , offset by a 1 % unfavorable foreign currency translation and a 2 % decrease in organic sales . in 2013 , organic sales decreased 1 % domestically and 3 % internationally . organic sales to customers outside the u.s. were approximately 53 % of total segment sales in 2013 compared with 51 % in 2012 . sales within our mpt platform increased compared to 2012 due to large projects in the pharmaceutical and chemical markets , driven by released capital spending , particularly in north america and europe . sales within our scientific fluidics 16 platform increased on the success of new products introduced throughout 2013 and share gains . story_separator_special_tag in the latter part of 2013 , scientific fluidics benefited from the the easing of national institute of health funding constraints , which opened up further spending in our core analytical instruments and in vitro diagnostic markets . sales within our specialty seals group increased compared to 2012 due to a full nine months of sales from ftl , acquired in march 2013 , continued strong growth in oil & gas , and stability in the scientific and commercial aircraft end markets . sales within our iop platform decreased compared to 2012 , primarily from continued weak demand in the defense , biotechnology and electronics end markets as well as the decision to exit certain product lines . sales in our industrial group decreased compared to 2012 due to several original equipment manufacturer ( “ oem ” ) orders that did not repeat in 2013. operating income and operating margin of $ 136.7 million and 19.1 % , respectively , in 2013 were up from the operating loss and negative operating margin of $ 62.8 million and 9.0 % , respectively , recorded in 2012 , primarily due to volume leverage and productivity initiatives as well as the impact of the $ 170.8 million of impairment charges and the $ 14.7 million of restructuring charges recorded in 2012. fire & safety/diversified products segment replace_table_token_10_th sales of $ 445.0 million increased $ 8.0 million , or 2 % , in 2013 compared with 2012 . this increase reflected 1 % organic growth and 1 % favorable foreign currency translation . in 2013 , organic sales increased 1 % domestically and 2 % internationally . organic sales to customers outside the u.s. were approximately 56 % of total segment sales in 2013 , compared with 57 % in 2012 . sales within our dispensing group decreased due to the fulfillment of the 2012 large replenishment order in the first quarter of 2013. however , excluding this order , sales increased on strength in our core north american markets , driven by low volatile organic compound ( `` voc '' ) programs , and expanded sales from our low-end automatic dispenser , x-smart , in emea and asia . the sales increase within our band-it group was driven by general strength in the oil and gas applications market and large automotive blanket orders for new vehicle platforms in north america . sales within our fire suppression group increased as a result of orders for fire suppression trailers at power production facilities , project orders in china , and a stable core business in north america and western europe . sales within our rescue group increased as a result of robust demand for our rescue tools within the north american and european markets . operating income and operating margin of $ 102.7 million and 23.1 % , respectively , were higher than the $ 96.1 million and 22.0 % recorded in 2012 , primarily due to the impact of the $ 8.3 million of restructuring charges recorded in 2012 , as well as volume leverage , partially offset by mix across businesses . 17 performance in 2012 compared with 2011 replace_table_token_11_th sales in 2012 were $ 1,954.3 million , a 6 % increase from the comparable period last year . this increase reflects a 3 % increase in organic sales , 5 % from acquisitions ( at films — january 2011 , microfluidics — march 2011 , cvi mg — june 2011 , erc — april 2012 and matcon — july 2012 ) and 2 % unfavorable foreign currency translation . organic sales to customers outside the u.s. represented approximately 50 % of total sales in the period compared with 52 % in 2011 . in 2012 , fluid & metering technologies contributed 43 % of sales and 82 % of operating income ; health & science technologies contributed 35 % of sales and ( 35 ) % of operating income ; and fire & safety/diversified products contributed 22 % of sales and 53 % of operating income . gross profit of $ 803.7 million in 2012 increased $ 65.0 million , or 9 % , from 2011 . gross margins were 41.1 % in 2012 and 40.2 % in 2011 . sg & a expenses increased to $ 444.5 million in 2012 from $ 421.7 million in 2011 . the $ 22.8 million increase reflects approximately $ 26.8 million of incremental costs from acquisitions , $ 2.7 million for a benefit from forfeited ceo equity compensation recorded in 2011 and a $ 2.8 million gain from the sale of a facility in italy recorded in 2011 , partially offset by $ 9.5 million of cost savings initiatives . as a percentage of sales , sg & a expenses were 22.7 % for 2012 and 22.9 % for 2011 . during 2012 , the company recorded pre-tax restructuring expenses totaling $ 32.5 million , compared with $ 12.3 million for the same period in 2011 . these restructuring expenses were mainly attributable to employee severance related to employee reductions across various functional areas , the termination of a defined benefit pension plan and facility rationalization resulting from the company 's cost savings initiatives . these initiatives included exit costs related to five facility closures and severance benefits for 491 employees in 2012 and severance benefits for 292 employees in 2011 . during 2012 , the company concluded that a non-cash impairment charge was required to reduce the carrying value of goodwill and intangible assets within the iop reporting unit and goodwill and long-lived assets within the wst reporting unit . the goodwill within iop primarily originated from the 2011 acquisition of cvi melles griot and the goodwill in wst primarily originated from the 2008 acquisitions of ietg and ads . as a result of our annual test , an impairment charge was required within iop due to continued softness in the optics & photonics end markets .
| given the acquisitive nature of the company which results in a higher level of amortization expense at recently acquired businesses , ebitda and adjusted ebitda provides management with a better representation of performance of businesses across our three segments . management 's primary measurements of segment performance are sales , operating income , and operating margin . in addition , due to the highly acquisitive nature of the company , the determination of net income includes amortization of acquired intangible assets and , as a result , management reviews ebitda and adjusted ebitda as a percentage of sales . these measures are monitored by management and significant changes in operating results versus current trends in end markets and variances from forecasts are analyzed with segment management . 14 performance in 2013 compared with 2012 replace_table_token_7_th sales in 2013 were $ 2,024 million , a 4 % increase from the comparable period last year . this increase reflects a 2 % increase in organic sales and 2 % from acquisitions ( erc — april 2012 , matcon — july 2012 and ftl —march 2013 ) . organic sales to customers outside the u.s. represented approximately 51 % of total sales in the period compared with 50 % in 2012 . in 2013 , fluid & metering technologies contributed 43 % of sales and 47 % of operating income ; health & science technologies contributed 35 % of sales and 30 % of operating income ; and fire & safety/diversified products contributed 22 % of sales and 23 % of operating income . gross profit of $ 873.4 million in 2013 increased $ 69.7 million , or 8.7 % , from 2012 . gross margins were 43.1 % in 2013 and 41.1 % in 2012 . sg & a expenses increased to $ 477.9 million in 2013 from $ 444.5 million in 2012 . the $ 33.4 million increase reflects approximately $ 10.4 million of incremental costs from new acquisitions , $ 5.6 million of cost-out actions , a $ 1.7 million pension settlement ,
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the higher effective income tax rate in 2013 was primarily due to changes in the mix of taxable income and losses within our subsidiaries . one subsidiary had state taxable income which resulted in state income tax expense ; however , another subsidiary with state tax losses has no state income tax benefits based upon the valuation allowances that we have recorded in connection with state net operating loss carry-forwards . 14 earnings before income taxes were $ 5,281,000 in 2014 as compared to $ 3,949,000 in 2013. excluding the loss on disposal of long-lived assets in 2014 and the non-cash pre-tax impairment charge in 2013 , our adjusted earnings before income taxes were $ 7,684,000 in 2014 as compared to $ 8,278,000 in 2013. replace_table_token_3_th net earnings were $ 3,145,000 in 2014 as compared to $ 2,024,000 in 2013. excluding the loss on disposal of long-lived assets in 2014 and the non-cash impairment charge in 2013 , net of income taxes , our adjusted net earnings were $ 4,592,000 in 2014 as compared to $ 4,838,000 in 2013. replace_table_token_4_th the above financial information is presented using other than generally accepted accounting principles ( non-gaap ) and is reconciled to comparable information presented using gaap . non-gaap adjusted earnings before income taxes and non-gaap adjusted net earnings is derived by adjusting amounts determined in accordance with gaap for the loss on disposal of long-lived assets , the non-cash impairment charge and benefit for contingent obligation . we believe such non-gaap information is useful and meaningful to investors , and is used by investors and us to assess core operations . this non-gaap financial information may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to earnings before income taxes and net earnings which is determined in accordance with gaap . liquidity and capital resources our operations and cash flows from operating activities are seasonal in nature . net cash provided by operating activities was $ 7,063,000 in 2015 as compared to $ 7,498,000 in 2014. the decrease was primarily due to higher income tax payments in 2015. partially offsetting this decrease were receipts from the inaugural big barrel country music festival . net cash used in investing activities was $ 268,000 in 2015 as compared to $ 1,458,000 in 2014. capital expenditures in 2015 related to improvements , primarily the installation of fiber optic cable , equipment purchases , and improvements at our dover facility . capital expenditures in 2014 related to improvements , primarily the replacement of the speedway safety fence , and equipment purchases at our dover facility . in may 2014 , we entered into an agreement to sell our nashville superspeedway facility . during 2015 and 2014 , we received $ 1,200,000 and $ 1,700,000 , respectively , in non-refundable fees from the potential buyer to extend the closing date . the amended closing date under the agreement was july 27 , 2015 ; therefore , the agreement expired by its terms . net cash used in financing activities was $ 6,818,000 in 2015 as compared to $ 6,020,000 in 2014. we had net repayments on our outstanding line of credit of $ 4,860,000 in 2015 as compared to $ 4,060,000 in 2014. we paid $ 1,837,000 and $ 1,831,000 in cash dividends during 2015 and 2014 , respectively . during 2014 , we purchased and retired 13,950 shares of our outstanding common stock in the open market for $ 32,000. no purchases of our equity securities from the open market were made during 2015. additionally , we purchased and retired 49,078 and 40,210 shares of our outstanding common stock for $ 121,000 and $ 97,000 during 2015 and 2014 , respectively , from employees in connection with the vesting of restricted stock awards under our stock incentive plan . at december 31 , 2015 , dover motorsports , inc. and its wholly owned subsidiaries dover international speedway , inc. and nashville speedway , usa , inc. , as co-borrowers had a $ 35,000,000 secured credit agreement with a bank group . the credit facility expires on july 31 , 2017. interest is based upon libor plus a margin that varies 15 between 125 and 175 basis points depending on the leverage ratio ( 150 basis points at december 31 , 2015 ) . the facility provides that we may elect to enter into a negative pledge with the bank group in exchange for the release of the security interest in the collateral securing the agreement . in the event we elect to enter into the negative pledge , interest will be based upon libor plus a margin that varies between 150 and 200 basis points depending on the leverage ratio . the credit facility contains certain covenants including maximum funded debt to earnings before interest , taxes , depreciation and amortization ( leverage ratio ) and a minimum fixed charge coverage ratio . material adverse changes in our results of operations could impact our ability to maintain financial ratios necessary to satisfy these requirements . in addition , the credit agreement includes a material adverse change clause and provides the lenders with a first lien on all of our assets . the credit facility also provides that if we default under any other loan agreement , that would be a default under this facility . at december 31 , 2015 , there was $ 5,900,000 outstanding under the credit facility at an interest rate of 1.93 % . the credit facility provides for seasonal funding needs , capital improvements , letter of credit requirements and other general corporate purposes . at december 31 , 2015 , we were in compliance with the terms of the credit facility . story_separator_special_tag after consideration of stand-by letters of credit outstanding , the remaining maximum borrowings available pursuant to the credit facility were $ 11,612,000 at december 31 , 2015. we expect to be in compliance with the financial covenants , and all other covenants , for all measurement periods during the next twelve months . nashville superspeedway no longer promotes nascar events and has not entered into sanction agreements with nascar since 2011. we currently use the facility on a limited basis for motorsports track rentals . on may 29 , 2014 , we entered into an agreement to sell the facility for $ 27 million in cash and the assumption by the potential buyer of obligations of ours under certain variable rate tax exempt infrastructure revenue bonds . the sales agreement was amended several times extending the closing date . in consideration for these amendments , during 2014 we received $ 1,700,000 in non-refundable deposits from the potential buyer which was to be applied against the purchase price at closing . as of december 31 , 2014 , the $ 1,700,000 was included in accrued expenses in our consolidated balance sheets . in 2015 , we received $ 1,200,000 in non-refundable deposits to extend closing under the agreement , a portion of which was to be applied against the purchase price depending on the closing date . during the first and second quarters of 2015 , $ 427,000 and $ 606,000 , respectively , was recorded as income from assets held for sale in our consolidated statements of earnings as those deposit amounts were not to be applied against the purchase price at closing based on the terms of the amendments . on june 1 , 2015 , the potential buyer defaulted under the agreement and did not subsequently cure the default . the amended closing date under the agreement was july 27 , 2015 ; therefore , the agreement expired by its terms . accordingly , we recorded as income from assets held for sale the remaining deposits of $ 1,867,000 in the third quarter of 2015. we have expanded our sales efforts and are in discussions with additional prospective buyers . the assets of nashville superspeedway are reported as assets held for sale in our consolidated balance sheets at december 31 , 2015 and 2014. we promoted six racing events in 2015 and 2014 , all of which were sanctioned by nascar and held at our dover international speedway facility . we have entered into five year sanction agreements with nascar for these same racing events in 2016-2020. broadcasting revenues continue to be a significant long-term revenue source for our business . management believes this long-term contracted revenue helps stabilize our financial strength , earnings and cash flows . also , nascar ratings can impact attendance at our events and sponsorship opportunities . a substantial portion of our profits in recent years has resulted from television revenues received from nascar under its agreements with various television networks , which is expected to continue for the foreseeable future . our share of these television broadcast revenues and purse and sanction fees are fixed under our nascar sanction agreements through the year 2020. we are obligated to conduct events in the manner stipulated under the terms and conditions of these sanctioning agreements . nascar is operating under a ten-year , multi-platform agreement with fox sports media group ( fox ) for the broadcasting and digital rights to 16 nascar sprint cup series races , 14 xfinity series races and the entire camping world truck series ( along with practice and qualifying ) from 2015 through 2024. the agreement includes tv everywhere rights that allow live-streaming of all fox races , before and after race coverage , in-progress and finished race highlights , and replays of fox-televised races to a fox sports-affiliated website which began in 2013. the agreement also allows re-telecast of races on a fox network and via video-on-demand for 24 hours and other ancillary programming , including a nightly nascar news and information show and weekend at-track shows . nascar and fox deportes , the number one us latino sports network , have teamed up to provide our sport 's 16 most expansive spanish-language broadcast offering ever with coverage of 15 nascar sprint cup series races which started in 2013. nascar also operates under a ten-year comprehensive agreement with nbc sports group granting nbcuniversal ( nbc ) exclusive rights to 20 nascar sprint cup series races , 19 nascar xfinity series events , select nascar regional & touring series events and other live content which began in 2015. further , nbc has been granted spanish-language rights , certain video-on-demand rights and exclusive tv everywhere ' rights for its nascar sprint cup series and nascar xfinity series events . looking forward , our sanction agreements with nascar contain annual increases of between 3 and 4 percent in media rights fees for each sanctioned event conducted , and provide a specific percentage of media rights fees to be paid to competitors . the sanction agreements also provide for annual increases in sanction fees and non-media rights related prize and point fund monies ( to be paid to competitors ) of between 4 and 4.5 percent annually over the term of the agreements . we have hosted the firefly music festival on our property in dover , delaware for four consecutive years and it is scheduled to return on june 16-19 , 2016 with over 90 musical acts . the inaugural three day festival with 40 musical acts was held in july 2012 , followed by a three day festival in june 2013 with over 70 musical acts and an expanded four day festival in june 2014 with over 100 musical acts . the event returned to dover on june 18-21 , 2015 with 120 musical acts . in september 2014 , red frog events llc formed rfgv festivals llc - a joint venture with goldenvoice that promotes firefly .
| depreciation expense increased to $ 5,326,000 in 2015 as compared to $ 3,262,000 in 2014. the increase was due primarily to shortening of the service lives of certain track related assets that were retired as a result of our planned reduction of grandstand seating . we recorded $ 2,216,000 of depreciation expense on these assets in 2015 , which are now fully depreciated . income from assets held for sale relates to non-refundable payments we received from the potential buyer of our nashville superspeedway facility to extend the closing date of settlement . the sales agreement expired on july 27 , 2015 and all payments made to us were recognized as income from assets held for sale . net interest expense was $ 323,000 in 2015 as compared to $ 467,000 in 2014. the decrease was due primarily to lower average borrowings and lower letter of credit fees . our effective income tax rates for 2015 and 2014 were 38.5 % and 40.4 % , respectively . earnings before income taxes were $ 8,599,000 in 2015 as compared to $ 5,281,000 in 2014. excluding the income from assets held for sale in 2015 , the accelerated depreciation on retired assets in 2015 and the loss on disposal of long-lived assets in 2015 and 2014 , our adjusted earnings before income taxes were $ 7,955,000 in 2015 as compared to $ 7,684,000 in 2014. replace_table_token_1_th 13 net earnings were $ 5,285,000 in 2015 as compared to $ 3,145,000 in 2014. excluding the income from assets held for sale in 2015 , the accelerated depreciation on retired assets in 2015 and the loss on disposal of long-lived assets in 2015 and 2014 , net of income taxes , our adjusted net earnings were $ 4,739,000 in 2015 as compared to $ 4,592,000 in 2014. replace_table_token_2_th the above financial information is presented using other than generally accepted accounting principles ( non-gaap ) and
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on august 3 , 2018 , we acquired storetail , a paris-based pioneering retail media technology platform enabling retailers to monetize native placements on their ecommerce sites . on november 9 , 2016 , we completed the acquisition of all of the outstanding shares of hooklogic , a new york-based company connecting many of the world 's largest ecommerce retailers with consumer brands . we now offer hooklogic 's products under the `` criteo sponsored products '' name . on may 31 , 2016 , we acquired all of the outstanding shares of monsieur drive , a paris-based company building advertising products for the consumer packaged goods vertical . transition to u.s. gaap and change in reporting currency as of june 30 , 2015 , we no longer met the requirements to qualify as a foreign private issuer under the exchange act . as a result , we began reporting as a domestic registrant as of january 1 , 2016 and we are required under current sec rules to prepare our financial statements in accordance with u.s. gaap , rather than ifrs , and to present our financial information in u.s. dollars instead of euros . the transition from consolidated financial statements under ifrs to u.s. gaap only impacted the presentation of our consolidated statement of financial position ( order of liquidity ) and of our consolidated statement of cash flows ( effect of exchange rate changes on cash and cash equivalents ) . the functional currency of the company remains the euro , while our reporting currency changed from the euro to the u.s. dollar . consequently , since we incur portions of our expenses and derive revenues in currencies other than the euro , we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates . foreign exchange risk exposure also arises from intra-company transactions and financing with subsidiaries that have a functional currency different than the euro . 68 a. operating results . basis of presentation the key elements of our results of operations include : revenue we sell personalized display advertisements featuring product-level recommendations either directly to clients or to advertising agencies . historically , the criteo model has focused solely on converting our clients ' website visitors into customers , enabling us to charge our clients only when users engage with an ad we deliver , usually by clicking on it . more recently , we have expanded our solutions to address a broader range of marketing goals for our clients . we offer two families of solutions to our commerce and brand clients : criteo marketing solutions allow commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the web , mobile and offline store environments . criteo retail media solutions allow retailers to generate advertising revenues from consumer brands , and or to drive sales for themselves , by monetizing their data and audiences through personalized ads , either on their own digital property or on the open internet , that address multiple marketing goals . in conjunction with expanding our solutions , we have also started expanding our pricing models to now include a combination of cost-per-install and cost-per-impression for selected new solutions , in addition to cost-per-click . we recognize revenues when we transfer control of promised services directly to our clients or to advertising agencies , which we collectively refer to as our clients , in an amount that reflects the consideration to which we expect to be entitled to in exchange for those services . for campaigns priced on a cost-per-click and cost-per-install basis , we bill our clients when a user clicks on an advertisement we deliver or installs an application by clicking on an advertisement we delivered , respectively . for these pricing models , we recognize revenue when a user clicks on an advertisement or installs an application . for campaigns priced on a cost-per-impression basis , we bill our clients based on the number of times an advertisement is displayed to an user . for this pricing model , we recognize revenue when an advertisement is displayed . we act as principal in our arrangements because ( i ) we control the advertising inventory ( spaces on websites ) before it is transferred to our clients ; ( ii ) we bear sole responsibility for fulfillment of the advertising promise and inventory risks and ( iii ) we have full discretion in establishing prices . therefore , based on these factors , we report revenue earned and the related costs incurred on a gross basis . cost of revenue our cost of revenue primarily includes traffic acquisition costs and other cost of revenue . traffic acquisition costs . traffic acquisition costs consist primarily of purchases of impressions from publishers on a cpm basis . we purchase impressions directly from publishers or third-party intermediaries , such as advertisement exchanges . we recognize cost of revenue on a publisher by publisher basis as incurred . costs owed to publishers but not yet paid are recorded in our consolidated statements of financial position as trade payables . for some solutions within criteo retail media , we pay for the inventory of our retailer partners on a revenue sharing basis , effectively paying the retailers a portion of the click-based revenue generated by user clicks on the sponsored products advertisements displaying the products of our consumer brand clients . for a discussion of the trends we expect to see in traffic acquisition costs , see the section entitled `` - highlights and trends - revenue ex-tac '' in item 7.d - trend information below . other cost of revenue . other cost of revenue includes expenses related to third-party hosting fees , depreciation of data center equipment and the cost of data purchased from third parties . the company does not build or operate its own data centers and none of its research and development employments are dedicated to revenue generating activities . story_separator_special_tag as a result , we do not include the costs of such personnel in other cost of revenue . 69 operating expenses operating expenses consist of research and development , sales and operations , and general and administrative expenses . salaries , bonuses , equity awards compensation , pension benefits and other personnel-related costs are the most significant components of each of these expense categories . we grew from 1,841 employees at january 1 , 2016 to 2,744 employees at december 31 , 2018 , and we expect to continue to hire a significant number of new employees in order to support our anticipated revenue growth . we include equity awards compensation expense in connection with grants of share options , warrants , and restricted share units ( `` rsus '' ) in the applicable operating expense category based on the respective equity award recipient 's function ( research and development , sales and operations , general and administrative ) . research and development expense . research and development expense consists primarily of personnel-related costs for our employees working in the engine , platform , site reliability engineering , scalability , infrastructure , engineering program management , product , analytics and other teams , including salaries , bonuses , equity awards compensation and other personnel related costs . our research and development function was supplemented in january 2013 to include a dedicated product organization following the appointment of a chief product officer . also included are non-personnel costs such as subcontracting , consulting and professional fees to third-party development resources , allocated overhead and depreciation and amortization costs . these expenses are partially offset by the french research tax credit that is conditional upon the level of our expenditures in research and development . our research and development efforts are focused on enhancing the performance of our solution and improving the efficiency of the services we deliver to our clients and publisher partners . all development costs , principally headcount-related costs , are expensed as management determines that technological feasibility is reached , shortly before the release of the developed products or features . as a result , the development costs incurred after the establishment of technological feasibility and before the release of those products or features are not material and , accordingly , are expensed as incurred . capitalized costs mainly relates to internally developed internal-use software and it licenses . the number of employees in research and development functions grew from 399 at january 1 , 2016 to 675 at december 31 , 2018 . we expect research and development expenses to continue to increase in absolute dollars but remain fairly constant as a percentage of our revenue . we believe our continued investment in research and development to be critical to maintaining and improving our technology within the advertising platform for the open internet , our quality of service and our competitive position . sales and operations expense . sales and operations expense consists primarily of personnel-related costs for our employees working in our sales , account strategy , sales operations , publisher business development , analytics , marketing , technical solutions , creative services and other teams , including salaries , bonuses , equity awards compensation , and other personnel-related costs . additional expenses in this category include travel and entertainment , marketing and promotional events , marketing activities , provisions for doubtful accounts , subcontracting , consulting and professional fees paid to third parties , allocated overhead and depreciation and amortization costs . the number of employees in sales and operations functions grew from 1,124 at january 1 , 2016 to 1,574 at december 31 , 2018 . in order to continue to grow our business , geographic footprint and brand awareness , we expect to continue to invest in our resources in sales and operations , in particular by increasing the number of sales and account strategy teams in low penetrated geographic markets and in our midmarket organization . as a result , we expect sales and operations expenses to increase in absolute dollars as we invest to acquire new clients , retain existing ones and grow revenue from existing clients , but to decrease as a percentage of revenue over time as we scale and automate our operational processes , and increase the productivity of our sales and operations teams . general and administrative expense . general and administrative expense consists primarily of personnel costs , including salaries , bonuses , equity awards compensation , pension benefits and other personnel-related costs for our administrative , legal , information technology , human resources , facilities and finance teams . additional expenses included in this category include travel-related expenses , subcontracting and professional fees , audit fees , tax services and legal fees , as well as insurance and other corporate expenses , along with allocated overhead and depreciation and amortization costs . the number of employees in general and administrative functions grew from 318 at january 1 , 2016 to 495 at december 31 , 2018 . we expect our general and administrative expense to increase in absolute dollars as we continue to support our growth , but to decrease as a percentage of revenue over time as we scale and increase the productivity of our general and administrative teams . 70 financial income ( expense ) financial income ( expense ) primarily consists of : exchange differences arising on the settlement or translation into local currency of monetary balance sheet items labeled in euros ( the company 's functional currency ) . we are exposed to changes in exchange rates primarily in the united states , the united kingdom , japan and brazil . the u.s. dollar , the british pound , the japanese yen and the brazilian real are our most significant foreign currency exchange risks . at december 31 , 2018 , our exposure to foreign currency risk was centralized at parent company level and hedged . these exchange differences in euro are then translated into u.s. dollars ( the company 's reporting currency ) according to the average euro/u.s .
| our revenue in the americas region decreased ( 4 ) % ( or ( 3 ) % on a constant currency basis ) to $ 954.1 million for 2018 compared to 2017 . while we saw continued strength with our largest existing clients in the united states , execution was more difficult in the midmarket across the region and we experienced prolonged difficult market conditions in latin america . 76 we saw a positive impact from the continued ramp up of our expanded criteo marketing solutions and criteo retail media solutions , in particular in the united states . contribution from existing clients was negatively impacted by user coverage limitations across the region , and the discontinuation of certain products over the period . contribution from new clients was negatively impacted by hiring delays within our sales teams . our revenue in the emea region increased 4 % ( or 1 % on a constant currency basis ) to $ 839.8 million for 2018 compared to 2017 . this was largely driven by solid growth in germany , russia and middle-east , as well as the traction from our broader solutions offering . external negative factors , including the implementation of the gdpr , as well as some short-term disturbance related to the implementation of our new go-to-market model across the region had a temporary negative impact on revenue growth . our revenue in the asia-pacific region increased 2 % ( or 1 % on a constant currency basis ) to $ 506.4 million for 2018 compared to 2017 . overall , revenue growth was driven by a stronger business in korea ( particularly in apps ) and india and japan ( particularly with large clients ) . additionally , our $ 2,300.3 million of revenue for 2018 was positively impacted by $ 19.1 million of currency fluctuations , particularly as a result of the strengthening of the japanese yen , the british pound and the euro partially offset by the depreciation of the brazilian real and the turkish lira , compared to the u.s. dollar . the year-over-year decrease in revenue on a constant currency basis was attributable
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charge-offs are deducted from the allowance for credit losses when we judge the principal to be uncollectible , and subsequent recoveries are added to the allowance , generally at the time cash is received on a charged-off account . the expected credit losses for unfunded commitments are measured over the contractual period of the company 's exposure to credit risk . the estimate of credit loss incorporates assumptions for both the likelihood and amount of funding over the estimated life of the commitments , for the risk of loss , and current conditions and expectations . management periodically reviews and updates its assumptions for estimated funding rates based on historical rates , and factors such as portfolio growth , changes to organizational structure , economic conditions , borrowing habits , or any other factor which could impact the likelihood that funding will occur . the company does not reserve for unfunded commitments which are unconditionally cancellable . income taxes the company and its subsidiaries file income tax returns in the u.s. federal jurisdiction , the commonwealth of massachusetts , the state of new hampshire , the state of maine , and other states as required . income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through income tax expense . deferred tax assets are reviewed quarterly and reduced by a valuation allowance if , based upon the information available , it is more likely than not that some or all of the deferred tax assets will not be realized . interest and penalties related to unrecognized tax benefits , if incurred , are recognized as a component of income tax expense . recent accounting developments see note 3 – recently issued and adopted accounting standards to the audited consolidated financial statements for additional details on other recently issued and adopted accounting pronouncements and their expected impact on the company 's financial statements . 27 covid-19 in december 2019 , a novel strain of coronavirus was reported in wuhan , china . the world health organization has declared the outbreak to constitute a “ public health emergency of international concern. ” the covid-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries . the impact of the pandemic on the company 's business , financial condition , results of operations , and its customers has not fully manifested in 2020. the fiscal stimulus and relief programs appear to have delayed any materially adverse financial impact to the company . once these stimulus programs have been exhausted , loan credit metrics may worsen and credit losses may ultimately materialize . the magnitude of future credit losses may be affected by the impact of covid-19 on individuals and businesses in the long and short term . however , economic uncertainty remains high and bouts of elevated volatility are expected to continue , which may have a future adverse financial impact on the company . the extent of the continued impact of covid-19 on our operational and financial performance will depend on certain developments , including the duration and spread of the outbreak , impact on our customers , employees , and vendors all of which are uncertain and can not be predicted . please see risk factors above for more detail on risks related to covid-19 . story_separator_special_tag credit losses of $ 18.3 million for the year ended december 31 , 2020 , compared to a provision for loan losses of $ 3.0 million in 2019 . the provision includes $ 9.4 million associated with the expected impact of the covid-19 pandemic on future loan losses and $ 8.6 million for the recognition of the non-operating impact of the merger related cecl accounting . the company recorded net charge-offs of $ 439 ,000 for the year ended december 31 , 2020 , as compared to net charge-offs of $ 1.6 million during the same period in 2019 . the allowance for credit losses was $ 36.0 million , or 1.14 % of total loans outstanding at december 31 , 2020 , as compared to $ 18.2 million , or 0.82 % of total loans outstanding at year end 2019. noninterest income . inclusive of the wellesley merger , total noninterest income increased by $ 3.1 million , or 8.6 % , to $ 39.5 million for the year ended december 31 , 2020 , as compared to $ 36.4 million for the same period in 2019 , primarily as a result of higher wealth management revenue and higher gains on loans sold , partially offset by lower deposit and atm related fees , lower loan related derivative income and other fee income . total noninterest income was 24.7 % of total revenue for the year ended december 31 , 2020. wealth management revenue increased by $ 3.3 million , or 12.3 % , for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019 , as a result of the wellesley merger and appreciation in the equity markets during 2020. assets under management combined with assets under administration were $ 4.2 billion at december 31 , 2020 , as compared to $ 3.5 billion at december 31 , 2019. gain on loans sold increased by $ 680,000 as compared to the same period in 2019 primarily due to increased sales of residential mortgage loans given the low-rate environment and active refinance market . deposit account fees decreased by $ 590,000 , or 18.5 % , for the year ended december 31 , 2020 primarily as a result of lower transactional fee activity during the year . other income decreased $ 201,000 during the year ended december 31 , 2020 primarily as a result of lower loan prepayment income during the year . story_separator_special_tag atm/debit card income decreased $ 105,000 during the year ended december 31 , 2020 primarily as a result of the covid-19 pandemic 's impact on transactions during 2020. loan related derivative income decreased $ 195,000 during the year ended december 31 , 2020 , primarily due to valuation adjustments associated with changes in interest rates on existing derivative transactions . the categories of wealth management revenues are shown in the following table : replace_table_token_2_th the following table presents the changes in wealth management assets under management : replace_table_token_3_th there were no significant changes to the average fee rates and fee structure for the year ended december 31 , 2020 and 2019 . 29 noninterest expense . total noninterest expense increased by $ 19.9 million , or 25.5 % , to $ 98.1 million for the year ended december 31 , 2020 , as compared to $ 78.2 million for the year ended december 31 , 2019. this increase was primarily driven by increases in salaries and employee benefits expense , merger and other non-operating expenses including branch and office closure related expense , occupancy and equipment expense , and data processing expenses resulting from our mergers with optima in 2019 and wellesley in 2020 , as described below . salaries and employee benefits increased $ 11.5 million , or 24.2 % , primarily as a result of the increased staffing related to the mergers with optima and wellesley in 2019 and 2020 , respectively , additions to support business initiatives , normal merit increases and higher employee benefit costs . non-operating expenses increased $ 2.9 million primarily due to merger expenses associated with the wellesley merger and branch and office closure expenses of $ 1.2 million during the fourth quarter of 2020. occupancy and equipment expense increased by $ 2.1 million , or 19.8 % , primarily as a result of additional branches and office space as a result of the mergers with optima and wellesley . data processing expense increased by $ 1.4 million , or 22.9 % , primarily as a result of increased client activity associated with the mergers with optima and wellesley . income tax expense . the company recorded income tax expense of $ 11.4 million for the year ended december 31 , 2020 , as compared to $ 8.7 million for the same period in 2019. for the year ended december 31 , 2020 , the effective tax rate was 26.3 % , as compared to 25.5 % for the year ended december 31 , 2019. the coronavirus aid , relief , and economic security ( the “ cares act ” ) was signed into law on march 27 , 2020 , to help stimulate the united states economy . one of the business tax provisions of the cares act included allowing net operating losses ( “ nol ” ) generated by the company in tax years 2018 and 2019 to be carried back up to five years at the tax rates in effect during those periods , rather than carried forward at current federal tax rates of 21 % . the effect of the act allowed the company to recognize lower tax expense associated with nol carryforwards from 2018 and 2019 ( as a result of the optima merger ) and resulted in a benefit of $ 539,000. results of operations for the years ended december 31 , 2019 and 2018 general . net income increased by $ 1.4 million , or 5.8 % , to $ 25.3 million for the year ended december 31 , 2019 , from $ 23.9 million for the year ended december 31 , 2018 , primarily due to a $ 13.6 million increase in net interest and dividend income after the provision for loan losses and a $ 3.4 million increase in noninterest income . these increases were partially offset by a $ 14.2 million increase in noninterest expense and higher provision for income taxes of $ 1.5 million . diluted earnings per share were $ 5.37 for 2019 , representing a 6.9 % decrease over diluted earnings per share of $ 5.77 for 2018. net income for 2019 included non-operating expenses of $ 4.7 million related to costs associated with the company 's december common stock offering and merger related expenses resulting from the completed merger with optima and the pending merger with wellesley . excluding non-operating expenses , operating net income was $ 29.2 million for the year ended december 31 , 2019 , an increase of $ 5.1 million , or 21.4 % , as compared to operating net income of $ 24.0 million for 2018. operating diluted earnings per share were $ 6.20 for 2019 , representing a 7 % increase over operating diluted earnings per share of $ 5.80 for 2018. net interest and dividend income . net interest and dividend income before provision for loan losses increased by $ 15.1 million , or 23.8 % , to $ 78.7 million for the year ended december 31 , 2019 , as compared to $ 63.6 million for the year ended 2018 , primarily due to loan growth , both organic and as a result of the optima merger and higher levels of interest-earning assets . interest on loans increased by $ 26.7 million , or 45.7 % , primarily due to organic loan growth and the impact of loan balances acquired related to the optima merger . interest on deposits increased $ 10.6 million , or 211.4 % , due to an increase in cost primarily as a result of the impact of the cost of deposits acquired from our merger with optima and growth within our higher cost savings products .
| net interest and dividend income before provision for credit losses increased by $ 41.5 million , or 52.8 % , to $ 120.2 million for the year ended december 31 , 2020 , as compared to $ 78.7 million for the year ended december 31 , 2019 , primarily due to loan growth ( both organic and as a result of the optima and wellesley mergers ) , lower cost of funds , loan accretion associated with merger accounting and accelerated interest income from payment protection program ( “ ppp ” ) loans forgiven during the year . interest on loans increased by $ 35.4 million , or 41.6 % , primarily due to merger related loan growth . interest on deposits decreased $ 8.3 million , or 53.4 % , due to a decrease in interest rates paid on these deposits . total average interest-earning assets increased by $ 850.7 million , or 34.6 % , to $ 3.3 billion for the year ended december 31 , 2020 from $ 2.5 billion in 2019. the company 's net interest margin , on a fully tax equivalent basis , increased 43 basis points to 3.65 % for the year ended december 31 , 2020 , as compared to 3.22 % in 2019 , and the net interest rate spread increased 59 basis points to 3.52 % for the year ended december 31 , 2020 , as compared to 2.93 % in 2019. interest and dividend income . total interest and dividend income increased by $ 33.0 million , or 34.3 % , to $ 129.4 million for the year ended december 31 , 2020 , from $ 96.3 million in 2019 , primarily due to loan growth , as a result of the optima and wellesley mergers , loan accretion associated with merger accounting , and accelerated interest income from ppp loans forgiven during the year . interest expense . interest expense decreased by $ 8.5 million , or 48.2 % to $ 9.1 million for the year ended december 31 , 2020 , from $ 17.6 million in 2019 , primarily driven by a decrease in cost of deposits . average interest-bearing liabilities increased $ 487.7 million to $ 2.2 billion at december 31 , 2020 from $ 1.7 billion at december 31 , 2019 , primarily related to the mergers with optima and wellesley coupled with organic core deposit growth . the average cost of funds decreased to 0.28 % at december 31 , 2020 from 0.72 % at december 31 , 2019. the increase in average interest-bearing liabilities was primarily driven
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selling and administrative expense also reflected a pre-tax non-cash impairment charge of $ 1.2 million in fiscal 2014. our principal liquidity requirements are for working capital , capital expenditures and cash dividends . we fund our liquidity requirements primarily through cash on hand , cash flows from operations and borrowings from our revolving credit facility . operating cash flow for fiscal 2014 increased to $ 28.5 million from $ 26.3 million in fiscal 2013. capital expenditures for fiscal 2014 of $ 22.6 million were up slightly from fiscal 2013. we ended fiscal 2014 with a balance under our revolving credit facility of $ 66.3 million compared with $ 43.0 million at the end of fiscal 2013. we paid aggregate cash dividends in fiscal 2014 of $ 8.9 million , or $ 0.40 per share . we repurchased 223,051 shares of common stock for $ 2.5 million . 30 story_separator_special_tag width= '' 2 % '' > store-related expense , excluding occupancy , increased by $ 6.4 million due primarily to higher employee benefit-related expense and higher operating expense to support the increase in store count . administrative expense increased by $ 2.4 million , primarily reflecting higher employee labor and benefit-related expense . administrative expense in fiscal 2014 also included pre-tax charges of $ 1.4 million reflecting legal accruals and a pre-tax non-cash impairment charge of $ 1.2 million related to certain underperforming stores . administrative expense for fiscal 2013 included a pre-tax charge of $ 1.0 million related to legal accruals . these charges are further discussed in notes 4 and 13 to the consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k. advertising expense for fiscal 2014 decreased by $ 1.9 million , due primarily to lower newspaper advertising , partially offset by increases in digital marketing programs and other advertising to support sales . interest expense . interest expense decreased by $ 0.1 million , or 4.5 % , to $ 1.6 million in fiscal 2014 from $ 1.7 million in fiscal 2013. the decrease in interest expense reflects the impact of lower average interest rates of 20 basis points to 1.9 % in fiscal 2014 from 2.1 % in fiscal 2013 , partially offset by an increase in average debt levels of $ 19.3 million to $ 63.3 million in fiscal 2014 from $ 44.0 million in fiscal 2013. income taxes . the provision for income taxes was $ 8.6 million for fiscal 2014 compared with $ 17.7 million for fiscal 2013. this decrease was primarily due to lower pre-tax income and a lower effective tax rate in fiscal 2014. our effective tax rate was 36.7 % for fiscal 2014 compared with 38.8 % for fiscal 2013. the lower effective tax rate year over year primarily resulted from increased income tax credits for the current year . the effective tax rate for fiscal 2013 included the retroactive reinstatement of the work opportunity tax credit ( wotc ) for 2012 , which resulted from enactment of the american taxpayer relief act of 2012. reinstatement of the wotc reduced the effective tax rate for the first quarter of fiscal 2013 by 137 basis points . 32 fiscal 2013 compared to fiscal 2012 net sales . net sales increased by $ 52.8 million , or 5.6 % , to $ 993.3 million for fiscal 2013 from $ 940.5 million for fiscal 2012. the change in net sales was primarily attributable to the following : same store sales increased 3.9 % for fiscal 2013 versus fiscal 2012. we believe our higher same store sales reflected favorable customer response to changes in our merchandise offering and new marketing initiatives , higher demand for firearm and ammunition products , and improved sales of winter merchandise in the first quarter of fiscal 2013 as a result of more favorable weather compared to unseasonably warm winter weather experienced in the first quarter of fiscal 2012. same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period . added sales from new stores reflected the opening of 31 new stores since january 1 , 2012 , partially offset by a reduction in closed store sales . while we experienced a slight decline in customer transaction levels in our retail stores in fiscal 2013 when compared with fiscal 2012 , the average sale per transaction increased primarily as a result of changes in our sales mix and merchandise offering . store count at the end of fiscal 2013 was 429 versus 414 at the end of fiscal 2012. we opened 17 new stores , three of which were relocations , and closed two stores , both of which were relocations , in fiscal 2013. gross profit . gross profit increased by $ 25.9 million to $ 328.7 million in fiscal 2013 from $ 302.8 million in fiscal 2012. gross profit as a percentage of net sales in fiscal 2013 was 33.1 % compared with 32.2 % during fiscal 2012. the change in gross profit was primarily attributable to the following : net sales increased by $ 52.8 million in fiscal 2013 compared to fiscal 2012. merchandise margins , which exclude buying , occupancy and distribution expense , increased 50 basis points versus fiscal 2012 , when merchandise margins decreased 24 basis points versus fiscal 2011. the improvement primarily reflected a sales mix shift to higher-margin winter product categories as a result of favorable winter weather in the first quarter of fiscal 2013 compared with the same period in fiscal 2012 , combined with sales of firearm and ammunition products at higher margins during fiscal 2013. store occupancy expense for fiscal 2013 increased by $ 3.5 million year over year due primarily to the increase in store count . story_separator_special_tag store occupancy expense as a percentage of net sales in fiscal 2013 decreased by ten basis points compared with fiscal 2012. distribution expense decreased $ 1.5 million , or 38 basis points , primarily resulting from higher costs capitalized into inventory and decreased employee labor and benefit-related expense , as well as reductions in various other operating expenses . selling and administrative expense . selling and administrative expense increased by $ 4.5 million , or 1.6 % , to $ 281.3 million in fiscal 2013 from $ 276.8 million in fiscal 2012. selling and administrative expense as a percentage of net sales decreased 110 basis points to 28.3 % in fiscal 2013 from 29.4 % in fiscal 2012. the change in selling and administrative expense was primarily attributable to the following : store-related expense , excluding occupancy , increased by $ 1.5 million due primarily to higher labor and other operating expense to support the increase in store count and increased credit card fees reflecting higher net sales levels , partially offset by decreased employee benefit-related expense , primarily related to lower health and welfare expense . advertising expense for fiscal 2013 decreased by $ 1.4 million , due primarily to lower newspaper advertising , partially offset by increases in digital marketing programs and other advertising to support sales . administrative expense for fiscal 2013 increased by $ 4.4 million , primarily reflecting higher employee labor and benefit-related expense , added costs related to our new e-commerce initiative and increases in other administrative expense to support our growth . also , administrative expense for fiscal 2013 33 reflected a pre-tax charge of $ 1.0 million related to legal settlements . in fiscal 2012 , we recorded a pre-tax charge of $ 1.2 million related to store closing costs and a pre-tax non-cash impairment charge of $ 0.2 million related to certain underperforming stores . these charges are further discussed in notes 4 and 13 to the consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k , and in note 5 to the consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of the fiscal 2013 annual report on form 10-k. interest expense . interest expense decreased by $ 0.5 million , or 20.8 % , to $ 1.7 million in fiscal 2013 from $ 2.2 million in fiscal 2012. the decrease in interest expense reflects the combined impact of a decrease in average debt levels of $ 22.2 million to $ 44.0 million in fiscal 2013 from $ 66.2 million in fiscal 2012 , as well as a decrease in average interest rates of 10 basis points to 2.1 % in fiscal 2013 from 2.2 % in fiscal 2012 , due mainly to lower applicable margins under our credit agreement . income taxes . the provision for income taxes was $ 17.7 million for fiscal 2013 compared with $ 8.9 million for fiscal 2012. this increase was primarily due to higher pre-tax income and a higher effective tax rate in fiscal 2013. our effective tax rate was 38.8 % for fiscal 2013 compared with 37.3 % for fiscal 2012. the increased effective tax rate year over year primarily reflected the impact of lower overall income tax credits as a percentage of pre-tax income for fiscal 2013 , partially offset by the retroactive reinstatement of the wotc for 2012 that resulted from enactment of the american taxpayer relief act of 2012. reinstatement of the wotc reduced the effective tax rate for the first quarter of fiscal 2013 by 137 basis points . liquidity and capital resources our principal liquidity requirements are for working capital , capital expenditures and cash dividends . we fund our liquidity requirements primarily through cash on hand , cash flows from operations and borrowings from our revolving credit facility . we believe our cash on hand , future cash flows from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next 12 months . we ended fiscal 2014 with $ 11.5 million of cash compared with $ 9.4 million in fiscal 2013. after reducing our long-term debt by $ 4.5 million , or 9.5 % , during fiscal 2013 , we increased our long-term debt by $ 23.3 million , or 54.1 % , during fiscal 2014 to $ 66.3 million from $ 43.0 million at the end of fiscal 2013. the following table summarizes our cash flows from operating , investing and financing activities for each of the past three fiscal years : replace_table_token_10_th the seasonality of our business historically provides greater cash flows from operations during the holiday and winter selling season . we use operating cash flows and borrowings under our revolving credit facility to fund inventory increases in anticipation of the holidays and our inventory levels are normally at their highest in the months leading up to christmas . as holiday sales typically reduce inventory levels , this reduction , combined with net income , historically provides us with strong cash flows from operations at the end of our fiscal year . 34 for fiscal 2014 , we reduced the level of inventory purchases in the months leading up to christmas compared to the prior year due in part to a carryover of winter-related merchandise from the prior season as a result of unfavorable weather conditions . for the fiscal 2014 full year , our operating cash flow increased over fiscal 2013 as the impact of reduced inventory purchases in fiscal 2014 , due in part to lower sales levels , offset the effect of lower earnings . the increase in our debt at the end of fiscal 2014 primarily reflected our lower earnings , a significant reduction in outstanding check payable balances year over year from fiscal 2013 , along with amounts paid for cash dividends and to repurchase stock .
| added sales from new stores reflected the opening of 33 new stores since december 30 , 2012 , partially offset by a reduction in closed store sales . we experienced decreased customer transactions in our retail stores , and the average sale per transaction also declined slightly in fiscal 2014 compared to fiscal 2013 , primarily as a result of the reduced demand for firearm-related products in fiscal 2014 . 31 store count at the end of fiscal 2014 was 439 versus 429 at the end of fiscal 2013. we opened 16 new stores , four of which were relocations , and closed six stores , four of which were relocations , in fiscal 2014. for fiscal 2015 , we expect to open approximately 10 net new stores . gross profit . gross profit decreased by $ 15.3 million to $ 313.4 million , or 32.1 % of net sales , in fiscal 2014 from $ 328.7 million , or 33.1 % of net sales , in fiscal 2013. the change in gross profit was primarily attributable to the following : net sales decreased by $ 15.4 million in fiscal 2014 compared to the prior year . merchandise margins , which exclude buying , occupancy and distribution expense , decreased 27 basis points from fiscal 2013 , when merchandise margins increased 50 basis points versus fiscal 2012. the lower merchandise margins primarily reflected reduced sales of higher-margin winter-related products and increased sales promotions . store occupancy expense for fiscal 2014 increased by $ 5.1 million , or 65 basis points , year over year due primarily to increased rent associated with store lease renewals and the increase in store count . distribution expense increased $ 0.5 million , or 12 basis points , primarily resulting from higher employee labor and benefit-related expense and increased trucking expense , partially offset by higher costs capitalized into inventory . selling and administrative expense . selling and administrative expense increased by $ 7.0 million , or 2.5 % , to $
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based on the safety and efficacy data related to reduction in proteinuria observed in the phase ii trial in dn , we launched two phase iib clinical trials ( the lumina trials ) of ccx140 for the treatment of primary fsgs , with and without nephrotic syndrome , for which there are currently no fda-approved treatments . kidney health alliance with vifor in may 2016 , we announced a partnership , which we refer to as the avacopan agreement , with vifor ( international ) ltd. , and or its affiliates , or collectively , vifor , a european-based world leader specializing in kidney disease . while under this agreement we retained all rights to the united states and china , we granted vifor exclusive commercialization rights to avacopan in europe and certain other international markets . in december 2016 , we entered into an additional agreement with vifor , which we refer to as the ccx140 agreement , relating to ccx140 , our other late stage drug candidate . under the ccx140 agreement , we again retained all rights to the united states and china and we granted vifor exclusive worldwide commercialization rights outside of the united states and china . in february 2017 , we announced a further agreement with vifor that harmonized the geographic commercialization rights underlying the agreements for both drug candidates , which we refer to as the avacopan amendment . in june 2018 , we entered into additional agreements with vifor to further expand vifor 's exclusive commercialization rights to include china under the avacopan agreement ( the avacopan letter agreement ) and the ccx140 agreement ( ccx140 letter agreement ) . we have secured $ 215 million in upfront cash and milestone payments pursuant to our agreements with vifor and are eligible for additional substantial milestone payments . through our alliance , we maintain the commercialization rights to avacopan and ccx140 in the united states , and also retain control of the clinical development programs for orphan renal disease . vifor gained the exclusive commercialization rights for all other international markets , and is obligated to pay us tiered royalties , with rates ranging from ten to the mid-twenties , on potential net sales . at a future time defined in the ccx140 agreement , vifor has an option to solely develop and commercialize ccx140 in more prevalent forms of ckd . should vifor later exercise the ckd option , we would receive co-promotion rights for ckd in the united states , and we estimate that the clinical development and registration process for ckd would end at approximately the same time as orphan drug exclusivity . 72 index to financial statements early stage drug candidates while we have focused initially on kidney disease , our target-specific and selective approach designed to stop the spread of inflammatory disease-inducing cells shows promise in other disease areas . over time we plan to bring forward drug candidates to treat a range of inflammatory and autoimmune disorders , as well as cancer , where our drug candidate ccx872 has shown promise in a phase ib trial for advanced pancreatic cancer . we expect that our ability to do so will grow as we increase our scale and to the extent that we start to earn revenues and royalties from the commercialization of our late stage kidney disease franchise . since commencing our operations in 1997 , our efforts have focused on research , development and the advancement of our drug candidates into and through clinical trials . as a result , we have incurred significant losses . we have funded our operations primarily through the sale of convertible preferred and common stock , contract revenue under our collaborations , government contracts and grants and borrowings under equipment financing arrangements . as of december 31 , 2018 , we had an accumulated deficit of $ 374.5 million . we expect to continue to incur net losses as we develop our drug candidates , expand clinical trials for our drug candidates currently in clinical development , expand our research and development activities , expand our systems and facilities , seek regulatory approvals and engage in commercialization preparation activities in anticipation of fda approval of our drug candidates . in addition , if a product is approved for commercialization , we will need to expand our organization . significant capital is required to launch a product and many expenses are incurred before revenues are received . we are unable to predict the extent of any future losses or when we will become profitable , if at all . recent developments and corporate highlights equity distribution agreement with piper jaffray & co. in december 2018 , we entered into an equity distribution agreement , or eda , with piper jaffray & co. , or piper jaffray , having an aggregate offering price of up to $ 75.0 million . through this eda , we may offer and sell , from time to time , through piper jaffray , shares of our common stock , par value $ 0.001 per share . in january 2019 , we sold 1,666,367 shares of our common stock pursuant to the eda at a price per share of $ 12.00 , for gross proceeds of $ 20.0 million , before deducting offering-related transaction costs and commissions . hs phase iib clinical study initiation in december 2018 , we launched a large placebo-controlled phase iib clinical trial of avacopan for the treatment of patients with hs , the aurora trial . the aurora trial aims to enroll 390 patients with moderate to severe hs . the primary endpoint will assess avacopan against placebo at 12 weeks of treatment , using the hiscr ( hidradenitis suppurativa clinical response ) scale , which has been validated by the fda . story_separator_special_tag critical accounting policies and significant judgments and estimates the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements as well as the reported revenues and expenses during the reported periods . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in the notes to our consolidated financial statements appearing elsewhere in this annual report on form 10-k , we believe that the following critical accounting policies relating to revenue recognition , clinical trial expenses and stock-based compensation are most important to understanding and evaluating our reported financial results . 73 index to financial statements revenue recognition effective january 1 , 2018 , we adopted accounting standards codification , or asc , topic 606 , revenue from contracts with customers , or asc 606 , using the modified retrospective transition method . this standard applies to all contracts with customers , except for contracts that are within the scope of other standards , such as leases , insurance , collaboration arrangements and financial instruments . under asc 606 , we recognize revenue when our customer obtains control of promised goods or services , in an amount that reflects the consideration which we expect to receive in exchange for those goods or services . to determine revenue recognition for arrangements that we determine are within the scope of asc 606 , we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) we satisfy a performance obligation . we only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer . at contract inception , once the contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . we enter into corporate collaborations under which we may obtain upfront license fees , research and development funding and development and regulatory and commercial milestone payments and royalty payments . our performance obligations under these arrangements may include licenses of intellectual property , distribution rights , research and development services , delivery of manufactured product , and or participation on joint steering committees . licenses of intellectual property : if the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , we recognize revenue from upfront license fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license . for licenses that are bundled with other promises , we utilize judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and , if over time , the appropriate method of measuring proportional performance for purposes of recognizing revenue from non-refundable , up-front fees . we evaluate the measure of proportional performance each reporting period and , if necessary , adjust the measure of performance and related revenue recognition . milestone payments : at the inception of each arrangement that includes development , regulatory or commercial milestone payments , we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price . asc 606 suggests two alternatives to use when estimating the amount of variable consideration : the expected value method and the most likely amount method . under the expected value method , an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts . under the most likely amount method , an entity considers the single most likely amount in a range of possible consideration amounts . whichever method is used , it should be consistently applied throughout the life of the contract ; however , it is not necessary for us to use the same approach for all contracts . we expect to use the most likely amount method for development and regulatory milestone payments . if it is probable that a significant revenue reversal would not occur , the associated milestone value is included in the transaction price . milestone payments that are not within our or the licensee 's control , such as regulatory approvals , are not considered probable of being achieved until those approvals are received . the transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis . we recognize revenue as or when the performance obligations under the contract are satisfied . at the end of each subsequent reporting period , we re-evaluate the probability of achievement of each such milestone and any related constraint , and if necessary , adjust our estimates of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect revenues and earnings in the period of adjustment .
| in 2017 , revenue recognized represents amortization of the upfront license fee commitments from vifor pursuant to the avacopan agreement and ccx140 agreement , in each case , as amended . the increase in revenue from 2016 to 2017 was due to : ( i ) recognition of a milestone payment related to the avacopan agreement ; ( ii ) amortization of the upfront license fee commitments from vifor pursuant to the avacopan agreement , avacopan amendment and ccx140 agreement , as well as ( iii ) collaboration revenue for development services under the ccx140 agreement in 2017. these increases were partially offset by a decrease in grant revenue from the fda to support the clinical development of avacopan for the treatment of patients with aav . the revenue in 2016 was due to : ( i ) amortization of the upfront payment from vifor pursuant to the avacopan agreement over the service period , which began in may 2016 and ( ii ) grant revenue from the fda to support the clinical development of avacopan for the treatment of patients with aav . 76 index to financial statements research and development expenses research and development expenses represent costs incurred to conduct basic research , the discovery and development of novel small molecule therapeutics , development of our suite of proprietary drug discovery technologies , preclinical studies and clinical trials of our drug candidates . we recognize all research and development expenses as they are incurred . these expenses consist primarily of salaries and related benefits , including stock-based compensation , third-party contract costs relating to research , formulation , manufacturing , preclinical study and clinical trial activities , laboratory consumables , and allocated facility costs . total research and development expenses , as compared to the prior years , were as follows ( in thousands ) : replace_table_token_6_th the increase in research and development expenses from 2017 to 2018 was primarily due to the advancement of the avacopan advocate phase iii pivotal trial which completed enrollment in july 2018 , initiation and patient enrollment of the avacopan phase ii clinical trial in patients with c3g and start-up , initiation and patient enrollment
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our education client vertical has been significantly challenged by regulations and enforcement activity affecting u.s. for-profit education institutions over the past several years . for example , in january 2014 , the department of education initiated an investigation of a publicly traded u.s. for-profit education client with respect to its enrollment activities and job placement , among other things , and in july 2014 , the department of education signed an agreement with the client requiring it to wind down or sell its campuses . in july 2015 , the federal trade commission initiated an investigation of another publicly traded u.s. for-profit education client with respect to its recruiting and enrollment practices . these and other similar regulatory and enforcement activities have affected and are expected to continue to affect our clients ' businesses and marketing practices , which have and may continue to , result in a decrease in these clients ' spending with us and other vendors and fluctuations in the volume and mix of our business with these clients . to offset the impact these regulatory and investigative activities have had on the u.s. for-profit education clients , we have broadened our product set from our traditional lead business with the addition of better qualified and matched leads or inquiries , clicks and calls ; we believe these new enhanced products better match u.s. for-profit education client needs in the current regulatory environment . we have also broadened our markets in education to include not-for-profit schools and international markets in brazil and india . moreover , we have entered into strategic partnerships to increase and diversify our access to quality media and client budgets . development , acquisition and retention of high quality targeted media one of the primary challenges of our business is finding or creating media that is high quality and targeted enough to attract prospects for our clients at costs that provide a sound financial outcome for us . in order to grow our business , we must be able to find , develop and retain quality targeted media on a cost-effective basis . consolidation of media sources , changes in search engine algorithms and increased competition for available media has , during some periods , limited and may continue to limit our ability to generate revenue at acceptable margins . to offset this impact , we have developed new sources of media , including entering into strategic partnerships with other marketing and media companies . such partnerships include takeovers of performance marketing functions for large web media properties ; backend monetization of unmatched traffic for clients with large media buys ; and white label products for other performance marketing companies . we have also grown our revenue from mobile and social media traffic sources . seasonality our results are subject to significant fluctuation as a result of seasonality . in particular , our quarters ending december 31 ( our second fiscal quarter ) are typically characterized by 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 have lower budgets . 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. regulations our revenue has fluctuated in part as a result of federal , state and industry-based regulations and developing standards with respect to the enforcement of those regulations . our business is affected directly because we operate websites and conduct telemarketing and email marketing , and indirectly affected as our clients adjust their operations as a result of regulatory changes and enforcement activity that affect their industries . clients in our financial services vertical have been affected by laws and regulations and the increased enforcement of new and pre-existing laws and regulations . in addition , our education client vertical has been significantly affected by the adoption of regulations affecting u.s. for-profit education institutions over the past several years , and a high level of governmental scrutiny is expected to continue . the effect of these regulations , or any future regulations , may continue to result in fluctuations in the volume and mix of our business with these clients . an example of a regulatory change that may affect our business is the amendment of the telephone consumer protection act ( the “ tcpa ” ) , that affects telemarketing calls . our efforts to comply with the tcpa have thus far had a relatively small negative effect on traffic conversion rates . however ; our clients may make business decisions based on their own experiences with the tcpa regardless of our products , and the changes we implemented to comply with the regulations . those decisions may negatively affect our revenue or profitability . 31 basis of presentation net revenue our business generates revenue from fees earned through the delivery of qualified leads , inquiries , clicks , calls , applications , customers and , to a lesser extent , display advertisements , 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 business-to-business technology , home services and medical ) . cost of revenue cost of revenue consists primarily of media costs , personnel costs , amortization of intangible assets , depreciation expense and amortization of internal software development costs related to revenue-producing technologies . media costs consist primarily of fees paid to third-party publishers , media owners or managers , or to strategic partners that are directly related to a revenue-generating event and of pay-per-click , or ppc ad purchases from internet search companies . story_separator_special_tag we pay these third-party publishers , media owners or managers , strategic partners , and internet search companies on a revenue-share , a cost-per-lead , or cpl , cost-per-click , or cpc , or cost-per-thousand-impressions , or cpm , basis . personnel costs include salaries , stock-based compensation expense , bonuses , commissions and employee benefit costs . personnel costs are primarily related to individuals associated with maintaining our servers and websites , our call center operations , our editorial staff , client management , creative team , content , 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 . 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 , facilities fees and other costs . personnel costs for each category of operating expenses generally include salaries , stock-based compensation expense , bonuses , commissions and employee benefit costs . product development . product development expenses consist primarily of personnel costs and facilities fees . we are constraining expenses generally to the extent practicable ; however we expect product and development expenses to increase in absolute dollars in the future as we accelerate revenue growth and profitability . sales and marketing . sales and marketing expenses consist primarily of personnel costs , professional services , facilities fees and depreciation expense . we are constraining expenses generally to the extent practicable ; however we expect sales and marketing expenses to increase in absolute dollars in the future as we accelerate revenue growth and profitability . general and administrative . general and administrative expenses consist primarily of personnel costs of our finance , legal , employee benefits and compliance , technical support and other administrative personnel , as well as accounting and legal professional services fees , and insurance . we are constraining expenses generally to the extent practicable ; however we expect general and administrative expenses to increase in absolute dollars in the future as we accelerate revenue growth and profitability . interest and other expense , net interest and other expense , net , consists primarily of interest income , interest expense , and other income and expense . interest income represents interest earned on our cash , cash equivalents and marketable securities , which may increase or decrease depending on market interest rates and the amounts invested . interest expense is related to our term loan facility , revolving loan facility , the related interest rate swap , promissory notes issued in connection with our acquisitions , and imputed interest on non-interest bearing notes . borrowings under our revolving loan facility , the aggregate principal amount of outstanding promissory notes and related interest expense could increase if , among other things , we make additional acquisitions through debt financing . other income and expense includes gains and losses on foreign currency exchange , gains and losses on sales of websites and domain names that were not considered to be strategically important to our business , and other non-operating items . ( provision for ) benefit from income tax 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 . 32 story_separator_special_tag decreased performance incentive compensation associated with the lower achievement of performance objectives and decreased advertising costs of $ 0.4 million . sales and marketing expenses decreased $ 1.8 million , or 11 % , in fiscal year 2015 compared to fiscal year 2014 , primarily due to decreased stock-based compensation expense of $ 0.8 million , decreased advertising costs of $ 0.5 million and decreased personnel costs of $ 0.4 million . general and administrative expenses general and administrative expenses increased $ 0.3 million , or 2 % , in fiscal year 2016 compared to fiscal year 2015. general and administrative expenses decreased $ 0.2 million , or 1 % , in fiscal year 2015 compared to fiscal year 2014. impairment of goodwill as discussed under “ critical accounting policies and estimates , ” there was no goodwill impairment charge recognized in fiscal years 2016 and 2015. we recognized a goodwill impairment charge of $ 95.6 million in fiscal year 2014 due to declines sustained in our public market capitalization . 34 interest and other expense , net replace_table_token_13_th interest income was immaterial in fiscal years 2016 , 2015 and 2014. interest expense decreased $ 3.2 million , or 85 % , in fiscal year 2016 compared to fiscal year 2015 , primarily due to decreased debt obligations . interest expense was approximately flat in fiscal year 2015 compared to fiscal year 2014. other income , net decreased $ 2.6 million , or 96 % in fiscal year 2016 compared to fiscal year 2015 , primarily due to a decrease in gains on the sale of domain names that were not considered to be strategically important to our business of $ 3.2 million , partially offset by an expense of $ 0.3 million recognized in fiscal year 2015 related to the termination of the interest rate swap . other income , net increased $ 1.2 million , or 79 % , in fiscal year 2015 compared to fiscal year 2014 , primarily due to an increase in gains on the sale of domain names that were not considered to be strategically important to our business of $ 2.8 million , offset by a gain of $ 0.9 million recognized in fiscal year 2014 related to the sale of our shares of preferred stock in our demandbase investment .
| cost of revenue and gross margin cost of revenue increased $ 19.0 million , or 8 % , in fiscal year 2016 compared to fiscal year 2015 , driven by increased media costs of $ 21.6 million and increased stock-based compensation expense of $ 0.7 million , offset by decreased amortization of intangible assets of $ 3.6 million . the increased media costs were due to higher revenue volumes . the decreased amortization of intangible assets were related to historical acquisitions becoming fully amortized and reduced spending on acquisitions in recent periods . gross margin 33 was 9 % in fiscal year 2016 compared to 11 % in fiscal year 2015. the decrease in gross margin was attributable to a higher proportion of our revenue coming from our financial services click products , which tend to have higher media costs as a percentage of revenue , partially offset by decreased amortization of intangible assets . cost of revenue increased $ 10.1 million , or 4 % , in fiscal year 2015 compared to fiscal year 2014 , driven by increased media costs of $ 11.1 million , increased personnel costs of $ 3.2 million and increased other expenses of $ 2.5 million , offset by decreased amortization of intangible assets of $ 7.1 million . the increased media costs were attributable to increased costs for high quality media . the increased personnel costs were attributable to an increase in average headcount . the decreased amortization of intangible assets were attributable to assets from historical acquisitions becoming fully amortized and reduced spending on acquisitions in recent periods . gross margin was 11 % in fiscal year 2015 compared to 14 % in fiscal year 2014. the decrease in gross margin was attributable to increased media costs associated with our investments in optimizing high quality media in our financial services vertical . operating expenses replace_table_token_12_th product development expenses product development expenses decreased $ 1.5 million , or 8 % , in fiscal year 2016 compared to fiscal year 2015 , primarily due to decreased personnel
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during the year ended december 31 , 2012 , our r & d expenses consisted primarily of transition costs , as clinical trial responsibilities shifted from the licensor to us and our outside clinical research organization , or cro ; fees paid to other consultants ; salaries and related personnel costs ; stock-based compensation ; and facility costs . we expense our r & d costs as they are incurred . story_separator_special_tag other clinical development . the decrease in outside cro/licensor service expenses was partially offset by an increase in outside other clinical development expenses to approximately $ 15.4 million in 2013 from approximately $ 5.1 million in 2012. in 2013 , outside other clinical development consisted of approximately $ 6.2 million in clinical services , which includes data management and our company-sponsored clinical trial specific activities , approximately $ 5.1 million in chemical manufacturing and controls , approximately $ 2.9 million in consultant and contract labor and approximately $ 1.2 million in legal services for clinical trial-related contracts in support of our company-sponsored clinical trials . the increases in 2013 from 2012 in internal chemical manufacturing costs , internal clinical development costs and internal regulatory affairs and quality assurance costs were primarily due to an increase in employee headcount in support of our company-sponsored clinical trials . employee stock-based compensation included in r & d expenses for the year ended december 31 , 2013 , was approximately $ 5.2 million compared to $ 0.9 million in 2012 and increased as a result of the increase in the number of employees . while expenditures on current and future clinical development programs , particularly our pb272 program , are expected to be substantial and to increase in 2015 , they are subject to many uncertainties , including the results of our clinical trials and whether we develop any of our drug candidates with a partner or independently . as a result of such uncertainties , we can not predict with any significant degree of certainty the duration and completion costs of our r & d projects or whether , when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates . the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of other factors , including : ● the number of trials and studies in a clinical program ; ● the number of patients who participate in the trials ; ● the number of sites included in the trials ; ● the rates of patient recruitment and enrollment ; ● the duration of patient treatment and follow-up ; ● the costs of manufacturing our drug candidates ; and ● the costs , requirements , timing of , and ability to secure regulatory approvals . 42 interest income : for the year ended december 31 , 2014 , we recognized approximately $ 324,000 in interest income compared to approximately $ 172,000 and $ 98,000 of interest income for the years ended december 31 , 2013 and 2012 , respectively . the increase in interest income reflects excess cash invested in money market accounts , marketable securities and “ high yield ” savings accounts for a full year and cash invested from a public offering of our common stock completed in february 2014 ( see note 6 in the accompanying notes to consolidated financial statements ) . non-gaap financial measures : in addition to our operating results , as calculated in accordance with the accounting principles generally accepted in the united states , or gaap , we use certain non-gaap financial measures when planning , monitoring , and evaluating our operational performance . the following table presents our net loss and net loss per share , as calculated in accordance with gaap , as adjusted to remove the impact of employee stock-based compensation . these non-gaap financial measures are not , and should not be viewed as , substitutes for gaap reporting measures . we believe these non-gaap measures enhance understanding of our financial performance , are more indicative of our operational performance and facilitate a better comparison among fiscal periods . for the year ended december 31 , 2014 , stock-based compensation represented approximately 27.5 % of our loss from operations , compared to 13.7 % and 26.4 % for 2013 and 2012 , respectively . this cost is related to our employee hiring practice and the fair market value of the stock option grants on the day granted . the major component of the stock-based compensation for 2012 was the valuation of an anti-dilutive warrant issued to mr. auerbach , our chief executive officer and president . we believe the issuance of the anti-dilutive warrant was a onetime occurrence and the full value of the warrant has been recorded in our consolidated financial statements . reconciliation of gaap net loss to non-gaap adjusted net loss and gaap net loss per share to non-gaap adjusted net loss per share ( in thousands except share and per share data ) years ended december 31 , 2014 2013 2012 gaap net loss $ ( 141,965 ) $ ( 54,659 ) $ ( 74,352 ) adjustments : stock-based compensation - general and administrative 9,154 2,331 18,706 ( 1 ) research and development 29,997 5,188 924 ( 2 ) non-gaap adjusted net loss $ ( 102,814 ) $ ( 47,140 ) $ ( 54,722 ) gaap net loss per share - basic and diluted $ ( 4.73 ) $ ( 1.90 ) $ ( 3.42 ) adjustment to net loss ( as detailed above ) 1.30 0.26 0.90 non-gaap adjusted net loss per share $ ( 3.43 ) $ ( 1.64 ) $ ( 2.52 ) ( 3 ) ( 1 ) to reflect a non-cash charge to operating expense for general and administrative stock-based compensation . ( 2 ) to reflect a non-cash charge to operating expense for research and development stock-based compensation . story_separator_special_tag ( 3 ) non-gaap adjusted net loss per share was calculated based on 30,010,979 , 28,696,573 and 21,725,986 weighted average common shares outstanding for the years ended december 31 , 2014 , 2013 and 2012 , respectively . liquidity and capital resources operating activities we reported net losses of approximately $ 142.0 million , $ 54.7 million , and $ 74.4 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . we also reported negative cash flows from operating activities of approximately $ 77.2 million , $ 55.0 million and $ 44.0 million for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . net cash used in operating activities for the year ended december 31 , 2014 , includes a net loss of $ 142.0 million adjusted for non-cash items of approximately $ 39.2 million for stock option expense , build-out allowance of $ 0.2 million and $ 0.6 million for 43 depreciation and amortization of property and equipment . further changes in cash flows from operations include an increase in accounts payable and accrued expenses of approximately $ 25.2 million , a decrease of $ 8.1 million in licensor receivables , and an increase in prepaid expenses and other assets of approximately $ 8.6 million . the increase in both accounts payable and accrued expenses reflect an increase in clinical trial cost and an accrual of approximately $ 16.4 million for employee payroll taxes withheld related to the exercise of employee stock options during december 2014. the proceeds from the exercise of the stock options were primarily received in december 2014 while the payments for taxes withheld were made in january 2015. the increase in prepaid expenses and other assets reflects up-front payments made to various cros for company-initiated clinical trials , for various insurance policies and the comparator inventory . net cash used in operating activities for the year ended december 31 , 2013 , includes a net loss of $ 54.7 million adjusted for non-cash items of approximately $ 7.5 million for stock option expense and $ 0.4 million for depreciation and amortization of property and equipment . further changes in cash flow from operations include a decrease in accounts payable and accrued expenses of approximately $ 2.4 million , a decrease of $ 0.8 million in licensor receivables , and an increase in prepaid expenses and other assets of approximately $ 6.7 million . at december 31 , 2012 , we had a large receivable from the licensor covering costs incurred in the fourth quarter of 2012. the decrease in both accounts payable and accrued expenses reflect the payment of this receivable and subsequent payments for ongoing costs associated with the licensor-initiated clinical trials . the increase in prepaid expenses and other assets reflects up-front payments made to various cros for company-initiated clinical trials and for various insurance policies . net cash used in operating activities for the year ended december 31 , 2012 , includes a net loss of approximately $ 74.4 million adjusted for non-cash items of approximately $ 18.2 million from the issuance of an anti-dilutive warrant , stock option expense of $ 1.4 million , $ 0.5 million resulting from an allowance received from the landlord and $ 0.3 million for depreciation and amortization of property and equipment . further changes in cash flows from operations include an increase in accounts payable and accrued expenses of approximately $ 21.1 million , an increase of $ 10.6 million in licensor receivables and an increase in prepaid expenses of approximately $ 0.7 million . the increase in accounts payable and accrued expenses compared to 2011 is a direct result of us assuming operational and financial responsibility for the clinical trials transferred from the licensor . these accruals and payables consist mainly of fees due to the licensor and cros for maintaining and managing our clinical trials . the licensor receivable represents costs in excess of a “ cap cost ” established in the license agreement . the license agreement allowed us to bill back any external costs associated with the transferred trials in excess of the cap cost to the licensor . we reached the cap cost during the fourth quarter of 2012 , and reimbursement claims discontinued effective january 1 , 2014. investing activities net cash used in investing activities was approximately $ 63.3 million for the year ended december 31 , 2014. a significant portion of this is comprised of cash used for the purchase of available-for-sale securities of approximately $ 132.3 million offset by the sale and maturity of available-for-sale securities of $ 70.3 million . additionally , approximately $ 1.3 million of cash used in investing activities was used for leasehold improvements , the purchase of property and equipment to support corporate growth . net cash used in investing activities was approximately $ 41.5 million for the year ended december 31 , 2013. a significant portion of this is comprised of cash used for the purchase of available-for-sale securities of approximately $ 49.3 million offset by the sale and maturity of available-for-sale securities of $ 8.4 million . we invest our excess cash in available-for-sale securities . additionally , approximately $ 0.6 million of cash used in investing activities was used for the purchase of property and equipment to support corporate growth . net cash used in investing activities was approximately $ 1.2 million for the year ended december 31 , 2012. a significant portion for 2012 , $ 0.6 million , represents additional computer equipment and infrastructure , along with $ 0.5 million in leasehold improvements to support our growth in the number of employees and facilities . 44 financing activities february 2014 common stock offering . on february 14 , 2014 , we completed an underwritten public offering of 1,126,530 shares of our common stock ( including an additional 146,938 shares of our common stock issued and sold pursuant to the underwriters ' option to purchase additional shares ) at a price of $ 122.50 per share , less the underwriting discount .
| year ended december 31 , 2013 compared to year ended december 31 , 2012 total g & a expenses decreased approximately 61 % to $ 9.8 million for the year ended december 31 , 2013 from $ 24.8 million for the year ended december 31 , 2012. this decrease was primarily attributable to a decrease in stock-based compensation of approximately $ 16.4 million , offset by increases in payroll and related costs , facility costs and professional fees . stock-based compensation expense decreased to $ 2.3 million in 2013 from $ 18.7 million in 2012. the approximately $ 18.7 million of stock-based compensation expense in 2012 included approximately $ 18.2 million for an anti-dilutive warrant issued to the our chief executive officer ( see note 6 in the accompanying notes to the consolidated financial statements ) . we had no additional expense for this anti-dilutive warrant in 2013 because it was fully expensed prior to december 31 , 2012. we do not expect another similar warrant to be issued in the future . the increase in payroll and related costs primarily related to our adding g & a employees to support increased operations and to increase staffing in other areas such as accounting and human resources . the increase in overall facility costs was primarily due to additional leased office space to support corporate growth . the increase in professional fees and expenses was incurred primarily in support of meeting the requirements of becoming a large accelerated filer under the exchange act and the sarbanes-oxley act . we expect g & a expenses to increase going forward as we support the corporate growth of the company . research and development expenses : replace_table_token_4_th 41 year ended december 31 , 2014 compared to year ended december 31 , 2013 total r & d expenses increased approximately 172.9 % to $ 122.9 million for the year ended december 31 , 2014 , from $ 45.0 million for the year ended december 31 , 2013. this increase is primarily due to an approximately $ 20.5 million increase in costs associated with outside cro/licensor services and outside other clinical development due to assuming responsibility , effective january 1 , 2014 , for expenses related to the on-going legacy clinical trials that we assumed from the licensor ( see note 9 to the accompanying notes to the consolidated financial statements ) . these trials are
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overview we are a blank check company incorporated on september 24 , 2013 as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . we intend to effectuate our initial business combination using cash from the proceeds of a public offering ( the “ public offering ” ) and a sale of warrants in a private placement that occurred simultaneously with the completion of the public offering ( the “ private placement warrants ” ) , our capital stock , debt or a combination of cash , stock and debt . on september 21 , 2014 , the company entered into a purchase agreement , which was subsequently amended on february 10 , 2015 and february 19 , 2015 ( as so amended , the “ purchase agreement ” ) with the traxis group b.v. ( “ seller ” ) , a limited liability company existing under the laws of the netherlands and an entity that is majority owned by funds affiliated with cerberus capital management , l.p. the purchase agreement provides for the acquisition by the company of all of the outstanding shares of capital stock of school bus holdings inc. ( “ sbh ” ) , which , through its subsidiaries , conducts its business under the “ blue bird ” name , from seller ( the “ business combination ” ) . blue bird is the leading independent designer and manufacturer of school buses , with more than 550,000 buses sold since its formation in 1927 and approximately 180,000 buses in operation today . founded in 1927 , blue bird designs , engineers , manufactures and sells three types of school buses ( type c , type d and specialty buses ) , as well as aftermarket parts . blue bird 's principal manufacturing and assembly operations are in fort valley , ga. pursuant to the purchase agreement , the aggregate equity purchase price for the business combination is $ 220.0 million ( the “ total purchase price ” ) . the company will pay the total purchase price partially in cash ( the “ cash component ” ) and partially in common stock ( the “ equity component ” ) , as described more fully in note 2 to the financial statements and in the forms 8-k filed with the securities and exchange commission on september 24 , 2014 , february 11 , 2015 and february 19 , 2015 and the definitive proxy statement filed on january 20 , 2015 , as amended and supplemented by the proxy supplement filed on february 11 , 2015. upon consummation of the business combination , 13.6 % of the cash component ( estimated to be approximately $ 19 million before tax ) will be payable to certain directors , officers and employees of blue bird who are participants in sbh 's phantom award plan . this portion of the total purchase price will be charged to operations as compensation expense in the quarter that the business combination closes . the business combination also calls for various additional agreements including a backstop and subscription agreement , a preferred subscription agreement , a voting and support agreement , a director removal letter agreement , a sponsor warrant exchange letter agreement , a registration rights agreement and certain lock-up agreements , among others as outlined in the forms 8-k filed with the securities and exchange commission on september 24 , 2014 , february 11 , 2015 and february 19 , 2015 and the definitive proxy statement , as amended and supplemented by the proxy supplement filed on february 11 , 2015 . 47 the business combination will be accounted for as a “ reverse acquisition ” since , immediately following completion of the transaction , the seller will have effective control of the post-combination company ( see also note 2 to the financial statements ) . for accounting purposes , sbh will be deemed to be the accounting acquirer in the transaction and , consequently , the transaction will be treated as a recapitalization of sbh ( i.e . , a capital transaction involving the issuance of stock by the company and payment of cash consideration for the stock of sbh ) and there will be no revaluation of sbh 's assets and no goodwill recorded . since sbh reports on a “ 52/53 week ” fiscal year ending on the saturday closest to september 30 , the company expects to change its fiscal year to conform to sbh 's fiscal year . story_separator_special_tag entered into any non-financial assets . contractual obligations we do not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities other than an administrative services agreement with hennessy capital llc , an affiliate of our sponsor , pursuant to which the company pays hennessy capital llc a total of $ 10,000 per month for office space , utilities and secretarial support . upon completion of the business combination or the company 's liquidation , the company will cease paying these monthly fees . pursuant to the purchase agreement , the company has agreed that its total transaction costs for the business combination will not exceed $ 15 million ( including the deferred underwriting fee ) . the company estimates that its fees payable at closing ( including significant success fees ) would exceed this amount and therefore is discussing with these providers possible concessions . in most instances , these engagement letters and agreements specifically provide that such counterparties waive their rights to seek repayment from the funds in the trust account . story_separator_special_tag further , sbh has agreed that its expenses for the business combination will not exceed $ 10 million and will be reported in our statements of operations upon the closing of the business combination since sbh will be deemed the accounting acquirer . critical accounting policies the preparation of financial statements and related disclosures in conformity with gaap requires management 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 income and expenses during the periods reported . actual results could materially differ from those estimates . the company has identified the following as its critical accounting policies : development stage company in june 2014 , the financial accounting standards board issued accounting standards update ( “ asu ” ) no . 2014-10 , which eliminated certain financial reporting requirements of companies previously identified as “ development stage entities ” ( topic 915 ) . the amendments in this asu simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities . the amendments also reduce data maintenance and , for those entities subject to audit , audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income , cash flows , and shareholder equity . early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity 's financial statements have not yet been issued ( public business entities ) or made available for issuance ( other entities ) . upon adoption , entities will no longer present or disclose any information required by topic 915. for public business entities , those amendments are effective for annual reporting periods beginning after december 15 , 2014 , and interim periods therein . the company has decided to adopt this standard for its reporting for the year ended december 31 , 2014 . 49 emerging growth company section 102 ( b ) ( 1 ) of the jobs act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies ( that is , those that have not had a securities act registration statement declared effective or do not have a class of securities registered under the exchange act ) are required to comply with the new or revised financial accounting standards . the jobs act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable . the company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies , the company , as an emerging growth company , can adopt the new or revised standard at the time private companies adopt the new or revised standard . loss per common share net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period , plus to the extent dilutive the incremental number of shares of common stock to settle warrants , as calculated using the treasury stock method . at december 31 , 2014 , the company 's warrants that could , potentially , be exercised or converted into common stock and then share in the earnings of the company under the treasury stock method were anti-dilutive due to the company 's net loss . as a result , diluted loss per common share is the same as basic loss per common share for the period . financial instruments the fair value of the company 's assets and liabilities , which qualify as financial instruments under fasb asc 820 , `` fair value measurements and disclosures , '' approximates the carrying amounts represented in the accompanying balance sheets . deferred offering costs the company complies with the requirements of the asc 340-10-s99-1 and sec staff accounting bulletin ( sab ) topic 5a— '' expenses of offering '' . deferred offering costs of approximately $ 346,000 at december 31 , 2013 consist principally of professional fees incurred . these costs , together with the underwriter discount , were charged to capital upon completion of the public offering . income taxes the company follows the asset and liability method of accounting for income taxes under fasb asc , 740 , “ income taxes. ” deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount expected to be realized . at december 31 , 2014 , the company has a deferred tax asset of approximately $ 575,000 related to net loss carryforwards ( which begin to expire in 2034 ) and start-up costs . management has determined that a full valuation allowance of the deferred tax asset is appropriate at this time . redeemable common stock all of the 11,500,000 shares of common stock sold as part of the units in the public offering contain a redemption feature which allows for the redemption of such common stock under the company 's liquidation or tender offer/stockholder approval provisions . in accordance with asc 480 , redemption provisions not solely within the control of
| the company has entered into engagement letters or agreements with various consultants , advisors , professionals and others in connection with the business combination . the services under these engagement letters and agreements are material in amount and in some instances include contingent or success fees . the company estimates that its total transaction costs for the business combination will aggregate approximately $ 15 million ( including the deferred underwriting fee ) . in most instances , these engagement letters and agreements specifically provide that such counterparties waive their rights to seek repayment from the funds in the trust account . further , sbh 's expenses for the business combination are estimated to aggregate approximately $ 10 million and will be reported in our statements of operations upon the closing of the business combination since sbh will be deemed the accounting acquirer . a substantial portion of these costs ( including contingent or success fees and ongoing accrued transaction costs ) will be charged to operations in the quarter that the business combination is consummated . in addition , a portion of the cash component of the selling price ( estimated to be approximately $ 19 million before tax ) will be payable to certain directors , officers and employees of sbh who are participants in sbh 's phantom award plan . this portion of the purchase price will be charged to operations as compensation expense in the quarter that the business combination is consummated . see also note 2 to the financial statements for further information regarding the business combination . liquidity and capital resources as of december 31 , 2014 we had negative working capital of approximately $ 4,535,000 consisting of cash and other current assets outside the trust account of approximately $ 137,000 and current liabilities of approximately $ 4,672,000. current liabilities primarily represent amounts owed to professionals , consultants , advisors and others who are involved in the business combination . such work is continuing after december 31 , 2014 and amounts are continuing to accrue . the company expects
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investment yields at these levels will continue to put downward pressure on our investment spread and product returns . 20 results of operations for the three years ended december 31 , 2016 annuity deposits by product type collected during 2016 , 2015 and 2014 , were as follows : replace_table_token_8_th annuity deposits before coinsurance ceded increased 1 % during 2016 compared to 2015 and increased 69 % during 2015 compared to 2014 . over these years , we have remained consistently in the top three companies for sales of fixed index annuities according to wink 's sales and market report published by wink , inc. we attribute the continuing significant sales to our attractive product offerings , our consistent presence in the fixed index annuity market , our continued strong relationships with and excellent service provided to our distribution partners , the increased attractiveness of safe money products in volatile markets and lower interest rates on competing products such as bank certificates of deposit . 2016 sales levels were supported by sales of multi-year rate guaranteed ( myga ) fixed annuity products . these products are often emphasized by banks which are an expanding source of distribution for eagle life . our rates on these products were more competitive during the first half of 2016 and together with the larger number of bank distribution relationships , translated into a significant increase in sales of those products . annuity deposits before coinsurance ceded from fixed index annuities decreased 16 % as compared to 2015. we had robust sales of fixed index annuities by independent agents during the final three quarters of 2015 following the withdrawal in the first quarter of 2015 of a competitor 's guaranteed income product that had been the source of significant competition . this competitor has returned to the market in 2016 and in general the market in the independent agent distribution channel has been more competitive in 2016. declines in fixed index annuity sales from independent agents has been partially offset by increases in sales from banks and broker-dealers which were up 65 % in 2016 to $ 610.6 million . these increases were attributable to an expansion in the number of distribution relationships selling eagle life 's fixed index annuities from 42 relationships as of december 31 , 2015 to 53 relationships as of december 31 , 2016 and increased sales from many of the relationships that were selling eagle life 's fixed index annuities in both periods . we coinsure 80 % of the premiums received from ( 1 ) myga fixed annuity products , ( 2 ) fixed index annuities sold by eagle life through broker/dealers and banks and ( 3 ) certain non-bonus fixed index annuity products sold by american equity life from august 1 , 2016 through december 31 , 2016. the increases in coinsurance ceded premiums are attributable to the increases in premiums from these sources . the premiums ceded for american equity life 's non-bonus fixed index annuities issued from august 1 , 2016 through december 31 , 2016 were $ 198.1 million . net income , in general , has been positively impacted by the growth in the volume of business in force and the investment spread earned on this business . the average amount of annuity account balances outstanding ( net of annuity liabilities ceded under coinsurance agreements ) increased 14 % to $ 43.5 billion for the year ended december 31 , 2016 compared to $ 38.1 billion in 2015 and 14 % for the year ended december 31 , 2015 compared to $ 33.4 billion in 2014 . our investment spread measured in dollars was $ 1.0 billion , $ 924.8 million , and $ 809.5 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . as previously mentioned , our investment spread has been negatively impacted by the extended low interest rate environment ( see net investment income ) . net income is also impacted by the change in fair value of derivatives and embedded derivatives which fluctuates from year to year based upon changes in fair values of call options purchased to fund the annual index credits for fixed index annuities and changes in interest rates used to discount the embedded derivative liability . net income for the years ended december 31 , 2016 and 2014 was negatively impacted by decreases in the discount rates used to estimate our embedded derivative liabilities , while net income for the year ended december 31 , 2015 was positively impacted by increases in the discount rates used to estimate our embedded derivative liabilities . net income for the year ended december 31 , 2014 was also positively impacted by revisions of assumptions used in determining fixed index annuity embedded derivatives that were made in the second quarter of 2014. these revisions , which consisted of changes in the lapse and expected costs of annual call options assumptions , decreased the change in the fair value of embedded derivatives for the year ended december 31 , 2014 by $ 62.6 million , which after related adjustments to deferred sales inducements and deferred policy acquisition costs and income taxes , increased net income for the year ended december 31 , 2014 by $ 14.8 million ( see change in fair value of embedded derivatives ) . 21 we periodically revise the key assumptions used in the calculation of amortization of deferred policy acquisition costs and deferred sales inducements retrospectively through an unlocking process when estimates of current or future gross profits/margins ( including the impact of realized investment gains and losses ) to be realized from a group of products are revised . in addition , we periodically revise the assumptions used in determining reserves held for lifetime income benefit riders as experience develops that is different from our assumptions . story_separator_special_tag net income includes effects from unlocking and revisions to assumptions used in determining reserves for lifetime income benefit riders as follows : replace_table_token_9_th we review these assumptions quarterly and as a result of these reviews , we made adjustments to assumptions used in the calculation of amortization of deferred policy acquisition costs and deferred sales inducements in the first and third quarters of 2016. during the first quarter of 2016 , we made adjustments to lower future spread assumptions after comparing investment spread assumptions to actual investment spreads earned in the three months ended december 31 , 2015 and march 31 , 2016 and determining that decreases in the average yield earned on invested assets resulting from the continued low interest rate environment were creating shortfalls in investment spread and gross profits . during the third quarter of 2016 , we made adjustments to extend the period of time in which we assume investment spread will grade up to our long-term spread targets by an additional two years as yields obtained on investments purchased in the third quarter of 2016 were much lower than we had anticipated as a result of the overall decline in investment yields that followed the brexit vote . in addition , during the third quarter of 2016 , revisions to assumptions used in determining reserves held for lifetime income benefit riders described below resulted in a decrease in estimated future gross profits . the most significant revisions to assumptions used in the calculation of deferred policy acquisition costs and deferred sales inducements in 2015 and 2014 were account balance true-ups , which were favorable to us due to stronger equity market performance than we assumed , favorable adjustments to lapse assumptions to reflect better persistency experienced than assumed and unfavorable adjustments to investment spread to reflect lower spreads being earned than assumed . in 2015 , the favorable impact of the account balance true-up and lapse assumption change was largely offset by reductions in estimated future gross profits attributable to revisions to the assumptions for the lifetime income benefit rider liability described below . the 2016 , 2015 and 2014 revisions to reserves for lifetime income benefit riders were consistent with unlocking for deferred policy acquisition costs and deferred sales inducements described above . the 2016 revisions were primarily due to actual index credits on policies being lower than projected over the past four quarters . the most significant assumption change generating the 2015 negative impact on net income was an increase to the primary election age to begin receiving lifetime income from 67 to 70 as our experience has shown that age 70 is the most popular age at which policyholders elect to begin receiving lifetime income benefit payments . the lifetime income benefit payments are determined by applying a payout factor to the rider 's benefit base . the payout factors vary by the age at the time the lifetime income is elected . in early versions of the rider , the age band for payout factors was 10 years ( i.e . 60-69 ; 70-79 ) . as a result , policyholders have an incentive to defer their lifetime income election until age 70 , when the payout factor stepped up . subsequent versions of the rider reduced the age bands between payout factors to five years and the rider we currently sell has a different payout factor for every age . with these structures , assumption revisions from any further developments in our experience for primary election age should have a smaller impact than what was experienced in 2015. in 2014 , we retired $ 138 million aggregate principal amount of two issues of convertible notes . the loss on retirement was $ 12.5 million ( $ 11.5 million after income taxes ) . in connection with the retirement of the 2015 notes , we entered into early termination agreements for a corresponding amount of the related 2015 notes hedges and the 2015 warrants . the impact of these partial unwinds decreased the change in fair value of derivatives and net income for the year ended december 31 , 2014 by $ 6.3 million and $ 3.7 million , respectively ( see note 5 to our audited consolidated financial statements ) . operating income , a non-gaap financial measure ( see reconciliation to net income in item 6. selected consolidated financial data ) decreased 38 % to $ 122.3 million in 2016 and increased 3 % to $ 195.8 million in 2015 from $ 190.6 million in 2014 . in addition to net income , we have consistently utilized operating income , a non-gaap financial measure commonly used in the life insurance industry , as an economic measure to evaluate our financial performance . operating income equals net income adjusted to eliminate the impact of items that fluctuate from year to year in a manner unrelated to core operations , and we believe measures excluding their impact are useful in analyzing operating trends . the most significant adjustments to arrive at operating income eliminate the impact of fair value accounting for our fixed index annuity business and are not economic in nature but rather impact the timing of reported results . we believe the combined presentation and evaluation of operating income together with net income provides information that may enhance an investor 's understanding of our underlying results and profitability . 22 operating income is not a substitute for net income determined in accordance with gaap . the adjustments made to derive operating income are important to understanding our overall results from operations and , if evaluated without proper context , operating income possesses material limitations . as an example , we could produce a low level of net income in a given period , despite strong operating performance , if in that period we experience significant net realized losses from our investment portfolio .
| in response to this persistent low interest rate environment , we have been reducing policyholder crediting rates for new annuities and existing annuities since the fourth quarter of 2011. spread results for 2016 , 2015 and 2014 reflect the benefit from these reductions ; however , the reductions in cost of money have been less than and were offset by continued lower yields from investment purchases . in august 2015 , we completed an underwritten public offering of 9,890,000 shares of our common stock at a public offering price of $ 25.25 per share , of which 5,590,000 shares were subject to forward sale agreements . we physically settled the forward sales agreements on august 1 , 2016 by delivery of those shares of our common stock and contributed the $ 134.7 million in net proceeds from the settlement to the capital and surplus of american equity life to support continued growth and maintain desired financial strength ratings . on september 30 , 2016 , we entered into a credit agreement providing for a $ 100 million term loan that matures on september 30 , 2019 and a $ 150 million unsecured revolving line of credit that matures on september 30 , 2021. the $ 100 million of loan proceeds were contributed to the capital and surplus of american equity life on october 3 , 2016 . 19 our business and profitability we specialize in the sale of individual annuities ( primarily deferred annuities ) and , to a significantly lesser extent , we also sell life insurance policies . under u.s. generally accepted accounting principles ( `` gaap '' ) , premium collections for deferred annuities are reported as deposit liabilities instead of as revenues . similarly , cash payments to policyholders are reported as decreases in the liabilities for policyholder account balances and not as expenses . sources of revenues for products accounted for as deposit liabilities are net investment income , surrender charges assessed against policy withdrawals and fees deducted from policyholder account balances for lifetime income benefit riders , net realized gains ( losses ) on investments and changes in fair value of derivatives . components of expenses for products accounted for as deposit
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low levels of north american natural gas prices have , however , negatively impacted certain areas of our business , principally those tied to products and services we provide to the pressure pumping service sector and the land based drilling industry . at the same time , abundant natural gas at low prices appears to be leading to redevelopment of u.s. petrochemical and process industry facilities , resulting in steady demand for our valve products . corresponding to the commodity price levels , the average active rig count data below , based on the weekly baker hughes incorporated rig count , reflects a broad measure of industry activity and resultant demand for our drilling and production related products and services . replace_table_token_7_th 35 while the average u.s. rig count for 2012 increased from 2011 , there was a decrease from 1,959 in the first half of 2012 to 1,763 in the second half and the rig count ended 12 % below the 2,007 active rigs at the end of 2011. the declining rig count correlates with a decrease in orders for both consumable and capital products for drilling rigs in the second half of 2012. although the rig count decreased , it appears that drilling efficiency has improved as a result of a shift in the composition of the drilling rig fleet to newer , more efficient rigs . as a result , the number of wells drilled per rig could increase . if this trend materializes , well completions could grow at a faster pace than the drilling rig count . in recent years , as a result of low natural gas prices , the u.s. rig count has shifted from gas directed activity towards oil directed activity . as a result , those portions of our business that supply parts and equipment relating to pressure pumping , primarily flow equipment , experienced a decline in revenue and a compression of margins due to this shift in activity towards oil drilling , which generally places less of a demand on pressure pumping equipment . this shift and an overstocking of parts and supplies by our customers during prior periods have necessitated a destocking of that inventory beginning in the second quarter of 2012. as our customers work through the excess inventory , we expect they will begin to place orders for equipment on a more regular basis over the course of 2013. separate from the changes in the rig count , there has been increased activity in the expansion and upgrade of refinery and petrochemical facilities and pipeline integrity efforts . these projects have generated steady levels of demand for our valve products . in addition , we have also continued to see strong demand in our production equipment , and , based on customer discussions , we are expecting higher levels of orders for our subsea and downhole product lines . acquisitions we completed the following four acquisitions in 2012 , all of which are now included in the drilling & subsea segment : acquisition operating segment date of transaction syntech technology , inc. drilling & subsea october 2012 wireline solutions , llc drilling & subsea november 2012 dynacon , inc. drilling & subsea december 2012 merrimac manufacturing , inc. drilling & subsea december 2012 we paid aggregate cash consideration of $ 139.9 million for these acquisitions in 2012. none of the acquisitions included potential future payments contingent on financial performance . we completed eight acquisitions in 2011 , three of which are now included in the production & infrastructure segment and five in the drilling & subsea segment . the acquisitions are : acquisition operating segment date of transaction wood flowline products , llc production & infrastructure february 2011 phoinix global llc production & infrastructure april 2011 svp products , inc. production & infrastructure july 2011 specialist rov tooling services , ltd. drilling & subsea may 2011 cannon services ltd. drilling & subsea july 2011 davis-lynch , llc drilling & subsea july 2011 amc global group , ltd. drilling & subsea july 2011 p-quip , ltd. drilling & subsea july 2011 there are factors related to the businesses we have acquired that may result in lower net profit margins on a going-forward basis , primarily the federal income tax status of the legal entity and the level of depreciation and amortization charges arising out of the accounting for the purchase . for additional information regarding our 2012 and 2011 acquisitions , please read note 3 of the notes to the consolidated financial statements in part ii , item 8 `` financial statements and supplementary data '' of this annual report on form 10-k. 36 evaluation of operations we manage our operations through the two business segments described above . we have focused on implementing financial reporting and controls at all of our operations to accelerate the availability of critical information necessary to support informed decision making . we use a number of financial and non-financial measures to routinely analyze and evaluate , on a segment and corporate level , the performance of our business . as an example of a non-financial measure , we measure our safety by tracking the total recordable incident rate and we consider this as an indication of the quality of our products . financial measures include the following : revenue growth . we compare actual revenue achieved each month to the most recent estimate for that month and to the annual plan for the month established at the beginning of the year . we monitor our revenue to analyze trends in the relative performance of each of our product lines as compared to standard revenue drivers or market metrics applicable to that product . we are particularly interested in identifying positive or negative trends and investigating to understand the root causes . in addition , we review these metrics on a quarterly basis . we also evaluate changes in the mix of products sold and the resultant impact on reported gross margins . gross margin percentage . story_separator_special_tag we define gross margin percentage as our gross margin , or net sales minus cost of sales , divided by our net sales . our management continually evaluates our consolidated gross margin percentage and our gross margin percentage by segment to determine how each segment is performing . this metric aids management in capital resource allocation and pricing decisions . selling , general and administrative expenses as a percentage of total revenue . selling , general and administrative expenses include payroll related costs for sales , marketing , administrative , accounting , information technology , certain engineering and human resources functions ; audit , legal and other professional fees ; insurance ; franchise taxes not based on income ; travel and entertainment ; advertising and promotions ; bad debt expense ; and other office and administrative related costs . our management continually evaluates the level of our selling , general and administrative expenses in relation to our revenue and makes appropriate changes in light of activity levels to preserve and improve our profitability while meeting the on-going support and regulatory requirements of the business . operating income and operating margin percentage . we define operating income as revenue less cost of goods sold less selling , general and administrative expenses . we define our operating margin percentage as operating income divided by revenue . these metrics assist management in evaluating the performance of each segment as a whole , especially to determine whether the amount of administrative burden is appropriate to support current business activity levels . earnings per share . we calculate fully-diluted earnings per share as prescribed under generally accepted accounting principles ( `` gaap '' ) , that is net income divided by common shares outstanding , giving effect for the assumed exercise of all outstanding options and warrants with a strike price less than the average fair value of the shares over the period covered for the calculation . we believe this measure is important as it reflects the sum total of operating results and all attendant capital decisions , showing in one number the amount earned for the stockholders of our company . free cash flow . we define free cash flow as net income , increased by non-cash charges included in net income ( e.g. , depreciation and amortization and deferred income taxes ) , increased or decreased by changes in net working capital , less capital expenditures . we believe that this measure is important because it encompasses both profitability and capital management in evaluating results . free cash flow represents the business ' contribution in the generation of funds available to pay debt outstanding , invest in other areas , or return funds to our stockholders . factors affecting the comparability of our future results of operations to our historical results of operations our future results of operations may not be comparable to our historical results of operations for the periods presented , primarily for the following reasons : the historical consolidated financial statements included in this annual report are based on the separate businesses of fot , global flow , triton , allied and subsea for the periods prior to the august 2010 combination . as a result , the historical financial data may not give you an accurate indication of what our actual results would have been if the combination had been completed at the beginning of the periods presented or of what our future results of operations are likely to be . since the combination , we have grown our business both organically and through strategic acquisitions . we have expanded and diversified our product portfolio and business lines with the acquisition of four businesses in 2012 and eight businesses in 2011. the historical financial data for periods prior to the acquisitions does not include the 37 results of any of the acquired companies for the periods presented and , as such , does not give you an accurate indication of what our future results are likely to be . as we integrate the acquired companies and further implement controls , processes and infrastructure to operate in compliance with the regulatory requirements applicable to companies with publicly traded shares , it is likely that we will incur incremental selling , general and administrative expenses relative to historical periods . our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy . 38 story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > interest expense we incurred $ 16.4 million of interest expense during the year ended december 31 , 2012 , a decrease of $ 3.2 million from the year ended december 31 , 2011 . the decrease in interest expense was attributable to a lower debt level as we repaid a portion of our debt from the net proceeds of the ipo and concurrent private placement during the second quarter 2012 , partially offset by an increase in debt levels incurred to finance the four acquisitions in the fourth quarter 2012. taxes tax expense includes current income taxes expected to be due based on taxable income to be reported during the periods in the various jurisdictions in which we conduct business , and deferred income taxes based on changes in the tax effect of temporary differences between the bases of assets and liabilities for financial reporting and tax purposes at the beginning and end of the respective periods . the effective tax rate , calculated by dividing total tax expense by income before income taxes , was 32.0 % and 33.5 % for the years ended december 31 , 2012 and 2011 , respectively . the tax provision for the year ended december 31 , 2012 is lower than the comparable period in 2011 primarily due to a reduction in the tax provision from the finalization of certain prior year tax returns .
| production & infrastructure segment - revenue increased $ 120.5 million , or 25.7 % , to $ 589.2 million during the year ended december 31 , 2012 compared to the year ended december 31 , 2011 . the increase in revenue is discussed below : $ 85.6 million , or 71 % , of the increase was attributable to organic initiatives attributable to higher market demand in both production equipment and valve solutions products and orders from new customers . the higher shipments were made possible for production equipment by the expansion of existing facilities and the addition of new facilities in pennsylvania , each completed throughout 2011 ; and $ 34.9 million , or 29 % , of the increase was attributable to operations acquired in 2011 that were not owned for the full year ended december 31 , 2011 including the three acquisitions that make up the flow equipment product line . segment operating income and segment operating margin percentage segment operating income for the year ended december 31 , 2012 increased $ 62.1 million , or 35.3 % , to $ 237.8 million compared to the year ended december 31 , 2011 .the segment operating margin percentage is calculated by dividing segment operating income by revenue . for the year ended december 31 , 2012 , the segment operating margin percentage of 16.8 % represents an improvement of 120 basis points over the 15.6 % operating margin percentage for the year ended december 31 , 2011 . the improvement in operating margin percentage achieved in each segment was derived as follows : drilling & subsea segment - the operating margin percentage improved 160 basis points to 19.5 % for the year ended december 31 , 2012 , up from 17.9 % for the year ended december 31 , 2011 . the margin improvement was due to manufacturing efficiencies on the higher revenue in the subsea technologies and drilling technologies product lines as well as improved product mix from the full year contribution of acquisitions made in
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we had our fifth consecutive full year of net recoveries in 2017. the following table reflects the provision for loan losses for the past five years along with certain metrics that impact the determination of the level of the provision for loan losses . replace_table_token_14_th economic conditions in our market areas of grand rapids and holland have improved during the past several years . the state of michigan 's unemployment rate at the end of 2017 was 4.0 % . the grand rapids and holland area unemployment rate was 3.2 % at the end of 2017. residential housing values and commercial real estate property values have improved in recent years . it also appears that the housing market in our primary market area continues to be strong . in the grand rapids market during 2017 , while there were 28 % fewer living unit starts than in 2016 , the level was comparable with 2015. the 2016 numbers were elevated due to a significant number of additional apartment unit starts . single family home starts were up 6 units in 2017. in the holland-grand haven/lakeshore region , there were slightly more living unit starts in 2017 than in 2016. these improvements are on top of significantly improved results in 2016 over 2015. also , these markets are now seeing significant activity in duplex , condominium and apartment starts after years of virtually no activity . we experienced strong commercial loan growth in recent years . most of our emphasis has been on growing commercial and industrial loans . these loans have increased steadily from $ 274.1 million at december 31 , 2013 to $ 465.2 million at december 31 , 2017. commercial real estate loans have increased from $ 472.3 million at december 31 , 2013 to $ 541.9 million at december 31 , 2017. in addition , in 2017 some of our business customers selected bond financing rather than loans leading to growth of $ 26.0 million in our business bond portfolio from $ 29.5 million at the beginning of the year to $ 55.5 million at the end of the year . consumer loans have increased from $ 295.9 million at december 31 , 2013 to $ 313.2 million at december 31 , 2017. we believe we are positioned for continued loan growth in 2018. results of operations summary : net income was $ 16.3 million ( $ 27.0 million on a pretax basis ) for 2017 , compared to $ 16.0 million ( $ 22.2 million on a pretax basis ) for 2016 and $ 12.8 million ( $ 18.4 million on a pretax basis ) for 2015. earnings per common share on a diluted basis was $ 0.48 for 2017 , $ 0.47 for 2016 and $ 0.38 for 2015. generally , the improvement in company earnings was the result of growth in revenue while expenses have been reduced . as discussed previously , the revaluation of our net deferred tax assets at december 31 , 2017 resulting from enactment of tax reform at the end of 2017 caused a $ 2.5 million one-time increase in our federal income tax expense . the strong increase in pretax earnings in 2017 compared to 2016 and 2015 was due primarily to increased net interest income , along with a reduction in noninterest expense . net interest income increased to $ 51.9 million in 2017 compared to $ 47.5 million in 2016 and $ 44.1 million in 2015. we realized a higher level of income from gains on sales of residential mortgages in 2016 and 2015 compared to 2017 due to the lower interest rate environment in those periods . total noninterest expense was $ 43.7 million in 2017 compared to $ 45.8 million in 2016 and $ 47.0 million in 2015. earnings in each period were positively impacted by negative provisions for loan losses ( $ 1.35 million in 2017 , $ 1.35 million in 2016 and $ 3.50 million in 2015 ) . these negative provisions resulted from reduced levels of nonperforming loans , improved asset quality and net loan recoveries realized in each of these periods . these items are discussed more fully below . - 26 - we continued our improvement in nonperforming asset expenses in 2017. costs associated with nonperforming assets were $ 65,000 in 2017 , compared to $ 1.3 million in 2016 and $ 3.0 million in 2015. lost interest from nonperforming assets decreased to approximately $ 419,000 for 2017 , compared to $ 572,000 for 2016 and $ 1.4 million for 2015. each of these items are discussed more fully below . net interest income : net interest income totaled $ 51.9 million during 2017 , compared to $ 47.5 million during 2016 and $ 44.1 million in 2015. the increase in net interest income during 2017 compared to 2016 marked our third consecutive year with an increase in net interest income , following several years of declining net interest income . this increase was due to an increase in average earning assets of $ 79.1 million from $ 1.55 billion in 2016 to $ 1.63 billion in 2017 as well as improvement in yields on earning assets . average yield on securities , interest earning assets and net interest margin are presented on a fully taxable equivalent basis . our net interest income as a percentage of average interest-earning assets ( i.e . story_separator_special_tag `` net interest margin '' or `` margin '' ) increased by 13 basis points compared to 2016. the increase in net interest income during 2016 compared to 2015 was due to an increase in average earning assets of $ 63.9 million from $ 1.48 billion in 2015 to $ 1.55 billion in 2016. our net interest margin increased by 10 basis points in 2016 compared to 2015. the yield on earning assets increased 17 basis points from 3.42 % for 2016 to 3.59 % for 2017 and increased 6 basis points from 3.36 % for 2015 to 3.42 % for 2016. the increase from 2016 to 2017 and from 2015 to 2016 was generally due to increases in average balances of loans and securities along with a reduction in average balances in low-yielding short-term investments as we deployed our excess liquidity . these were also positively impacted by increases in the federal funds rate . our margin in recent years has been negatively impacted by our decision to hold significant balances in liquid and short-term investments . in 2015 through 2017 , we began to see the positive impact on our net interest margin from deploying some of these balances into higher yielding assets , including investment securities and portfolio loans . also , the federal reserve board increased the target federal funds rate by 125 basis points between december 2015 and december 2017 and is expected to follow a systematic process of slowly increasing this target rate in 2018 and beyond . with these developments , we expect our net interest margin to be positively impacted in 2018. our net interest margin for 2017 was negatively impacted from a 5 basis point increase in our cost of funds from 0.46 % for 2016 to 0.51 % for 2017. average interest bearing liabilities increased from $ 1.06 billion in 2016 to $ 1.11 billion in 2017. increases in the rates paid on certain deposit account types in response to market rates and additional other borrowings caused the increase in our cost of funds . these costs have increased at a much lower level than yields on our interest earning assets , allowing for the increase in our net interest margin in each period . with the recent increases in the federal funds rate , we anticipate some additional increase in our funding costs , but again with a lesser impact than on our interest earning assets . we are encouraged by the increase in higher yielding average earning assets in 2017 and expect these balances to continue to increase in 2018 , which should continue to positively affect net interest income . - 27 - the following table shows an analysis of net interest margin for the years ended december 31 , 2017 , 2016 and 2015 ( dollars in thousands ) . replace_table_token_15_th ( 1 ) yields are presented on a tax equivalent basis using a 35 % tax rate . ( 2 ) loan fees of $ 701,000 , $ 883,000 , and $ 550,000 for 2017 , 2016 and 2015 are included in interest income . includes average nonaccrual loans of approximately $ 492,000 , $ 372,000 , and $ 5.5 million for 2017 , 2016 and 2015 . - 28 - the following table presents the dollar amount of changes in net interest income due to changes in volume and rate . replace_table_token_16_th provision for loan losses : the provision for loan losses for 2017 was a negative $ 1.35 million compared to a negative $ 1.35 million for 2016 and a negative $ 3.50 million for 2015. the negative provisions in each period were the result of continued realization of net recoveries in each of these years , a reduction in the balances and required reserves on nonperforming loans , and stabilizing real estate values on problem credits . of the $ 3.50 million negative provision for loan losses in 2015 , $ 2.0 million was attributable to a reduction in specific reserve on our largest individual impaired loan relationship . this loan relationship was upgraded to accruing status in the fourth quarter of 2015 upon the sale of the company and multiple years of profitable operations and positive cash flows . as such , with the upgrade , we changed our method of estimating the specific reserve from one based on liquidation value to one based on expected cash flow from operations . this resulted in the $ 2.0 million reduction in the required reserve discussed above . with 2017 , we now have achieved net recoveries in five consecutive years . net recoveries in recent years were attributable to positive results from our active collection efforts . we continue to see an increase in the quality of some credits within our loan portfolio resulting in an improved loan grade . our weighted average commercial loan grade was 3.74 at december 31 , 2017 , 3.73 at december 31 , 2016 , 3.77 at december 31 , 2015 , 3.78 at december 31 , 2014 , 3.88 at december 31 , 2013 and 4.01 at december 31 , 2012. this loan grade improvement has also been a contributing factor to allowing for the reduction in the level of the allowance for loan losses . the amounts of loan loss provision in each period were the result of establishing our allowance for loan losses at levels believed necessary based upon our methodology for determining the adequacy of the allowance . the sustained level of net recoveries over the past several years has had a significant effect on the historical loss component of our methodology . more information about our allowance for loan losses and our methodology for establishing its level may be found in this item 7 of this report under the heading “ allowance for loan losses ” below and in item 8 of this report in note 3 of the consolidated financial statements .
| securities : securities available for sale were $ 220.7 million at december 31 , 2017 compared to $ 184.4 million at december 31 , 2016. the balance at december 31 , 2017 primarily consisted of u.s. agency securities , agency mortgage backed securities and various municipal investments . our held to maturity portfolio increased from $ 69.4 million at december 31 , 2016 to $ 85.8 million at december 31 , 2017. our held to maturity portfolio is comprised of state aid notes and locally sourced municipal and commercial bonds . the commercial bond component of this category grew by $ 26.0 million in 2017. these bonds represent financing provided to some of our non-profit commercial customers who qualified for borrowing on a tax-exempt basis . portfolio loans and asset quality : total portfolio loans increased by $ 39.5 million to $ 1.32 billion at december 31 , 2017 compared to $ 1.28 billion at december 31 , 2016. during 2017 , our commercial portfolio increased by $ 39.8 million , while our residential mortgage portfolio increased by $ 6.8 million and our consumer portfolio decreased by $ 7.2 million . - 32 - the volume of residential mortgage loans originated for sale in 2017 decreased significantly compared to 2016 due to the mortgage rate environment and our decision to hold more of our current production in portfolio . residential mortgage loans originated for sale were $ 57.0 million in 2017 compared to $ 103.4 million in 2016 and $ 100.0 million in 2015. we experienced year over year growth in commercial loan balances for the past three years , increasing $ 67.8 million in 2015 , $ 81.4 million in 2016 and $ 39.8 million in 2017. we plan to continue measured , high quality loan portfolio growth in 2018. commercial and commercial real estate loans remained our largest loan segment and accounted for 76.3 % of the total loan portfolio at december 31 , 2017 and 75.5 % at december 31 , 2016. residential mortgage and consumer loans comprised 23.7 % of total loans at december 31 , 2017 and 24.5 % at december 31 , 2016. a further breakdown of the composition
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to continue operating after the cr december 9 , 2016 expiration date , congress will need to pass , and the president will need to sign , a new cr or more comprehensive budget bill . the company does not believe these measures will have a material impact on our current business base for fiscal year 2017 , however , any delays in addressing funding may delay the timing of awards for new business . department of veterans affairs ( va ) health spending trends : dlh continues to see a critical need for expanded health care solutions within our sector of the federal health market , largely focused on the needs of veterans and their families . the 2017 budget and 2018 advance appropriations requests for va fulfill the president 's promise to provide america 's veterans , their families , and survivors the care and benefits they have earned through their service . fiscal year 2017 is the eighth year in a row that the president has requested , and congress approved , a funding increase for va to meet the nation 's obligations to veterans . moreover , va programs were exempt from the spending caps established under federal government sequestration targets enacted in 2013. the va operates the nation 's largest integrated health care system - with more than 1,700 hospitals , clinics , community living centers , readjustment counseling centers , and other facilities - serving approximately 8.76 million veterans each year . the va fy 2016-2017 agency priority goals are : improve veterans ' experience with va improve va 's employee experience improve veterans ' access to health care improve dependency claims processing and agency financial reports ( afr ) department of health and human services ( hhs ) priorities and spending trends : dlh has existing contracts with multiple agencies under hhs . hhs is the principal federal department charged with protecting the health of all americans and providing essential human services . the fy2017 budget prioritizes core services and programs and makes targeted investments in the training and support of health care providers , innovative biomedical research , food and drug safety , mental health services , health care for native americans and alaska natives , early childhood programs , and services for other vulnerable populations . the president 's fy2017 budget requested $ 82.8 billion in discretionary funding for hhs . it also requested increases in key mandatory spending areas that would help support early childhood education , fight the opioid epidemic , expand behavioral health care , and do much more . a cited hhs priority is to give all americans the building blocks for healthy lives . over the course of the current administration , hhs has more than doubled access to early head start services for infants and toddlers . the fy2017 budget proposed an increase of $ 434 million for the head start program and an investment in child care services to cover over 2.6 million children . hhs budget authority has continued to grow during the recent tight federal budget environment , having increased from $ 0.96 trillion in fiscal 2014 to $ 1.09 trillion for fiscal 2016. according to hhs projections , national health insurance spending is expected to reach $ 5.63 trillion and comprise 20.1 % of gross domestic product ( gdp ) by 2025. federal health expenditures are expected to reach $ 1.75 trillion by 2025 , growing at a 4.9 % compound annual growth rate ( cagr ) from an estimated $ 1.04 trillion in 2015. mental and behavioral healthcare trends : on september 29 , 2016 , the defense health agency ( dha ) announced significant improvements and expanded access to its tricare mental health and substance use disorder ( sud ) benefits , intended to provide individuals with a full range of available mental health and sud treatments . according to the dha director of healthcare operations , the behavioral health of service members and their families remains a top priority . tricare provides a comprehensive mental health benefit to active duty personnel , retirees , and their families , including psychiatric outpatient , inpatient , partial hospitalization , and residential treatment services . according to the report , major changes are underway that will improve access to mental health and substance use disorder treatment for beneficiaries , revise beneficiary cost-shares to align with cost-shares for medical and surgical care , and reduce administrative barriers to care by streamlining the requirements for institutional providers to become authorized providers . tricare will expand its coverage of treatment options for substance use disorders , including opioid use disorder . this change will provide more treatment options such as outpatient counseling and intensive outpatient 19 programs . once additional changes are put into effect early next year , the process for facilities to become tricare-authorized will be easier and faster . the revisions are intended to make mental health care and sud treatment more community-based . the hhs fy2017 budget proposed over $ 1 billion to combat the prescription opioid and heroin epidemic by expanding access to evidence-based treatment , encouraging safe prescribing practices , and getting more drugs that reverse overdoses into the hands of those who need them . hhs cited that roughly 23 percent of people with a serious mental health disorder also have a co-occurring substance use disorder . however , only about half of children and less than half of adults with diagnosable mental health disorders get the treatment they need . despite the expansion of behavioral health coverage through the mental health parity and addiction equity act and the affordable care act , hhs contends that more must be done and therefore requested $ 780 million in new resources to help close the gap . spending on prescription drugs : hhs projects that prescription drug spending will grow 6.7 % annually from 2016 through 2025 due to improving economic conditions , changes in benefit management designed to encourage better drug adherence for people with chronic health conditions , and anticipated changing clinical guidelines designed to encourage drug therapies at earlier stages of treatment . story_separator_special_tag these projected trends align with our expertise in managing large-scale prescription drug processing and delivery solutions , and we continue to assess additional opportunities in the federal market as they arise . industry consolidation among federal government contractors : there has been active consolidation and a strong increase in m & a activity among federal government contractors over the past few years that is expected to continue into fiscal year 2017 and beyond , fueled by public companies leveraging strong balance sheets to pursue strategic acquisitions that supplement organic growth and create shareholder value . companies often look to acquisitions that augment core capabilities , contracts , customers , market differentiators , stability , cost synergies , and higher margin and revenue streams . dlh has become active in the m & a marketplace with the acquisition of danya in may 2016. we plan continued focus on our core capabilities , as we look at potential future strategic acquisitions to grow our business and enhance shareholder value . potential small business teaming opportunities the federal government has an overall goal of 23 % of prime contracts flowing to small business contractors , primarily through the use of set-asides in agency rfps ( requests for proposal ) . the veterans benefits , health care , and information technology act of 2006 requires the secretary of veterans affairs to set annual goals for contracting with service-disabled and other veteran-owned small businesses . the act 's “ rule of two , ” provides that the department shall award contracts by restricting competition for the contract to service-disabled or other veteran owned small businesses . to restrict competition under the act , the contracting officer must reasonably expect that at least two of these businesses will submit offers and that the award can be made at a fair and reasonable price that offers best value to the united states . recent task orders on the va t4ng idiq contract have been awarded under these set-aside provisions . while this has impacted our planned expansion using the t4ng contracting vehicle , dlh may elect , from time to time , to team with other contractors in support of such small businesses set-asides for specific pursuits that align with our corporate growth strategy . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 0.87 per basic and diluted share . the decrease of approximately $ ( 5.3 ) million compared to prior year is attributable principally to : a $ 4.6 million decrease in tax benefit , net , compared to prior year ; an increase of approximately $ 2.4 million other income and expense , net , as described above ; partially offset by improved income generated from operations of $ 1.6 million during the current fiscal year . non-gaap financial measures for fiscal 2016 and 2015 on a non-gaap basis , earnings before interest tax depreciation and amortization ( “ ebitda ” ) adjusted for other non-cash charges ( “ adjusted ebitda ” for year ended september 30 , 2016 was approximately $ 5.8 million , an increase of approximately $ 2.7 million , or 90.6 % , over the prior fiscal year . this increase was due principally to improved gross margin of approximately $ 6.1 million , partially offset by expense growth of $ 3.4 million as previously described . 22 we use earnings before interest tax depreciation and amortization ( “ ebitda ” ) adjusted for other items ( “ adjusted ebitda ” ) as a supplemental non-gaap measures of our performance . we define adjusted ebitda as net income/ ( loss ) adjusted to exclude ( i ) interest and other expenses , including acquisition expenses , net , ( ii ) provision for or benefit from income taxes , if any , ( iii ) depreciation and amortization , and ( iv ) g & a expenses — equity grants . we exclude the following items in deriving adjusted ebitda : acquisition expenses and interest expenses are excluded in the current year period . settlement of the retroactive payment claim , which is non-recurring , is excluded from the prior year period . these expenditures do not relate to the ongoing operation of the existing business base , and they tend to vary significantly based on the timing of proposed transactions . we believe that segregating and excluding these expenses allow for improved comparability of results from period to period . equity compensation is excluded because it is non-cash in nature . we believe that excluding this expense allows for improved comparability of results from period to period . non-gaap measures of our performance are presented here and used by management to conduct and evaluate its business during its regular review of operating results for the periods presented . management and the company 's board utilize non-gaap measures to help make decisions about the use of the company 's resources , analyze performance between periods , develop internal projections and measure management performance . we believe that non-gaap measures can be useful to investors in evaluating the company 's ongoing operating and financial results and understanding how such results compare with the company 's historical performance . by providing non-gaap measures as a supplement to gaap information , we believe we are enhancing investors ' understanding of our business and our results of operations . reconciliation of gaap net income to adjusted ebitda , a non-gaap measure : replace_table_token_6_th during the 2016 fiscal year , dlh acquired danya international , llc . the company believes that it is helpful for investors to be able to evaluate the revenue performance of dlh 's underlying business excluding the impact of acquisitions . therefore , the company provides organic revenue growth as a non-gaap measure to support this objective . to calculate organic revenue growth , the company compares current year revenue , less revenue from acquisitions , to prior year revenue . fiscal 2016 organic revenue growth was 5.4 % for the year compared to the prior year .
| favorable gross margin results are due principally to contribution from danya , more complex contracts , and effective assignment of staff to deliver strong contract performance , partially offset by fiscal year start-up costs on new contract awards . we continue to focus on internal productivity measures to control costs and improve our gross margin . general and administrative expenses general and administrative ( “ g & a ” ) expenses primarily relate to functions such as operations overhead , corporate management , legal , finance , accounting , contracts administration , human resources , management information systems , and business development . fiscal year 2016 g & a expenses were approximately $ 12.5 million , an increase of $ 3.4 million or 21 37.0 % over the prior year period . as a percent of revenue , g & a expenses were 14.6 % , an increase of approximately 0.6 % over prior year period . the increase in expenses was due principally to the addition of danya , and additional program and operational resources to manage and grow our business volume . depreciation and amortization this category comprises non-cash expenditures related to depreciation on fixed assets and the amortization of acquired definite-lived intangible assets from the acquisition of danya . as a professional services organization , dlh has not required significant expenditures on capital equipment and other fixed assets . for the twelve months ended september 30 , 2016 , depreciation and amortization were approximately $ 1.2 million , due principally to the amortization of acquired definite-lived intangible assets . income from operations income from operations for the year ended september 30 , 2016 was approximately $ 4.1 million , an increase of approximately $ 1.6 million over the prior fiscal year . the improvement is due principally to contribution from the acquisition of danya and expansion on legacy programs , resulting in improved gross margin of $ 6.1 million , partially offset by expense growth of $ 3.4 million as described above . other income ( expense ) , net other income ( expense ) , net ,
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in september 2017 , in order to reduce operating expenses and conserve cash resources , inotek entered into separation agreements with ten of its employees . pursuant to the separation agreements , inotek agreed to provide severance payments and continued medical , dental and vision coverage pursuant to the consolidated omnibus budget reconciliation act of 1986 ( “ cobra ” ) ( of the employer 's portion of the premium cost ) for up to six months , primarily depending on duration of each individual employee 's service . inotek recorded a charge to operations for an aggregate of $ 748 in 2017 for these terminations , of which $ 711 and $ 37 was reflected in research and development and general and administrative expenses , respectively ( see note 8 in the accompanying notes to the consolidated financial statements ) . in addition , for each of the ten terminated employees , inotek accelerated the vesting of all unvested restricted stock units and stock options held by the employee and recorded an incremental charge of $ 158 in 2017 , of which $ 142 and $ 16 was reflected in research and development and general and administrative expenses , respectively ( see note 8 in the accompanying notes to the consolidated financial statements ) . historically , inotek devoted substantially all of its resources to research and development efforts relating to its product candidates , including conducting clinical trials , providing general and administrative support for these operations and protecting its intellectual property . inotek did not have any products approved for sale and did not generate any revenue from product sales or other sources . from inotek 's inception through december 31 , 2017 , it funded its operations primarily through the sales of equity and debt securities . in february 2015 , inotek completed an initial public offering ( “ ipo ” ) of its common stock and a concurrent offering of convertible senior notes , raising an aggregate of $ 55.5 million in net proceeds . in august 2015 , inotek completed a follow-on offering of its common stock , raising an aggregate of $ 74.0 million in net proceeds . in august 2016 , inotek completed a second offering of convertible senior notes , raising an aggregate of $ 48.7 million in net proceeds . inotek incurred net losses in each year since its inception . as of december 31 , 2017 , inotek had an accumulated deficit of $ 268.4 million and cash and cash equivalents and short-term investments aggregating $ 100.0 million . financial overview research and development expenses prior to the suspension of further research and development activities , inotek 's research and development expenses consisted primarily of the costs associated with its research and development activities , conducting preclinical studies and clinical trials and activities related to regulatory filings . inotek 's research and development expenses consisted of : direct clinical and non-clinical expenses which include expenses incurred under agreements with contract research organizations ( “ cros ” ) , contract manufacturing organizations , clinical sites and costs associated with preclinical activities and development activities and costs associated with regulatory activities ; employee and consultant-related expenses , including compensation , benefits , travel and stock-based compensation expense for research and development personnel as well as consultants that conduct and support clinical trials and preclinical studies ; and facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in research and development activities . inotek recognized research and development costs as incurred and recorded costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or other information provided by its vendors . 54 the following table summarizes inotek 's research and development expenses by type of activity for the twelve months ended december 31 , 2017 and 2016 : replace_table_token_5_th inotek does not track trabodenoson -related expenses by product candidate . all expenses related to trabodenoson as a monotherapy also benefited the fdc product candidate trabodenoson with latanoprost . inotek has expended approximately $ 83 million for external development costs related to trabodenoson from inception through december 31 , 2017. no further trabodenoson -related development expenses are expected due to inotek 's decision to voluntarily discontinue further research and development of trabodenoson . private rocket research and development expenses private rocket 's research and development costs include salaries and staff costs , licensing costs , regulatory and scientific consulting fees , as well as contract research , and share-based compensation expense . private rocket does not currently have any commercial biopharmaceutical products and does not expect to have any for several years , if at all . accordingly , research and development costs are expensed as incurred . while certain of private rocket 's research and development costs may have future benefits , the policy of expensing all research and development expenditures is predicated on the fact that the company has no history of successful commercialization of product candidates to base any estimate of the number of future periods that would be benefited . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming and the successful development of our product candidates is highly uncertain . our future research and development expenses will depend on the clinical success of our product candidates , as well as ongoing assessments of the commercial potential of such product candidates . in addition , we can not forecast with any degree of certainty which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . we expect our research and development expenses to increase in future periods for the foreseeable future as we seek to complete development of our product candidates . story_separator_special_tag the successful development and commercialization of our product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with product development and commercialization , including the uncertainty of : the scope , progress , outcome and costs of our clinical trials and other research and development activities ; the efficacy and potential advantages of our product candidates compared to alternative treatments , including any standard of care ; the market acceptance of our product candidates ; obtaining , maintaining , defending and enforcing patent claims and other intellectual property rights ; significant and changing government regulation ; and the timing , receipt and terms of any marketing approvals . a change in the outcome of any of these variables with respect to the development of our product candidates that we may develop could mean a significant change in the costs and timing associated with the development of our product candidates . for example , if the fda or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently contemplate for the completion of clinical development of any of our product candidates that we may develop 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 of that product candidate . 55 general and administrative expenses general and administrative expenses consisted of salaries and related benefit costs , including stock-based compensation for administrative personnel . other significant general and administrative expenses include professional fees for legal , patents , consulting , investor and public relations , auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in general and administrative activities . in 2017 , included in general and administrative expenses were approximately $ 2.3 million of costs related to the reverse merger . private rocket general and administrative expenses private rocket 's general and administrative expenses consist of salaries and related benefit costs , including stock-based compensation for administrative personnel . in addition , other significant general and administrative expenses include professional fees for legal , patents , consulting , investor and public relations , auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in general and administrative activities . we anticipate that our general and administrative expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount , increased stock-based compensation charges , expanded infrastructure , increased costs for insurance , and increased legal , compliance , accounting and investor and public relations expenses associated with being a public company . interest expense interest expense related to inotek 's 2021 convertible notes , which are due in august 2021. interest income interest income related to interest earned from invested funds . story_separator_special_tag of proceeds from the maturity of short-term investments , partially offset by the purchase of $ 27.2 million of short-term investments . net cash used in investing activities was $ 66.1 million for the year ended december 31 , 2016 , and related primarily to the purchase of $ 122.3 million of short-term investments , $ 56.7 million of proceeds from the maturity of short-term investments , and $ 0.5 million of purchases of property and equipment . 57 net cash provided by financing activities net cash provided by financing activities was $ 53.1 million for the year ended december 31 , 2016 , and primarily reflects net proceeds of $ 48.7 million from the issuance of inotek 's 2021 convertible notes and net proceeds of $ 4.0 million from the issuance of common stock pursuant to inotek 's atm . private rocket 's liquidity and capital resources private rocket has not generated any revenue and has incurred losses since inception . operations of the company are subject to certain risks and uncertainties , including , among others , uncertainty of drug candidate development , technological uncertainty , uncertainty regarding patents and proprietary rights , having no commercial manufacturing experience , marketing or sales capability or experience , dependency on key personnel , compliance with government regulations and the need to obtain additional financing . drug candidates currently under development will require significant additional research and development efforts , including extensive preclinical and clinical testing and regulatory approval , prior to commercialization . these efforts require significant amounts of additional capital , adequate personnel infrastructure and extensive compliance-reporting capabilities . the company 's drug candidates are in the development stage . there can be no assurance that the company 's research and development will be successfully completed , that adequate protection for the company 's intellectual property will be obtained , that any products developed will obtain necessary government approval or that any approved products will be commercially viable . even if the company 's product development efforts are successful , it is uncertain when , if ever , the company will generate significant revenue from product sales . the company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies . private rocket has experienced negative cash flows and had an accumulated deficit of $ 31.3 million and $ 11.7 million as of december 31 , 2017 and 2016 , respectively . as of december 31 , 2017 and 2016 , private rocket had $ 18.1 million and $ 9.5 million of cash on hand , respectively . on january 26 , 2018 , the combined company closed a public offering of common stock and received net proceeds of approximately $ 78.8 million ( see note 12 in the accompanying notes to the consolidated financial statements ) .
| increased stock-based compensation of $ 1.2 million , primarily due to option modifications in 2017 , and increased legal costs of $ 0.7 million , primarily related to our d & o suit defense costs , were offset primarily by decreased consulting costs of $ 0.8 million , decreased employee-related costs due to reduced headcount and recruiting expenses of $ 0.6 million and reduced outside services of $ 0.3 million primarily related to reduced investor relations and business development activities . interest expense interest expense increased $ 2.2 million to $ 3.6 million for the year ended december 31 , 2017 , as compared to $ 1.4 million for the year ended december 31 , 2016. interest expense consists of coupon interest and amortization of debt issuance costs related to inotek 's 2021 convertible notes which were issued in august 2016 and which are due in august 2021. the twelve months ended december 31 , 2017 reflect a full year of interest expense , whereas the twelve months ended december 31 , 2016 reflect a partial year of interest expense . interest income interest income increased $ 0.4 million to $ 0.8 million for the year ended december 31 , 2017 , as compared to $ 0.4 million for the year ended december 31 , 2016. as average invested balances remained essentially the same in 2017 and 2016 , this increase primarily reflects higher interest rates . liquidity and capital resources inotek has incurred net losses and negative cash flows from its operations each year since inception . inotek incurred net losses of $ 29.5 million and $ 42.9 million for the years ended december 31 , 2017 and 2016 , respectively . inotek 's operating activities used $ 26.1 million and $ 37.3 million during the years ended december 31 , 2017 and 2016 , respectively . since inotek 's inception through december 31 , 2017 , inotek funded its operations primarily through the sale of its equity and debt securities . as of december 31 , 2017 , inotek had $ 100.0 million of cash and cash equivalents and short-term investments . the following table summarizes inotek 's sources
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revenue grew 17 percent when compared to 2017 with growth in americas , asia pacific excluding japan and europe , partially offset by declines in japan . the communications solutions group 's revenue growth was primarily driven by growth in our 5g-related solutions across the wireless ecosystem , with strong demand for network access applications and steady investments in the network and data center markets . in 2017 , revenue from the communications solutions group represented approximately 54 percent of total revenue , and its contribution to the total revenue growth was negligible . revenue was flat when compared to 2016 , with growth in japan and asia pacific excluding japan offset by declines in the americas and europe . the strength in 5g and data center technologies was offset by decline in the aerospace , defense and government market . revenue from the electronic industrial solutions group represented approximately 25 percent of total revenue in 2018 and contributed 4 percentage points to the total revenue growth . revenue grew 15 percent year over year when compared to the same period last year , driven by strong growth across all markets and regions . revenue from the electronic industrial solutions group represented approximately 27 percent of total revenue in 2017 and contributed 2 percentage points to total revenue growth . revenue grew 8 percent year over year when compared to 2016 , driven by strong growth in the semiconductor measurement and automotive and energy markets . the growth in asia pacific excluding japan and europe was partially offset by declines in japan , while revenue from the americas remained flat . revenue from the ixia solutions group represented approximately 11 percent of total revenue in 2018 and contributed 7 percentage points to total revenue growth . in 2017 , revenue from the ixia solutions group represented approximately 6 percent of total revenue and contributed 7 percentage points to total revenue growth . revenue for 2017 included activity from the date of acquisition , april 18 , 2017 , through october 31 , 2017. revenue from the services solutions group represented approximately 12 percent of total revenue in 2018 and contributed 1 percentage point to the total revenue growth . revenue grew 10 percent when compared to 2017 , with growth in the americas , asia pacific excluding japan and europe , partially offset by a decline in japan . revenue from the services solutions group represented approximately 13 percent of total revenue in 2017 , and its contribution to the total revenue growth was negligible . revenue grew 4 percent year over year when compared to 2016 , with growth in all regions . backlog backlog represents the amount of revenue expected from orders that have already been booked , including orders for goods and services that have not been delivered to customers , orders invoiced but not yet recognized as revenue , and orders for goods that were shipped but not invoiced , awaiting acceptance by customers . at october 31 , 2018 , our unfilled backlog was approximately $ 1,275 million as compared to approximately $ 950 million at october 31 , 2017. consistent with our strategy , we are seeing an increase in solution sales , which have a longer order-to-revenue conversion cycle ; however , we expect that a majority of the unfilled backlog will be recognized as revenue within six months . while backlog on any particular date can be an indicator of short-term revenue performance , it is not necessarily a reliable indicator of medium or long-term revenue performance . 34 costs and expenses replace_table_token_6_th replace_table_token_7_th gross margin increased 1 percentage point in 2018 compared to 2017 , primarily driven by gains related to revenue volume and favorable mix , partially offset by increases in variable people-related costs and amortization of acquisition-related balances . gross margin declined 2 percentage points in 2017 compared to 2016 , primarily driven by the unfavorable impacts from amortization of acquisition-related balances , northern california wildfire-related costs , an increase in people-related costs and an increase in warranty expense due to a lower compare as a result of a one-time reduction in the standard warranty accrual in 2016. excess and obsolete inventory charges were $ 25 million in 2018 , $ 16 million in 2017 and $ 17 million in 2016. in 2018 , excess and obsolete inventory-related charges included $ 7 million related to divestiture activity . sales of previously written-down inventory were $ 2 million in 2018 , $ 1 million in 2017 and $ 2 million in 2016. research and development expense increased 22 percent in 2018 compared to 2017 , primarily driven by the addition of acquisitions to our cost structure , an increase in variable people-related costs and our continued investment in research and development programs , partially offset by elimination of non-recurring acquisition-related compensation expense . as a percent of total revenue , research and development expenses were 16 percent in both 2018 and 2017. research and development expense increased 17 percent in 2017 compared to 2016 , primarily driven by the addition of acquisitions to the cost structure , an increase in people-related costs , acquisition-related compensation costs and our continued investment in research and development programs . as a percent of total revenue , research and development expense increased 1 percentage point to 16 percent in 2017 from 15 percent in 2016. selling , general and administrative expenses increased 13 percent for 2018 compared to the same period last year , primarily driven by the addition of acquisitions to our cost structure and increases in variable people-related , litigation and restructuring costs , partially offset by elimination of non-recurring acquisition-related compensation expense , separation and related costs , acquisition and integration costs and the unfavorable impact from northern california wildfire-related costs . story_separator_special_tag selling , general and administrative expenses increased 28 percent for 2017 compared to 2016 , primarily driven by the addition of ixia to our cost structure , increases in amortization of acquisition-related balances , acquisition and integration costs , acquisition-related compensation expense , investments in sales resources , people-related costs and the unfavorable impact from fire-related costs at our corporate headquarters and restructuring-related costs . during the fourth quarter of 2018 , we recorded a goodwill impairment charge of $ 709 million for the ixia solutions group , based on the results of our annual impairment test of goodwill . see note 10 , `` goodwill and other intangible assets , '' to our consolidated financial statements for additional information . other operating expense ( income ) , net for 2018 was income of $ 33 million , which primarily includes income from business divestitures and rental income . other operating expense ( income ) , net for 2017 was income of $ 84 million , which primarily includes a $ 68 million gain from a settlement related to our japan pension fund and rental income . operating margin decreased 16 percentage points in 2018 when compared to 2017 , primarily driven by goodwill impairment and an increase in variable people-related costs , partially offset by gains related to revenue volume and favorable mix . operating margin decreased 6 percentage points in 2017 when compared to 2016 , primarily driven by increases in amortization of acquisition-related balances , acquisition and integration costs , investments in sales resources and people-related costs , partially offset by favorable impact from higher revenue and revenue mix . our headcount was approximately 12,900 at october 31 , 2018 compared to 12,600 at october 31 , 2017 . 35 interest expense interest expense for the years ended october 31 , 2018 and 2017 was $ 83 million and $ 80 million , respectively , and primarily relates to interest on our senior notes issued in october 2014 and april 2017. income taxes replace_table_token_8_th for 2018 , the effective tax rate was 140 percent , which is higher than the u.s. statutory rate primarily due to the impact of u.s. tax law changes , the singapore restructuring and tax incentive modifications completed in 2018 in response to singapore tax law changes , and the tax impact of goodwill impairment . the impact of the singapore restructuring includes tax benefits associated with intra-entity asset transfers that were recognized in accordance with asu 2016-16 , intra-entity transfers of assets other than inventory , which we elected to early adopt effective november 1 , 2016. for 2017 , the effective tax rate was 43 percent , which is higher than the u.s. statutory rate primarily due to the payment of a prior year malaysia tax assessment of $ 68 million , including tax and penalties , which we are currently in the process of appealing to the special commissioners of income tax ( “ scit ” ) in malaysia . for 2016 , the effective tax rate was 8 percent , which is lower than the u.s. statutory rate primarily due to a higher percentage of earnings in the non-u.s. jurisdictions taxed at lower statutory tax rates . also , the tax rate was lower than the u.s. statutory rate due to a net tax benefit of $ 45 million resulting from the repatriation of earnings from japan , which includes a u.s. tax expense of $ 27 million , offset by $ 72 million of foreign tax credits recorded in connection with the repatriation . we benefit from tax incentives in several different jurisdictions , most significantly in singapore , and several jurisdictions have granted tax incentives that require renewal at various times in the future . the tax incentives provide lower rates of taxation on certain classes of income and require various thresholds of investment and employment or specific types of income in those jurisdictions . the tax incentives are due for renewal between 2024 and 2025. the impact of the tax incentives decreased income taxes by $ 567 million , $ 49 million and $ 34 million in 2018 , 2017 , and 2016 , respectively . the increase in the tax benefit from 2017 to 2018 is primarily due to the impact of our singapore restructuring and tax incentive modifications that were completed in 2018 in response to singapore tax law changes . in accordance with the guidance on the accounting for uncertainty in income taxes , for all u.s. and other tax jurisdictions , we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether , and the extent to which , additional taxes and interest will be due . if our estimate of income tax liabilities proves to be less than the ultimate assessment , a further charge to expense would be required . if events occur and the payment of these amounts ultimately proves to be unnecessary , the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary . we include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the consolidated statements of operations . accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet . the open tax years for the irs and most states are from november 1 , 2014 through the current tax year . for the majority of our foreign entities , the open tax years are from august 1 , 2014 through the current tax year . for certain foreign entities , the tax years remain open , at most , back to the year 2007. given the number of years and numerous matters that remain subject to examination in various tax jurisdictions , we are unable to estimate the range of possible changes to the balance of our unrecognized tax benefits . the company is being audited in malaysia for the 2008 tax year .
| years ended october 31 , 2018 , 2017 and 2016 keysight 's total orders in 2018 were $ 4,082 million , an increase of 20 percent when compared to 2017. foreign currency movements had a favorable impact of 1 percentage point on the year-over-year comparison . orders associated with acquisitions accounted for 7 percentage points of order growth for the year ended october 31 , 2018 when compared to 2017. total orders in 2017 were $ 3,406 million , an increase of 15 percent when compared to 2016. foreign currency movements had a negligible impact on the year-over-year comparison . orders associated with acquisitions accounted for 9 percentage points of order growth for the year ended october 31 , 2017 when compared to 2016. net revenue of $ 3,878 million for the year ended october 31 , 2018 increased 22 percent when compared to 2017. foreign currency movements had a favorable impact of 2 percentage points on the year-over-year comparison . revenue associated with acquisitions accounted for 6 percentage points of revenue growth for the year ended october 31 , 2018 when compared to 2017. revenue excluding acquisitions grew year over year , with growth in all our operating segments and across all our markets . net revenue of $ 3,189 million for the year ended october 31 , 2017 increased 9 percent when compared to 2016. foreign currency movements had a negligible impact on the year-over-year comparison . revenue associated with acquisitions accounted for 7 percentage points of revenue growth for the year ended october 31 , 2017 when compared to 2016. revenue excluding acquisitions grew year over year , with growth in the electronic industrial solutions group driven by semiconductor measurement and automotive and energy markets , and growth in the services solutions group . the communications solution group revenue was flat as gains in the commercial communications market were offset by declines in the aerospace , defense and government market . 31 net income was $ 165 million in 2018 compared to net income of $ 102 million and
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the company concluded that a triggering event occurred during the fourth quarter 2015 as the step 2 of goodwill impairment testing under asc 350 indicated that the fair value of the company 's long-lived assets for the metals segment , based upon lower share prices of the company 's common stock at year-end , were lower than their carrying value . as a result , the company tested the recoverability of the long-lived assets by comparing the carrying amount of the assets at the date of the test to the sum of the estimated future undiscounted cash flows expected to be generated by those assets over the remaining useful life of the assets . in estimating the future undiscounted cash flows , the company used projections of cash flows directly associated with , and which are expected to arise as a direct result of , the use and eventual disposition of the assets . this approach required significant judgments including the company 's projected net cash flows , which were derived using the most recent available estimate for the reporting unit containing the assets tested . several key assumptions included periods of operation , projections of product pricing , production levels , product costs , market supply and demand , and inflation . as a result of this testing , it was determined that the carrying amount of the assets were recoverable and an impairment loss for long-lived assets was not required . business combinations acquisitions are accounted for using the acquisition method of accounting for business combinations in accordance with gaap . under this method , the total consideration transferred to consummate the acquisition is allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the closing date of the acquisition . the acquisition method of accounting requires extensive use of estimates and judgments to allocate the consideration transferred to the identifiable tangible and intangible assets , if any , acquired and liabilities assumed . goodwill goodwill , which represents the excess of purchase price over fair value of net assets acquired , is tested for impairment at the reporting unit level , annually in the fourth quarter and whenever circumstances indicate that the carrying value may not be recoverable . the evaluation of impairment involves using either a qualitative or quantitative approach as outlined in financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) topic 350. the initial step of the goodwill impairment test involves a comparison of the fair value of the reporting unit in which the goodwill is recorded to its carrying amount . if the reporting unit 's fair value exceeds its carrying value , no impairment loss is recognized and the second step , which is a calculation of the impairment , is not performed . however , if the reporting unit 's carrying value exceeds its fair value , an impairment charge equal to the difference in the carrying value of the goodwill and the implied fair value of the goodwill is recorded . implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination . that is , the fair value of the reporting unit is allocated to the assets and liabilities of the reporting unit as if it had been acquired in a business combination . the excess of the fair value of the reporting unit over the amounts allocated to assets and liabilities is the implied fair value of goodwill . the company completed its annual goodwill impairment evaluation using the two-step quantitative analysis during the fourth quarter 2015 and determined that all of the goodwill within its specialty and palmer reporting units was impaired . the company 's specialty and palmer reporting units had $ 1,260,000 and $ 15,898,000 , respectively , of goodwill impairment during the fourth quarter of 2015 , both operating as part of the metals segment . goodwill remaining on our consolidated balance sheet at december 31 , 2015 is $ 1,355,000 for mc , operating as part of the specialty chemicals segment . in making our determination of fair value of the reporting unit , we rely on the discounted cash flow method . this method uses projections of cash flows from the reporting unit . this approach requires significant judgments including the company 's projected net cash flows , the weighted average cost of capital ( `` wacc '' ) used to discount the cash flows and terminal value assumptions . we derive these assumptions used in the testing from several sources . many of these assumptions are derived from our internal budgets , which would include existing sales data based on current product lines and assumed production levels , manufacturing 19 costs and product pricing . we believe that our internal forecasts are consistent with those that would be used by a potential buyer in valuing our reporting units . liquidity and capital resources cash flows provided by continuing operating activities during 2015 and 2014 totaled $ 17,312,000 and $ 28,104,000 respectively , a decrease in cash flows of $ 10,792,000. cash flows in 2015 were generated from net income from continuing operations totaling $ 8,746,000 after adding back depreciation and amortization expense of $ 6,755,000 , the goodwill impairment charge of $ 17,158,000 and deducting the gain on the earn-out liability of $ 4,897,000 , a decrease from the prior year of $ 5,588,000. accounts receivable from continuing operations generated $ 11,381,000 cash during 2015 as sales decreased 27 % for the fourth quarter of 2015 compared to the fourth quarter of 2014. accounts receivable days outstanding remained relatively stable , decreasing from 54.9 days at the end of 2014 to 53.6 days at the end of 2015. accounts payable negatively affected cash flows from continuing operations by $ 9,122,000 in 2015 as the significant inventory purchases made during the fourth quarter of 2014 in the metals segment , which increased the 2014 year-end accounts payable balance , were paid during 2015. story_separator_special_tag accounts payable days outstanding was consistent at 45 days for both years . accrued income taxes generated $ 3,037,000 as the company received excess tax deposits when the 2014 tax returns were filed . in prior year , these excess payments would have been applied to the subsequent year tax deposits . a decrease in inventory generated $ 4,173,000 of cash during 2015. this resulted from selling the incremental inventory purchased by the metals segment at the end of 2014 combined with a company directive to lower inventory levels during 2015. inventory turns , calculated on a three month basis , decreased from 3.16 turns at the end of 2014 to 1.89 turns at the end of 2015. the 2015 calculation includes specialty 's values which , by definition of being a master pipe distributor , has a lower turnover rate . cash flows provided by continuing operating activities during 2014 and 2013 totaled $ 28,104,000 and $ 37,000 respectively , an improvement in cash flows of $ 28,067,000. cash flows in 2014 were generated from net income from continuing operations totaling $ 14,334,000 after adding back depreciation and amortization expense of $ 5,191,000 and deducting the gain on the palmer earn-out liability of $ 3,476,000. since the company acquired specialty on november 21 , 2014 , cash flows resulting from changes in operating assets and liabilities can not be determined simply by subtracting 2014 balance sheet amounts from 2013 values . the net value of all assets and liabilities acquired are shown in the `` acquisition of specialty pipe & tube , inc. '' line in the investing activities section of the consolidated statements of cash flows . accordingly , these individual acquired balances represent beginning balances for specialty for cash flow purposes . accounts payable favorably affected cash flows from continuing operations by $ 7,821,000 in 2014 as there were significant inventory purchases in the fourth quarter of 2014 in the metals segment which increased the 2014 year-end accounts payable balance combined with the company experiencing an expansion in the number of accounts payable days outstanding . accrued expenses generated $ 3,996,000 cash from continuing operations resulting from increases in the management incentive bonus , uncertain tax positions and current portion of the pension liability related to the closing of bristol fab . these increases were partially offset by lower customer advances at the end of 2014 when compared to the end of 2013. in 2015 , the company 's current assets decreased $ 20,375,000 and current liabilities decreased $ 14,099,000 , from the year ended 2014 amounts , which caused working capital for 2015 to decrease by $ 6,276,000 to $ 58,304,000 from the 2014 total of $ 64,580,000. the current ratio for continuing operations for the year ended december 31 , 2015 , increased to 3.2:1 from the 2014 year-end ratio of 2.6:1. the company used cash during 2015 for investing activities to fund capital expenditures of $ 10,905,000. included in this amount is approximately $ 3,428,000 for the heavy wall steel manufacturing project in the metals segment and $ 1,547,000 for the specialty chemical segment expansion . financing activities during 2015 used $ 7,153,000 as a result of payments on long-term debt combined with a fourth quarter 2015 dividend payment of $ 2,618,000. the company also , with authorization approved by the board of directors , repurchased 100,400 shares at a cost of $ 820,460. on november 21 , 2014 , the company entered into a stock purchase agreement with davidson to purchase all of the issued and outstanding stock of specialty . established in 1964 with distribution centers in mineral ridge , ohio and houston , texas , specialty is a master distributor of seamless carbon pipe and tube , with a focus on heavy wall , large diameter products . the company viewed the specialty acquisition as an excellent complement to the product offerings of the metals segment with similar end markets and consistent profit margins . specialty 's results of operations since the acquisition date are reflected in the company 's consolidated statements of operations , and the specialty acquisition added approximately 30 employees at january 3 , 2015. the purchase price for the all-cash acquisition was approximately $ 31,500,000 , subject to working capital adjustments post-closing . in connection with the cri acquisition discussed in note 18 to the consolidated financial statements included in item 8 of this form 10-k , on august 9 , 2013 , the company modified the credit agreement to fund this transaction . the credit agreement modification provided for a new ten-year term loan in the amount of $ 4,033,000 , with monthly principal payments customized to account for the 20 year amortization of the real estate assets combined with a 5-year amortization of the equipment assets purchased . in conjunction with the new term loan , to mitigate the variability of interest rate risk , the company entered into an interest rate swap contract ( the `` cri swap '' ) on september 3 , 2013. the cri swap had an initial notional amount of $ 4,033,250 with a fixed 20 interest rate of 4.83 % and runs for ten years to august 19 , 2023 , which equates to the due date of the term loan . the notional amount of the cri swap decreases as monthly principal payments are made . in connection with the specialty acquisition on november 21 , 2014 discussed in note 18 to the consolidated financial statements included in item 8 of this form 10-k , the credit agreement was again modified to increase the limit of the credit facility to $ 40,000,000 and extend the maturity date to november 21 , 2017. the credit agreement modification provided for a new five-year term loan of $ 10,000,000 that required equal monthly payments of $ 166,667 plus interest .
| consolidated gross profit from continuing operations decreased 23 percent to $ 25,319,000 in 2015 , compared to $ 32,929,000 in 2014 , and , as a percent of sales , decreased to 14 percent of sales in 2015 compared to 17 percent of sales in 2014. for the fourth quarter of 2015 , consolidated gross profit from continuing operations was $ 3,424,000 , a decrease of 58 percent from the fourth quarter of 2014 of $ 8,247,000. consolidated gross profit from continuing operations was ten percent of sales for the fourth quarter of 2015 and 17 percent of sales for same period of 2014. the decreases in dollars and in percentage of sales were attributable to the metals segment as discussed in the metals segment comparison of 2015 to 2014 below . consolidated selling , general and administrative expense from continuing operations for 2015 increased by $ 5,470,000 to $ 22,059,000 , or 13 percent of sales , compared to $ 16,589,000 , or eight percent of sales for 2014. these costs increased $ 1,203,000 during the fourth quarter of 2015 compared to the same period of 2014 and were 16 percent of sales for the fourth quarter 2015 compared to nine percent of sales for the fourth quarter of 2014. the dollar increase for both the year and fourth quarter of 2015 when compared to the same periods of 2014 resulted primarily from the inclusion of specialty 's selling , general and administrative expenses for the entire year and quarter for 2015. since specialty was acquired in november 2014 , only a portion of their selling , general , and administrative expenses were included in the prior year . this accounted for $ 3,746,000 and $ 561,000 of the annual and fourth quarter increase in selling , general and administrative costs for 2015. the remainder of the increase resulted from higher professional fees and increased salaries and wages , partly offset by lower incentive based bonuses and sales commissions . in addition , the company incurred $ 500,000 for one-time acquisition costs associated with the specialty acquisition in 2015 compared to $ 302,000 of one-time acquisition costs associated with this acquisition in 2014. these costs were $ 46,000 and $ 305,000 for the fourth quarters of 2015 and 2014 , respectively . all of these items will be discussed in greater detail in the respective sections below . comparison of 2014 to 2013 – consolidated for the fiscal year ending january
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v ) if regulatory approval of the amds is obtained in china on or before june 30 , 2027 , a cash payment of $ 10.0 million and ( vi ) a potential additional consideration cash payment capped at up to $ 55.0 million ( or up to $ 65.0 million to $ 75.0 million if the japanese or chinese approvals are not secured on or before june 30 , 2027 and those approval milestone payments are added to the potential additional consideration cash payment cap ) calculated as two times the incremental worldwide sales of the amds ( or any other acquired technology or derivatives of such acquired technology ) outside of the european union during the three-year period following the date the fda approves a premarket approval application submitted for the amds . critical accounting policies a summary of our significant accounting policies is included in part ii , item 8 , note 1 of the “ notes to consolidated financial statements. ” we believe that the consistent application of these policies enables us to provide users of the financial statements with useful and reliable information about our operating results and financial condition . the consolidated financial statements are prepared in accordance with accounting principles generally accepted in the u.s. , which require us to make estimates and assumptions . the following are accounting policies that we believe are most important to the portrayal of our financial condition and results of operations and may involve a higher degree of judgment and complexity . fair value measurements we record certain financial instruments at fair value on a recurring basis , including cash equivalents , and certain restricted securities . we may make an irrevocable election to measure other financial instruments at fair value on an instrument-by-instrument basis . fair value financial instruments are recorded in accordance with the fair value measurement framework . we also measure certain assets and liabilities at fair value on a non-recurring basis . these non-recurring valuations include evaluating assets such as certain financial assets , long - lived assets , and non-amortizing intangible assets for impairment , allocating value to assets in an acquired asset group and applying accounting for business combinations and the initial recognition of liabilities such as contingent consideration . we use the fair value measurement framework to value these assets and liabilities and report these fair values in the periods in which they are recorded or written down . 42 the fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels . these levels from highest to lowest priority are as follows : level 1 : quoted prices ( unadjusted ) in active markets that are accessible at the measurement date for identical assets or liabilities ; level 2 : quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted in active markets , but corroborated by market data ; and level 3 : unobservable inputs or valuation techniques that are used when little or no market data is available . the determination of fair value and the assessment of a measurement 's placement within the hierarchy requires judgment . level 3 valuations often involve a higher degree of judgment and complexity . level 3 valuations may require the use of various cost , market , or income valuation methodologies applied to our unobservable estimates and assumptions . our assumptions could vary depending on the asset or liability valued and the valuation method used . such assumptions could include : estimates of prices , earnings , costs , actions of market participants , market factors , or the weighting of various valuation methods . we may also engage external advisors to assist in determining fair value , as appropriate . although we believe that the recorded fair value of our financial instruments is appropriate , these fair values may not be indicative of net realizable value or reflective of future fair values . deferred preservation costs deferred preservation costs include costs of cardiac and vascular tissues available for shipment , tissues currently in active processing , and tissues held in quarantine pending release to implantable status . by federal law , human tissues can not be bought or sold ; therefore , the tissues we preserve are not held as inventory . the costs we incur to procure and process cardiac and vascular tissues are instead accumulated and deferred . deferred preservation costs are stated at the lower of cost or market value on a first - in , first - out basis and are deferred until revenue is recognized . upon shipment of tissue to an implanting facility , revenue is recognized , and the related deferred preservation costs are expensed as cost of preservation services . cost of preservation services also includes , as applicable , lower of cost or market write-downs and impairments for tissues not deemed to be recoverable , and includes , as incurred , idle facility expense , excessive spoilage , extra freight , and re-handling costs . the calculation of deferred preservation costs involves judgment and complexity and uses the same principles as inventory costing . donated human tissue is procured from deceased human donors by organ and tissue procurement organizations ( “ opos ” ) and tissue banks that consign the tissue to us for processing , preservation , and distribution . deferred preservation costs consist primarily of the procurement fees charged by the opos and tissue banks , direct labor and materials ( including salary and fringe benefits , laboratory supplies and expenses , and freight - in charges ) , and indirect costs ( including allocations of costs from support departments and facility allocations ) . fixed production overhead costs are allocated based on actual tissue processing levels , to the extent that they are within the range of the facility 's normal capacity . story_separator_special_tag these costs are then allocated among the tissues processed during the period based on cost drivers , such as the number of donors or number of tissues processed . we apply a yield estimate to all tissues in process and in quarantine to estimate the portion of tissues that will ultimately become implantable . we estimate quarantine and in process yields based on our experience and reevaluate these estimates periodically . actual yields could differ significantly from our estimates , which could result in a change in tissues available for shipment and could increase or decrease the balance of deferred preservation costs . these changes could result in additional cost of preservation services expense or could increase per tissue preservation costs , which would impact gross margins on tissue preservation services in future periods . we regularly evaluate our deferred preservation costs to determine if the costs are appropriately recorded at the lower of cost or market value . we also evaluate our deferred preservation costs for costs not deemed to be recoverable , including tissues not expected to ship prior to the expiration date of their packaging . lower of cost or market value write-downs are recorded if the tissue processing costs incurred exceed the estimated market value of the tissue services , based on recent average service fees at the time of the evaluation . impairment write-downs are recorded based on the book value of tissues deemed to be impaired . actual results may differ from these estimates . write-downs of deferred preservation costs are expensed as cost of preservation services , and these write-downs are permanent impairments that create a new cost basis , which can not be restored to its previous levels if our estimates change . we recorded write-downs to our deferred preservation costs totaling $ 1.7 million , $ 787,000 , and $ 437,000 for the years ended december 31 , 2020 , 2019 , and 2018 , respectively , due primarily to tissues not expected to ship prior to the expiration 43 date of the packaging . in addition , write-offs during the year ended december 31 , 2020 included $ 826,000 of non-conforming tissues resulting from the contaminated saline solution . see “ results of operations , ” for further discussion of contaminated saline solution . deferred income taxes deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax return purposes . we assess the recoverability of our deferred tax assets and provide a valuation allowance against our deferred tax assets when , as a result of this analysis , we believe it is more likely than not that some portion or all of our deferred tax assets will not be realized . assessing the recoverability of deferred tax assets involves judgment and complexity , including the consideration of prudent and feasible tax planning . estimates and judgments used in the determination of the need for a valuation allowance and in calculating the amount of a needed valuation allowance include , but are not limited to , the following : the ability to carry back deferred tax attributes to a prior tax year ; timing of the anticipated reversal of book/tax temporary differences ; projected future operating results ; anticipated future state tax apportionment ; timing and amounts of anticipated future taxable income ; evaluation of statutory limits regarding usage of certain tax assets ; and evaluation of the statutory periods over which certain tax assets can be utilized . significant changes in the factors above , or other factors , could affect our ability to use our deferred tax assets . such changes could have a material , adverse impact on our profitability , financial position , and cash flows . we will continue to assess the recoverability of our deferred tax assets , as necessary , when we experience changes that could materially affect our prior determination of the recoverability of our deferred tax assets . we believe that the realizability of our acquired net operating loss carryforwards will be limited in future periods due to a change in control of our former subsidiaries hemosphere , inc. ( “ hemosphere ” ) and cardiogenesis corporation ( “ cardiogenesis ” ) , as mandated by section 382 of the internal revenue code of 1986 , as amended . we believe that our acquisitions of these companies each constituted a change in control as defined in section 382 and that , prior to our acquisition , hemosphere had experienced other equity ownership changes that should be considered such a change in control . the deferred tax assets recorded on our consolidated balance sheets exclude amounts that we expect will not be realizable due to changes in control . a portion of the acquired net operating loss carryforwards is related to state income taxes , for which we believe it is more likely than not , that some will not be realized . therefore , we recorded a valuation allowance against these state net operating loss carryforwards . in addition , during the year , the realizability of a portion of our net operating loss carryforwards and other deferred tax assets was limited . we recorded a valuation allowance against these deferred tax assets . valuation of acquired assets or businesses as part of our corporate strategy , we are seeking to identify and capitalize upon acquisition opportunities of complementary product lines and companies . we evaluate and account for acquired patents , licenses , distribution rights , and other tangible or intangible assets as the purchase of an asset or asset group , or as a business combination , as appropriate . the determination of whether the purchase of a group of assets should be accounted for as an asset group or as a business combination requires judgment based on the weight of available evidence .
| products revenues from products increased 1 % for the three months ended december 31 , 2020 , as compared to the three months ended december 31 , 2019. revenues from products decreased 9 % for the twelve months ended december 31 , 2020 , as compared to the twelve months ended december 31 , 2019. the increase in revenues for the three months ended december 31 , 2020 was primarily due to increases in aortic stents and stent grafts , on-x and photofix product revenues , partially offset by decreases in revenues from cardiogenesis cardiac laser therapy , bioglue and perclot products . the decrease for the twelve months ended december 31 , 2020 was due to decreases in revenues from all products except for photofix . a detailed discussion of the changes in product revenues for bioglue , aortic stents and stent grafts , on-x , photofix , perclot , and cardiogenesis cardiac laser therapy is presented below . sales of certain products through our direct sales force and distributors across europe and various other countries are denominated in a variety of currencies including euros , british pounds , polish zlotys , swiss francs , brazilian reals , and canadian dollars , with a concentration denominated in euros . each currency is subject to exchange rate fluctuations . for the three and twelve months ended december 31 , 2020 as compared to the three and twelve months ended december 31 , 2019 , the u.s. dollar weakened in comparison to major currencies , resulting in revenue increases when these foreign currency denominated transactions were translated into u.s. dollars . future changes in these exchange rates could have a material , 46 adverse effect on our revenues denominated in these currencies . additionally , our sales to many distributors around the world are denominated in u.s. dollars , and although these sales are not directly impacted by currency exchange rates , we believe that some of our distributors may delay or reduce purchases of products in u.s. dollars depending on the relative price of these goods in their local currencies . bioglue the bioglue product line is used as an adjunct to standard methods of achieving
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we have over a 25-year track record in china , and our sales in asia have grown more than 14 % on a compound annual growth basis in local currencies since 1999. we have broadened our product offering to the asian markets and benefit as multinational customers shift production to china . india has also been a source of emerging market sales growth in past years due to increased life science research activities . overall , market conditions in emerging markets were mixed during 2015 and below our long-term expectations . we experienced a 2 % decrease in emerging market local currency sales during 2015 versus the prior year , due to unfavorable market conditions in china , russia , and brazil . chinese market conditions for our industrial products were particularly weak in 2015 related to overcapacity in certain end-user segments and a reduction of credit availability for many local chinese customers . we also experienced significant sales declines in russia and brazil due to reduced market demand . during 2015 , china , russia , and brazil represented 18 % of our global sales to external customers and experienced a decline in sales of 11 % in local currencies , while sales in our other emerging markets increased 10 % in local currencies . emerging market sales can be expected to be volatile , and the timing of a market stabilization or recovery in china , russia , and brazil remains uncertain . within china , we are redeploying resources and sales and marketing efforts to the faster-growing segments of pharma , food safety , and environment . we believe the long-term growth of these segments will be favorably impacted by the chinese government 's emphasis on science , high-value industries , and product quality . we expect our 30 laboratory , process analytics , and product inspection businesses will particularly benefit from these segments . extending our technology lead . we continue to focus on product innovation . in the last three years , we spent approximately 5 % of net sales on research and development . we seek to drive shorter product life cycles , as well as improve our product offerings and their capabilities with additional integrated technologies and software . in addition , we aim to create value for our customers by having an intimate knowledge of their processes via our significant installed product base . maintaining cost leadership . we continue to strive to improve our margins by optimizing our cost structure . for example , we have focused on reallocating resources and better aligning our cost structure to support our investments in market penetration initiatives , higher growth areas , and opportunities for margin improvement . we have also initiated various restructuring programs over the past few years in response to changing market conditions . as previously mentioned , shifting production to china has also been an important component of our cost savings initiatives . we have also implemented global procurement and supply chain management programs over the last several years aimed at lowering supply costs . our cost leadership initiatives are also focused on continuously improving our invested capital efficiency , such as reducing our working capital levels and ensuring appropriate returns on our expenditures . pursuing strategic acquisitions . we seek to pursue acquisitions that may leverage our global sales and service network , respected brand , extensive distribution channels , and technological leadership . we have identified life sciences , product inspection , and process analytics as three key areas for acquisitions . we also continue to pursue “ bolt-on ” acquisitions . for example , during the third quarter of 2015 , we acquired a real-time water purity technology in the united states that has been integrated into our process analytics product offering . results of operations — consolidated net sales net sales were $ 2,395.4 million for the year ended december 31 , 2015 , compared to $ 2,486.0 million in 2014 , and $ 2,379.0 million in 2013 . this represents a decrease of 4 % in 2015 and an increase of 4 % in 2014 in u.s. dollars and an increase of 3 % and 5 % in local currencies , respectively . in 2015 , our net sales by geographic destination increased in u.s. dollars 6 % in the americas , decreased 12 % in europe , and decreased 5 % in asia/rest of world . in local currencies , our net sales by geographic destination increased in 2015 by 8 % in the americas and 2 % in europe , and was flat in asia/rest of world . net sales were impacted by significant sales declines in china , russia , and brazil . a discussion of sales by operating segment is included below . as described in note 17 to our audited consolidated financial statements , our net sales comprise product sales of precision instruments and related services . service revenues are primarily derived from repair and other services , including regulatory compliance qualification , calibration , certification , preventative maintenance , and spare parts . net sales of products decreased 3 % in u.s. dollars and increased 3 % in local currencies during 2015 and increased 4 % in both u.s. dollars and local currencies in 2014 . service revenue ( including spare parts ) decreased 5 % in u.s. dollars and increased 4 % in local currencies in 2015 , and increased 7 % in u.s. dollars and 8 % in local currencies in 2014 . net sales of our laboratory-related products , which represented approximately 48 % of our total net sales in 2015 , decreased 1 % in u.s. dollars and increased 7 % in local currencies during 2015 . the local currency increase in net sales of our laboratory-related products during 2015 was driven by strong volume 31 and favorable price realization in most product categories , including particularly strong growth in automated chemistry and pipettes . these results were offset in part by significant sales volume declines in brazil and russia . story_separator_special_tag net sales of our industrial-related products , which represented approximately 43 % of our total net sales in 2015 , decreased 7 % in u.s. dollars and were flat in local currencies during 2015 . local currency net sales included significant sales volume declines of industrial-related products in china , russia , and brazil , offset by strong growth in the united states primarily due to increased volume and favorable price realization across most product categories . net sales of our food retailing products , which represented approximately 9 % of our total net sales in 2015 , decreased 5 % in u.s. dollars and increased 2 % in local currencies during 2015 . the increase in net sales in local currencies of our food retailing products during 2015 was driven by strong project activity in the americas offset in part by reduced net sales in europe . gross profit gross profit as a percentage of net sales was 56.4 % for 2015 , compared to 54.7 % for 2014 and 53.9 % for 2013 . gross profit as a percentage of net sales for products was 60.1 % for 2015 , compared to 58.1 % for 2014 and 57.3 % for 2013 . gross profit as a percentage of net sales for services ( including spare parts ) was 43.6 % for 2015 , compared to 42.8 % for 2014 , and 41.7 % for 2013 . the increase in gross profit as a percentage of net sales for 2015 includes the benefit of hedging gains and currency translation , favorable price realization , reduced material costs , and improved labor efficiency , offset in part by investments in our field service organization . research and development and selling , general , and administrative expenses research and development expenses as a percentage of net sales were 5.0 % for both 2015 and 2014 and 4.9 % for 2013 . research and development expenses in u.s. dollars decreased 3 % in 2015 and increased 6 % in 2014 , and in local currencies increased 2 % in 2015 and increased 5 % in 2014 , relating to the timing of research and development project activity . selling , general , and administrative expenses as a percentage of net sales were 29.3 % for both 2015 and 2014 , compared to 29.1 % for 2013 . selling , general , and administrative expenses decreased 4 % in 2015 in u.s. dollars and increased 3 % in local currencies and increased 5 % in both u.s. dollars and local currencies in 2014 . the increase during 2015 includes additional investments in our field sales organization and higher employee benefit costs , offset in part by lower cash incentive expense and benefits from our cost savings programs . amortization expense amortization expense was $ 31.0 million in 2015 , compared to $ 29.2 million and $ 24.5 million in 2014 and 2013 , respectively . the increase in amortization expense is primarily related to our investments in information technology , including the company 's blue ocean program . restructuring charges during the past few years , we initiated additional cost reduction measures in response to global economic conditions . for the year ended december 31 , 2015 , we have incurred $ 11.1 million of restructuring expenses which primarily comprise employee-related costs . see note 14 to our audited consolidated financial statements for a summary of restructuring activity during 2015 . 32 other charges ( income ) , net other charges ( income ) , net consisted of net income of $ 0.9 million in 2015 , compared to net charges of $ 2.2 million and $ 3.1 million in 2014 and 2013 , respectively . other charges ( income ) , net consists primarily of ( gains ) losses from foreign currency transactions and hedging activity , interest income , and other items . interest expense and taxes interest expense was $ 27.5 million for 2015 , compared to $ 24.5 million for 2014 and $ 22.7 million for 2013 . our annual effective tax rate was 24 % for 2015 , 2014 , and 2013 . our consolidated income tax rate is lower than the u.s. statutory rate primarily because of benefits from lower-taxed non-u.s. operations . the most significant of these lower-taxed operations are in switzerland and china . results of operations — by operating segment the following is a discussion of the financial results of our operating segments . we currently have five reportable segments : u.s. operations , swiss operations , western european operations , chinese operations , and other . a more detailed description of these segments is outlined in note 17 to our audited consolidated financial statements . u.s. operations ( amounts in thousands ) replace_table_token_4_th the increase in total net sales and net sales to external customers in 2015 reflects strong growth in most product categories . segment profit increased $ 24.3 million in our u.s. operations segment during 2015 , compared to a decrease of $ 3.3 million during 2014 . the increase in segment profit during 2015 is primarily related to increased sales and benefits from our margin expansion initiatives and cost savings programs , offset in part by increased sales and service investments . swiss operations ( amounts in thousands ) replace_table_token_5_th ( 1 ) represents u.s. dollar growth for net sales and segment profit . total net sales in u.s. dollars decreased 2 % in 2015 and increased 6 % in 2014 , and in local currencies increased 3 % in 2015 and 4 % in 2014 . net sales to external customers in u.s. dollars decreased 3 % in 2015 and increased 5 % in 2014 , and in local currencies increased 1 % in 2015 and increased 3 % in 2014 . the increase in local currency net sales to external customers during 2015 includes 33 growth in our laboratory-related products , offset in part by volume declines in industrial-related products related to soft market conditions .
| we also conduct business in many geographies throughout the world , including asia pacific , the united kingdom , eastern europe , latin america , and canada . fluctuations in these currency exchange rates against the u.s. dollar can also affect our operating results . the most significant of these currency exposures is the chinese renminbi . the impact on our earnings before tax of the chinese renminbi weakening 1 % against the u.s. dollar is a reduction of approximately $ 0.3 million to $ 0.5 million annually . 39 in 2015 the u.s. dollar strengthened against most of the major currencies throughout the world . the strength of the u.s. dollar may have a significant negative impact on the company 's financial performance in the future . in addition to the effects of exchange rate movements on operating profits , our debt levels can fluctuate due to changes in exchange rates , particularly between the u.s. dollar , the swiss franc , and the euro . based on our outstanding debt at december 31 , 2015 , we estimate that a 10 % weakening of the u.s. dollar against the currencies in which our debt is denominated would result in an increase of approximately $ 19.2 million in the reported u.s. dollar value of our debt . taxes we are subject to taxation in many jurisdictions throughout the world . our effective tax rate and tax liability will be affected by a number of factors , such as the amount of taxable income in particular jurisdictions , the tax rates in such jurisdictions , tax treaties between jurisdictions , the extent to which we transfer funds between jurisdictions , earnings repatriations between jurisdictions , and changes in law . generally , the tax liability for each taxpayer within the group is determined either ( i ) on a non-consolidated/non-combined basis or ( ii ) on a consolidated/combined basis only with other eligible entities subject to tax in the same jurisdiction , in
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the results of operations of qelp have been reflected in the accompanying consolidated statement of operations for the period from july 2 , 2015 to december 31 , 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 2015 compared to 2014 revenues replace_table_token_10_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 contracts of $ 67.3 million and new contract 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 contracts of $ 26.6 million and new contract 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 . 26 we plan to add 1,600 seats on a gross basis in the first quarter of 2016 , with total gross seats of 5,700 planned for the full year . however , we plan to rationalize 1,600 seats in 2016 , with 500 expected in the first quarter of 2016. total seat count on a net basis for the full year is expected to increase by 4,100 seats in 2016 versus 2015. direct salaries and related costs replace_table_token_11_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_12_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 % . the increase of $ 5.1 million in other general and administrative expenses , which includes corporate and other costs , was primarily attributable to higher compensation costs of $ 4.3 million , higher consulting costs of $ 1.2 million , higher software maintenance costs of $ 1.0 million , higher travel costs of $ 0.7 million and higher merger and integration costs of $ 0.5 million , partially offset by lower charitable contributions costs of $ 1.4 million and lower other costs of $ 1.2 million . 27 depreciation , amortization and net ( gain ) loss on disposal of property and equipment replace_table_token_13_th the decrease in depreciation was primarily due to certain fully depreciated net fixed assets . the decrease in amortization was primarily due to certain fully amortized intangible assets . the net ( gain ) on disposal of property and equipment in 2014 primarily related to the sale of land , a building and fixed assets located in bismarck , north dakota . see note 12 , property and equipment , of the notes to consolidated financial statements for further information . story_separator_special_tag other income ( expense ) replace_table_token_14_th the decrease in interest income reflects lower average interest rates on invested balances of interest-bearing investments in cash and cash equivalents in 2015 compared to 2014. the increase in interest ( expense ) was primarily due to interest accretion on the contingent consideration related to the july 2015 qelp acquisition . the ( loss ) on liquidation of foreign subsidiaries in 2015 was due to the substantial liquidation of operations in a foreign entity . 28 income taxes replace_table_token_15_th the decrease in the effective tax rate in 2015 compared to 2014 is primarily due to the recognition of a $ 2.2 million previously unrecognized tax benefit 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 . this decrease was partially offset by a $ 3.0 million increase in tax provision due to a $ 12.6 million income increase in a high tax rate jurisdiction . the change in the effective tax rate was also affected by several other factors , including fluctuations in earnings among the various jurisdictions in which we operate , none of which are individually material . 2014 compared to 2013 revenues replace_table_token_16_th consolidated revenues increased $ 64.1 million , or 5.1 % , in 2014 from 2013. the increase in americas ' revenues was primarily due to higher volumes from existing contracts of $ 89.9 million and new contract sales of $ 4.3 million , partially offset by end-of-life client programs of $ 50.4 million and the negative foreign currency impact of $ 23.8 million . revenues from our offshore operations represented 38.9 % of americas ' revenues , compared to 39.5 % in 2013. the increase in emea 's revenues was primarily due to higher volumes from existing contracts of $ 49.6 million and new contract sales of $ 2.2 million , partially offset by end-of-life client programs of $ 4.6 million and the negative foreign currency impact of $ 3.1 million . direct salaries and related costs replace_table_token_17_th the increase of $ 36.8 million in direct salaries and related costs included a positive foreign currency impact of $ 23.1 million in the americas and a positive foreign currency impact of $ 2.1 million in emea . the decrease in americas ' direct salaries and related costs , as a percentage of revenues , was primarily attributable to lower auto tow claim costs of 0.3 % , lower compensation costs of 0.2 % and lower other costs of 0.1 % . the decrease in emea 's direct salaries and related costs , as a percentage of revenues , was primarily attributable to lower compensation costs of 1.6 % driven by the increase in new client program ramp up costs in the prior period in the communications vertical as well as new client program growth within the technology vertical , and lower billable supply costs of 0.2 % , partially offset by higher communications costs of 0.3 % , higher fulfillment materials costs of 0.3 % and higher other costs of 0.1 % . 29 general and administrative replace_table_token_18_th the increase of $ 0.6 million in general and administrative expenses included a positive foreign currency impact of $ 5.5 million in the americas and a positive foreign currency impact of $ 0.4 million in emea . the decrease in americas ' general and administrative expenses , as a percentage of revenues , was primarily attributable to lower facility-related costs of 0.6 % , lower merger and integration costs of 0.1 % and lower other costs of 0.3 % . the decrease in emea 's general and administrative expenses , as a percentage of revenues , was primarily attributable to lower facility-related costs of 0.9 % , lower compensation costs of 0.5 % , lower travel costs of 0.3 % , lower communications costs of 0.2 % and lower other costs of 0.2 % . the increase of $ 3.7 million in other general and administrative expenses , which includes corporate and other costs , was primarily attributable to higher compensation costs of $ 1.9 million , higher charitable contributions of $ 1.4 million , higher legal and professional fees of $ 0.7 million , higher consulting costs of $ 0.5 million , higher facility-related costs of $ 0.2 million and higher insurance costs of $ 0.2 million , partially offset by lower merger and integration costs of $ 0.6 million , lower software maintenance costs of $ 0.4 million and lower other costs of $ 0.2 million . depreciation , amortization and net ( gain ) loss on disposal of property replace_table_token_19_th the increase in depreciation was primarily due to net fixed asset additions . the decrease in amortization was primarily due to certain fully amortized intangible assets . 30 the net ( gain ) on disposal of property and equipment in 2014 primarily related to the sale of land , a building and fixed assets located in bismarck , north dakota . see note 12 , property and equipment , of the notes to consolidated financial statements for further information . other income ( expense ) replace_table_token_20_th the increase in interest income was primarily due to an increase in the amount of average invested funds in 2014 compared to 2013. the decrease in interest ( expense ) was primarily due to a decrease in the amount of average outstanding borrowings in 2014 compared to 2013. income taxes replace_table_token_21_th the decrease in the effective income tax rate in 2014 compared to 2013 is primarily due to a $ 23.0 million increase in income in a high tax rate jurisdiction which increased the tax provision by $ 6.3 million . this increase was partially offset by a decrease of $ 2.3 million in foreign withholding taxes recognized in 2014. the remaining change is due to several factors , including fluctuations in earnings among the various other jurisdictions in which we operate , none of which are individually material .
| 32 business outlook for the three months ended march 31 , 2016 , we anticipate the following financial results : revenues in the range of $ 318.0 million to $ 323.0 million ; effective tax rate of approximately 33 % ; fully diluted share count of approximately 42.1 million ; diluted earnings per share in the range of $ 0.30 to $ 0.33 ; and capital expenditures in the range of $ 15.0 million to $ 20.0 million for the twelve months ended december 31 , 2016 , we anticipate the following financial results : revenues in the range of $ 1,336.0 million to $ 1,354.0 million ; effective tax rate of approximately 31 % ; fully diluted share count of approximately 42.4 million ; diluted earnings per share in the range of $ 1.49 to $ 1.59 ; and capital expenditures in the range of $ 60.0 million to $ 70.0 million we continue to monitor the recent macro-economic volatility and assess its impact on consumer sentiment , final demand and client forecasts . client forecasts , on balance , thus far indicate acceleration in demand in 2016 compared to 2015. at a broad level , this increased demand is being driven by a shift to outsourcing and share gains from competition , coupled with lower program completions . more specifically , it is manifesting mostly within existing clients and programs across the financial services , communications , technology and healthcare verticals . to service this demand , we anticipate adding seat capacity in 2016 , roughly two-thirds of which is expected in the first half of 2016. in accordance with the front-end loaded capacity additions , the company expects program ramp costs to disproportionately impact operating margins in the first half of 2016. the business outlook also reflects the impact of foreign exchange volatility , which is expected to negatively impact revenues by approximately $ 30 million for the full-year of 2016 versus 2015. diluted earnings per share for 2016 reflect a materially higher effective tax rate relative to 2015 partly due to discrete adjustments , which lowered the effective tax rate in 2015. in addition , the higher effective tax rate in 2016 also reflects a shift in the mix of pre-tax income to higher tax rate jurisdictions .
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2017 follow-on offering and holdings unit exchanges on february 28 , 2017 , apam completed an offering of 5,626,517 shares of class a common stock and utilized all of the proceeds to purchase an aggregate of 5,626,517 common units from certain limited partners of holdings . in connection with the offering , apam received 5,626,517 gp units of holdings . during the year ended december 31 , 2017 , certain limited partners of holdings exchanged 1,472,197 common units ( along with a corresponding number of shares of class b or class c common stock of apam ) for 1,472,197 shares of class a common stock . in connection with the exchanges , apam received 1,472,197 gp units of holdings . apam 's equity ownership interest in holdings increased from 57 % at december 31 , 2016 to 67 % at december 31 , 2017 , as a result of these transactions and other equity transactions during the period . tax impact of ipo reorganization in connection with the ipo , apam entered into two tax receivable agreements ( “ tras ” ) . the first tra generally provides for the payment by apam to a private equity fund ( the “ pre-h & f corp merger shareholder ” ) of 85 % of the applicable cash savings , if any , of u.s. federal , state and local income taxes that apam actually realizes ( or is deemed to realize in certain circumstances ) as a result of ( i ) the tax attributes of the preferred units apam acquired in the merger of a wholly-owned subsidiary of the pre-h & f corp merger shareholder into apam in march 2013 , ( ii ) net operating losses available as a result of the merger and ( iii ) tax benefits related to imputed interest . the second tra generally provides for the payment by apam to current or former limited partners of holdings of 85 % of the applicable cash savings , if any , of u.s. federal , state and local income taxes that apam actually realizes ( or is deemed to realize in certain circumstances ) as a result of ( i ) certain tax attributes of their partnership units sold to us or exchanged ( for shares of class a common stock , convertible preferred stock or other consideration ) and that are created as a result of such sales or exchanges and payments under the tras and ( ii ) tax benefits related to imputed interest . under both agreements , apam generally will retain the benefit of the remaining 15 % of the applicable tax savings . tax cuts and jobs act as a result of the tax cuts and jobs act , deferred tax assets were re-measured in the december quarter of 2017 to reflect the reduced u.s. federal corporate tax rate . the lower tax rate reduced deferred tax assets by $ 352 million with a corresponding increase to the provision for income taxes . the reduction in deferred tax assets reduced the amounts payable under the tax receivable agreements by $ 290 million . the net impact of tax reform in the december quarter of 2017 was a $ 62 million reduction in net income . 38 the change in the company 's deferred tax assets related to the tax rate change and the other tax benefits described above and the change in corresponding amounts payable under the tras for the year ended december 31 , 2017 is summarized as follows : replace_table_token_15_th financial overview economic environment global equity and debt market conditions can materially affect our financial performance . during the year ended december 31 , 2017 , market appreciation increased our assets under management by 24.8 % . the following table presents the total returns of relevant market indices : replace_table_token_16_th key performance indicators when we review our business and financial performance we consider , among other things , the following : for the years ended december 31 , 2017 2016 2015 ( dollars in millions ) assets under management at period end $ 115,494 $ 96,845 $ 99,848 average assets under management ( 1 ) $ 108,754 $ 96,281 $ 106,484 net client cash flows $ ( 5,408 ) $ ( 4,824 ) $ ( 5,848 ) total revenues $ 796 $ 721 $ 806 weighted average fee ( 2 ) 73.1 bps 74.8 bps 75.6 bps operating margin 36.0 % 32.5 % 35.1 % adjusted operating margin ( 3 ) 37.6 % 36.4 % 40.3 % ( 1 ) we compute average assets under management by averaging day-end assets under management for the applicable period . ( 2 ) we compute our weighted average fee by dividing annualized investment management fees by average assets under management for the applicable period . ( 3 ) adjusted measures are non-gaap measures and are explained and reconciled to the comparable gaap measures in “ -supplemental non-gaap financial information ” below . 39 the period-over-period changes in these metrics are discussed below . the decrease in the weighted average fee rate is primarily a result of the shift in the mix of our assets under management between our investment strategies and vehicles , primarily the increase in the proportion of total assets managed in separate accounts . management fees and assets under management within our consolidated investment products are excluded from the weighted average fee calculations and from total revenues , since any such revenues are eliminated upon consolidation . assets under management within our privately offered strategies are included in the reported firm-wide , separate account , and institutional assets under management figures reported below . assets under management and investment performance changes to our operating results from one period to another are primarily caused by changes in the amount of our assets under management . changes in the relative composition of our assets under management among our investment strategies and vehicles and the effective fee rates on our products also impact our operating results . story_separator_special_tag the amount and composition of our assets under management are , and will continue to be , influenced by a variety of factors including , among others : investment performance , including fluctuations in both the financial markets and foreign currency exchange rates and the quality of our investment decisions ; flows of client assets into and out of our various strategies and investment vehicles ; our decision to close strategies or limit the growth of assets in a strategy or a vehicle when we believe it is in the best interest of our clients ; as well as our decision to re-open strategies , in part or entirely ; our ability to attract and retain qualified investment , management , and marketing and client service professionals ; industry trends towards products or strategies that we do not offer ; competitive conditions in the investment management and broader financial services sectors ; and investor sentiment and confidence . the table below sets forth changes in our total assets under management : for the years ended december 31 , 2017 2016 2015 ( in millions ) beginning assets under management $ 96,845 $ 99,848 $ 107,915 gross client cash inflows 16,380 18,489 18,577 gross client cash outflows ( 21,788 ) ( 23,313 ) ( 24,425 ) net client cash flows ( 5,408 ) ( 4,824 ) ( 5,848 ) market appreciation ( depreciation ) ( 1 ) 24,057 1,821 ( 2,219 ) ending assets under management $ 115,494 $ 96,845 $ 99,848 average assets under management $ 108,754 $ 96,281 $ 106,484 ( 1 ) includes the impact of translating the value of assets under management denominated in non-usd currencies into us dollars . the impact was immaterial for the periods presented . net client cash flows for the years ended december 31 , 2017 , 2016 and 2015 included net outflows of approximately $ 510 million , $ 294 million , and $ 616 million , respectively , from artisan funds annual income and capital gains distributions , net of reinvestments . across the firm , we experienced total net outflows of $ 5.4 billion during the year ended december 31 , 2017 . our non-u.s. growth , mid-cap growth , and mid-cap value strategies experienced net outflows of $ 3.4 billion , $ 2.9 billion , and $ 1.0 billion , respectively . we expect these strategies will continue to experience net outflows . during the year ended december 31 , 2017 , our global opportunities , developing world , and high income strategies experienced net inflows of $ 1.4 billion , $ 0.8 billion , and $ 0.5 billion , respectively . we expect all three strategies to continue to experience net inflows . we monitor the availability of attractive investment opportunities relative to the amount of assets we manage in each of our investment strategies . when appropriate , we will close a strategy to new investors or otherwise take action to slow or restrict its growth , even though our aggregate assets under management may be negatively impacted in the short term . we may also re-open a strategy , widely or selectively , to fill available capacity or manage the diversification of our client base in that strategy . we believe that management of our investment capacity protects our ability to manage assets successfully , which protects the interests of our clients and , in the long term , protects our ability to retain client assets and maintain our profit margins . 40 as of the date of this filing , our non-u.s. growth , non-u.s. small-cap growth , non-u.s. value , u.s. mid-cap growth and u.s. small-cap growth strategies are closed to most new investors and client relationships . our global value and global opportunities strategies are open across pooled vehicles , but closed to most new separate account clients . we may selectively accept additional separate account clients in those strategies , but we are managing asset flows into those strategies with a bias towards assets from pooled vehicles . when we close or otherwise restrict the growth of a strategy , we typically continue to allow additional investments in the strategy by existing clients and certain related entities . we may also permit new investments by other eligible investors at our discretion . as a result , during a given period we may have net client cash inflows in a closed strategy . however , when a strategy is closed or its growth is restricted we expect there to be periods of net client cash outflows . the table below sets forth the total assets under management for our investment teams and strategies as of december 31 , 2017 , the inception date for each investment composite , and the average annual total returns for each composite ( gross of fees ) and its respective broad-based benchmark ( and style benchmark , if applicable ) over a multi-horizon time period as of december 31 , 2017 . returns for periods less than one year are not annualized . performance information for artisan sponsored privately offered strategies has been intentionally omitted . we measure investment performance based upon the results of our “ composites ” , which represent the aggregate performance of all discretionary client accounts , including mutual funds , invested in the same strategy except those accounts with respect to which we believe client-imposed investment restrictions may have a material impact on portfolio construction and those accounts managed in a currency other than u.s. dollars . the results of these excluded accounts , which represented approximately 12 % of our assets under management at december 31 , 2017 , are maintained in separate composites the results of which are not included below . 41 inception strategy aum average annual total returns ( gross ) average annual value-added ( 1 ) since inception ( bps ) investment team and strategy date ( in $ mm ) 1 yr 3 yr 5 yr 10 yr inception growth team global opportunities strategy 2/1/2007 $ 15,469 32.73 % 15.18 % 14.87 % 10.46 % 11.00 % 579 msci all country world index 23.97 % 9.29
| restricted share-based award compensation expense increased $ 5.9 million primarily as a result of our january 2017 grant of 1,267,250 restricted stock awards and 1,250 restricted stock units of class a common stock to certain of our employees . pre-offering related compensation expense , which consists of the amortization expense on pre-offering class b awards , decreased $ 15.4 million , as the remaining awards became fully vested during 2017. as of july 1 , 2017 , all class b awards were fully vested . total salaries , incentive compensation and benefits was 49 % of our revenues for the years ended december 31 , 2017 and 2016 . other operating expenses other operating expenses increased $ 3.5 million for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , primarily due to a $ 3.1 million increase in general and administrative expenses , and a $ 1.9 million increase in communication and technology expense as a result of increased information subscriptions and market data costs . the increases were partially offset by a $ 2.9 million decrease in distribution , servicing and marketing expenses as a result of a decrease in third-party intermediary expenses due to lower assets under management sourced through third-party intermediaries ( across all channels ) that charge a fee for administrative and distribution services , a portion of which is borne by artisan . non-operating income ( loss ) non-operating income ( loss ) for the year ended december 31 , 2017 includes $ 290.9 million of income relating to changes in the estimate of the payment obligation under the tax receivable agreements , including changes relating to tax reform , compared to $ 0.7 million of income for year ended december 31 , 2016 . the effect of changes in that estimate after the date of an exchange or sale is included in net income . non-operating income ( loss ) for the year ended december 31 , 2017 also
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our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under the risk factors , cautionary notice regarding forward-looking statements and business sections in this report . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . our future operating results , however , are impossible to predict and no guaranty or warranty is to be inferred from those forward-looking statements . overview cbdmd was originally founded in 2015 as an innovative branding and marketing company with a focus on lifestyle-based brands . in december 2018 we acquired cure based development following the passage of the farm bill which contained a permanent declassification of cannabidiol ( cbd ) as a controlled substance under federal law . as a result of that transaction , we own and operate the nationally recognized cbd brand cbdmd which now represents our focus and substantially all of our revenues . fiscal 2019 was a transformative year for our company . following the closing of the mergers in december 2018 , we began a concerted effort to build our brand recognition , expand the cbd product line , expand our sales channels , and invest in human and technology infrastructure to support our current operations and expected growth . these efforts included : ● implementation of a full marketing strategy focused on three key points : o long term brand building – through partnerships and athletes/influencers ; o short term conversion/sales – utilizing social media , affiliates , email marketing , and an integrated website tied to the marketing strategy ; and o increased brand visibility – through digital content/ads , podcasts/radio ; ● we expanded our product offerings and introduced cbdmd pm and a full line of pet products branded under paw cbd with over 40 sku 's ; ● we have built upon cure based development 's early online sales channels to expand our online sales through development of our marketing strategy and have established a growing wholesale and retail distribution network of over 4,000 locations through our internal sales team and tradeshow participation ; ● to support our growing operations , in fiscal 2019 , we relocated our corporate headquarters to a 50,000 square foot facility which allowed us to concentrate our senior management , sales , marketing and brand development , finance , technology and administrative personnel in one location . we also expanded our manufacturing and warehouse facilities and capability to support production and delivery needs as part of our growth ; and ● increased our employee count by 117 primarily in our sales , marketing ( social media , digital and content ) , technology , laboratory and warehouse areas . our revenue guidance for fiscal 2019 was $ 24 million to $ 26 million . while our net sales were $ 23.7 million , we attribute the difference to our decision to discontinue the operations of our legacy divisions effective september 30 , 2019 and focus all of our time , attention and resources on our cbd business . as disclosed in our consolidated financial statements appearing later in this report , revenues from these discontinued businesses were approximately $ 888,000 which , if added to our net sales for fiscal 2019 , would have put us within our expected net sales range for fiscal 2019 . 25 discontinued operations effective september 30 , 2019 , we discontinued operations of four business subsidiaries : ee1 , im1 , bpu and level h & w . these subsidiaries accounted for our licensing , entertainment , and products segments prior to fiscal 2019. therefore , the results of operations related to these subsidiaries for the company are reported as discontinued operations . continuing operations discussed below refer to the company 's cbd business unless otherwise indicated , and prior periods in such discussion have been restated to reflect results excluding ee1 , im1 , bpu and level h & w . see note 15 , “ discontinued operations ” , of the notes to consolidated financial statements elsewhere in this report for additional information . as a result , the discussion below is of the company 's continuing operations , which is comprised of the cbd business and the company 's corporate office . story_separator_special_tag # 000000 '' > we had cash and cash equivalents on hand of $ 4,689,966 and working capital of $ 12,033,157 at september 30 , 2019 as compared to cash on hand of $ 4,282,553 and working capital of $ 10,820,192 at september 30 , 2018. our current assets increased approximately 33.5 % at september 30 , 2019 from september 30 , 2018 , and is primarily attributable to an increase of cash , accounts receivable , deposits , merchant reserve , inventory , and prepaid expenses , offset by a decrease in marketable and other securities and assets from discontinued operations . our current liabilities increased approximately 282.5 % at september 30 , 2019 from september 30 , 2018. this increase is primarily attributable to increases in accounts payable and accrued expenses , offset by decreases in liabilities from discontinued operations . story_separator_special_tag both the changes in our current assets and current liabilities are also reflective of the change in focus to the cbd business during fiscal 2019. during fiscal 2019 we used cash primarily to fund our operations in addition to increases in our accounts receivable . we do not have any commitments for capital expenditures . we have multiple endorsement or sponsorship agreements for varying time periods up through december 2022 and provide for financial commitments from the company based on performance/participation ( see note 13 commitments and contingencies ) . we have sufficient working capital to fund our operations . our goal from a liquidity perspective is to use operating cash flows to fund day to day operations and we have not met this goal as cash flow from operations has been a net use of $ 15,377,467 and $ 5,573,094 for fiscal 2019 and fiscal 2018 , respectively . on november 16 , 2017 we closed an ipo and raised net proceeds of $ 10,932,535. on october 2 , 2018 we closed a follow-on firm underwritten public offering of shares of our common stock resulting in total net proceeds to us of $ 6,356,998. on may 15 , 2019 we closed a follow-on firm underwritten public offering of shares of our common stock resulting in total net proceeds to us of $ 12,650,600. on october 16 , 2019 we closed a follow-on firm underwritten public offering of shares of our series a convertible preferred stock resulting in total net proceeds to us of $ 4,525,100. we are using the net proceeds from the offerings for brand development and expansion , advertising , marketing , and general working capital . 29 related parties as described in note 9 notes to our consolidated financial statements appearing elsewhere in this report , we have engaged in a number of related party transactions . we have reported transactions with related parties within the consolidated financial statements as well as within the notes to the consolidated financial statements . these transactions also are reported as sales with related parties ( see note 9 related party transactions in the consolidated financial statements for more information ) . critical accounting policies the preparation of financial statements and related disclosures in conformity with u.s. generally accepted accounting principles ( “ us gaap ” ) and our discussion and analysis of our financial condition and operating results require our management to make judgments , assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes . note 1 , “ organization and summary of significant accounting policies , ” of the notes to our consolidated financial statements appearing elsewhere in this report describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . actual results may differ from these estimates , and such differences may be material . we believe that the following critical accounting policies involve the more significant judgments and estimates used in the preparation of our consolidated financial statements and are the most critical to aid you in fully understanding and evaluating our reported financial results . management considers these policies critical because they are both important to the portrayal of our financial condition and operating results , and they require management to make judgments and estimates about inherently uncertain matters . inventory inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis . the cost of inventory includes product cost , freight-in , and production fill and labor ( portions of which we outsource to third party manufacturers ) . write-offs of potentially slow moving or damaged inventory are recorded based on management 's analysis of inventory levels , forecasted future sales volume and pricing and through specific identification of obsolete or damaged products . we assess inventory quarterly for slow moving products and potential impairments and at a minimum perform a physical inventory count annually near fiscal year end . marketable securities marketable securities that are equity securities are carried at fair value on the consolidated balance sheets with changes in fair value recorded as an unrealized gain or ( loss ) in the statements of operations in the period of the change . upon the disposition of a marketable security , the company records a realized gain or ( loss ) on the company 's consolidated statements of operations . on october 1 , 2018 , as a result of the adoption of asu 2016-01 – financial instruments , the company reclassified $ 2,512,539 of net unrealized losses on marketable securities , that were formerly classified as available-for-sale securities before the adoption of the new standard , from accumulated other comprehensive loss to accumulated deficit . investment other securities for equity investments where the company neither controls nor has significant influence over the investee and which are non-marketable , which is without a readily determinable fair value , the company may elect to estimate its fair value at cost less impairment plus or minus changes resulting from observable price changes . recent accounting pronouncements please see note 1– organization and summary of significant accounting policies appearing in the notes to our consolidated financial statements included in this report for information on accounting pronouncements . 30 off balance sheet arrangements we have multiple leases for office , warehouse and lab facilities with varying termination dates up through december 2027. these leases provide for standard annual increases and are described further in note 17 – leases . in addition , we have multiple endorsement or sponsorship agreements for varying time periods up through december 2022 and provide for financial commitments from the company based on performance/participation ( see note 13 commitments and
| the following table provides information on the cost of sales to our net sales for fiscal 2019 and 2018 : replace_table_token_5_th operating expenses our principal operating expenses include staff related expense , advertising ( which includes expenses related to industry distribution and trade shows ) , sponsorships , affiliate commissions , merchant fees , travel , rent , professional service fees , and business insurance expense . our operating expenses on a consolidated basis increased 1,262 % in fiscal 2019 from fiscal 2018 and is directly related to the mergers and the significant ramp up of that business . the following table provides information on our approximate operating expenses for fiscal 2019 and fiscal 2018 : replace_table_token_6_th 27 the increase in staff related expense is a direct result of the build out of the cbdi team . the increase in professional outside services is related to the use of outside agencies and firms to support the growth while we built our infrastructure . the increase in advertising/marketing , sponsorships , affiliate commissions , and travel are a result of execution on the business strategy and building of the cbd brand while increasing market share . the increase in merchant fees is a direct result of increased business through our e-commerce site . for the year ended september 30 , 2019 , the company also had an impairment of $ 436,578 on intangible assets that no longer have a useful life or value for the business based on the current business focus . corporate overhead included in our consolidated operating expenses are expenses associated with our corporate overhead which are not allocated to the operating business unit , including ( i ) staff related expenses ; ( ii ) accounting and legal expenses ; ( iii ) professional outside services ; ( iv ) travel and entertainment expenses ; ( v ) rent ; ( vi ) business insurance ; and ( vii ) non-cash stock compensation expense . the following table provides information on our approximate corporate overhead for fiscal 2019 and 2018 : replace_table_token_7_th the overall increase in corporate operating expenses is related to the maturation of the entire organization
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as part of industry-wide efforts to develop solutions to the pandemic , the company acquired oncoimmune , a company developing a therapeutic candidate for the treatment of patients hospitalized with covid-19 ; and themis bioscience gmbh ( themis ) , a company focused on vaccines and immune-modulation therapies for infectious diseases , including a covid-19 vaccine candidate . additionally , merck entered into 48 table of content s strategic collaborations with ridgeback biotherapeutics lp ( ridgeback bio ) to develop an orally available antiviral candidate in clinical development for the treatment of patients with covid-19 ; and with the international aids vaccine initiative , inc. ( iavi ) to develop an investigational vaccine against sars-cov-2 being studied for the prevention of covid-19 . in january 2021 , the company announced it was discontinuing development of the covid-19 vaccine candidates ( see note 3 to the consolidated financial statements ) . during 2020 , the company received numerous regulatory approvals within oncology . keytruda received approval in the united states as monotherapy in the therapeutic areas of cutaneous squamous cell carcinoma ( cscc ) , metastatic microsatellite instability-high ( msi-h ) or mismatch repair deficient ( dmmr ) colorectal cancer , non-muscle invasive bladder cancer ( nmibc ) and tumor mutational burden-high ( tmb-h ) solid tumors , as well as in combination with chemotherapy for the treatment of triple-negative breast cancer ( tnbc ) . merck also received approval in the united states for an every six weeks ( q6w ) dosing regimen across all adult indications . additionally , keytruda received approval in china for the treatment of certain patients with head and neck squamous cell carcinoma ( hnscc ) and in both china and japan for the treatment of certain patients with esophageal squamous cell carcinoma ( escc ) . lynparza , which is being developed in collaboration with astrazeneca plc ( astrazeneca ) , received approval in the united states : in combination with bevacizumab as a first-line maintenance treatment of certain adult patients with advanced epithelial ovarian , fallopian tube or primary peritoneal cancer who are in complete or partial response to first-line platinum-based chemotherapy ; and for the treatment of certain adult patients with metastatic castration-resistant prostate cancer ( mcrpc ) following progression on prior treatment . additionally , lynparza was approved in the european union ( eu ) : as monotherapy for the treatment of adult patients with mcrpc and brca 1/2 mutations who have progressed following a prior therapy ; and for the maintenance treatment of certain adult patients with metastatic adenocarcinoma of the pancreas . lynparza was also approved in japan for the treatment of three types of advanced cancer : ovarian , prostate and pancreatic cancer . lenvima , which is being developed in collaboration with eisai co. , ltd. ( eisai ) , received approval in china as monotherapy for the treatment of differentiated thyroid cancer . also in 2020 , gardasil 9 was approved for use in women and girls in japan where it is marketed as silgard 9. additionally , in 2020 , the u.s. food and drug and administration ( fda ) granted accelerated approval for an expanded indication for gardasil 9 for the prevention of oropharyngeal and other head and neck cancers caused by certain hpv types . in january 2021 , the company received fda approval for verquvo ( vericiguat ) , to reduce the risk of cardiovascular death and heart failure hospitalization following a hospitalization for heart failure or need for outpatient intravenous diuretics in adults . verquvo is being jointly developed with bayer ag ( bayer ) . in addition to the recent regulatory approvals discussed above , the company advanced its late-stage pipeline with several regulatory submissions . keytruda is under review in united states and or internationally for the treatment of certain patients with tnbc , classical hodgkin lymphoma ( chl ) , colorectal cancer , cscc , esophageal and gastric cancer . lenvima is under review in japan as monotherapy for the treatment of thymic cancer . v114 , an investigational 15-valent pneumococcal conjugate vaccine , is under priority review by the fda for the prevention of invasive pneumococcal disease in adults 18 years of age and older . the european medicines agency ( ema ) is also reviewing an application for licensure of v114 in adults . the company is involved in litigation challenging the validity of several pfizer inc. patents that relate to pneumococcal vaccine technology in the united states and several foreign jurisdictions . the company 's phase 3 oncology programs include keytruda in the therapeutic areas of biliary tract , cervical , cutaneous squamous cell , endometrial , gastric , hepatocellular , mesothelioma , ovarian , prostate and small-cell lung cancers ; lynparza as monotherapy for colorectal cancer and in combination with keytruda for non-small-cell lung and small-cell lung cancers ; and lenvima in combination with keytruda for bladder , endometrial , gastric , head and neck , melanoma and non-small-cell lung cancers . also within oncology , mk-6482 , belzutifan , an investigational hypoxia-inducible factor-2 alpha ( hif-2α ) inhibitor being evaluated for the treatment of patients with von hippel-lindau disease-associated renal cell carcinoma ( rcc ) , received breakthrough therapy designation from the fda . additionally , the company has candidates in phase 3 clinical development in several other therapeutic areas , including mk-7264 , gefapixant , a selective , non-narcotic , orally-administered , investigational p2x3-receptor antagonist being developed for the treatment of refractory , chronic cough ; mk-7110 , an investigational treatment for patients hospitalized with covid-19 ; mk-8591a , islatravir , an investigational nucleoside reverse transcriptase translocation inhibitor ( nrtti ) in combination with doravirine for the treatment of hiv-1 infection ; and v114 , which is being evaluated for the prevention of pneumococcal disease in pediatric patients . 49 table of content s the company is allocating resources to support its commercial opportunities in the near term while making the necessary investments to support long-term growth . story_separator_special_tag research and development expenses in 2020 reflect higher costs related to business development activity , higher clinical development spending and increased investment in discovery research and early drug development . in november 2020 , merck 's board of directors approved an increase to the company 's quarterly dividend , raising it to $ 0.65 per share from $ 0.61 per share on the company 's outstanding common stock . during 2020 , the company returned $ 7.5 billion to shareholders through dividends and share repurchases . management in february 2021 , merck announced that kenneth c. frazier , chairman and chief executive officer , will retire as chief executive officer , effective june 30 , 2021. mr. frazier will continue to serve on merck 's board of directors as executive chairman , for a transition period to be determined by the board . the merck board of directors has unanimously elected robert m. davis , merck 's current executive vice president , global services and chief financial officer , as chief executive officer , as well as a member of the board , effective july 1 , 2021. mr. davis will become president of merck , effective april 1 , 2021 , at which time the company 's operating divisions—human health , animal health , manufacturing , and merck research laboratories ( mrl ) —will begin reporting to mr. davis . covid-19 overall , in response to the covid-19 pandemic , merck remains focused on protecting the safety of its employees , ensuring that its supply of medicines and vaccines reaches its patients , contributing its scientific expertise to the development of antiviral approaches , and supporting health care providers and merck 's communities . although covid-19-related disruptions to patients ' ability to access health care providers negatively affected results in 2020 , merck remains confident in the fundamental underlying demand for its products and its prospects for long-term growth . in 2020 , the estimated negative impact of the covid-19 pandemic to merck 's sales was approximately $ 2.5 billion , largely attributable to the pharmaceutical segment , with approximately $ 50 million attributable to the animal health segment . roughly two-thirds of merck 's pharmaceutical segment revenue is comprised of physician-administered products , which , despite strong underlying demand , have been affected by social distancing measures , fewer well visits and delays in elective surgeries due to the covid-19 pandemic . these impacts , as well as the prioritization of covid-19 patients at health care providers , have resulted in reduced administration of many of the company 's human health products , in particular for its vaccines , including gardasil 9 , as well as for keytruda and implanon/nexplanon . in addition , declines in elective surgeries negatively affected the demand for bridion . however , sales of pneumovax 23 increased due to heightened awareness of pneumococcal vaccination . operating expenses were positively affected in 2020 by approximately $ 600 million primarily due to lower promotional and selling costs , as well as lower research and development expenses , net of investments in covid-19-related antiviral and vaccine research programs . merck believes that global health systems and patients have largely adapted to the impacts of covid-19 , but the company 's assumption is that ongoing residual negative impacts will persist , particularly during the first half of 2021 and most notably with respect to vaccine sales , with the impact expected to be more acute in the united states . for the full year of 2021 , merck assumes an unfavorable impact to revenue of approximately 2 % due to the covid-19 pandemic , all of which relates to pharmaceutical segment sales . in addition , for the full year of 2021 , with respect to the covid-19 pandemic , merck expects a net negative impact to operating expenses , as spending on the development of its covid-19 antiviral programs is expected to exceed the favorable impact of lower spending in other areas due to the covid-19 pandemic . pricing global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide . changes to the u.s. health care system as part of health care reform , as well as increased purchasing power of entities that negotiate on behalf of medicare , medicaid , and private sector beneficiaries , have contributed to pricing pressure . in several international markets , government-mandated pricing actions have reduced prices of generic and patented drugs . in addition , the company 's revenue performance in 2020 was negatively 50 table of content s affected by other cost-reduction measures taken by governments and other third-parties to lower health care costs . the company anticipates all of these actions and additional actions in the future will continue to negatively affect revenue performance . story_separator_special_tag new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % ; text-decoration : underline '' > table of content s tumors express pd-l1 ( cps ≥10 ) . this indication was granted based on the keynote-181 trial , including data from an extension of the global study in chinese patients . in december 2020 , china 's nmpa approved keytruda as monotherapy for the first-line treatment of patients with metastatic or with unresectable , recurrent hnscc whose tumors express pd-l1 ( cps ≥20 ) as determined by a fully validated test . in august 2020 , keytruda was approved by japan 's pharmaceuticals and medical devices agency ( pmda ) as monotherapy for the treatment of patients whose tumors are pd-l1-positive , and have radically unresectable , advanced or recurrent escc who have progressed after chemotherapy . the approval was based on results from the keynote-181 trial . additionally , keytruda was approved by japan 's pmda for use at an additional recommended dosage of 400 mg q6w , including monotherapy and combination therapy . this new dosage option is available in addition to the current dose of 200 mg q3w .
| international sales grew 2 % in 2020. the increase in international sales primarily reflects growth in keytruda , gardasil/gardasil 9 , increased alliance revenue from lynparza , as well as higher sales of pneumovax 23 , prevymis , januvia and animal health products . sales growth was partially offset by lower sales of zepatier , vytorin , noxafil , zetia , remicade , emend/emend for injection and products within the diversified brands franchise , particularly singulair and nasonex . international sales represented 56 % of total sales in both 2020 and 2019. see note 18 to the consolidated financial statements for details on sales of the company 's products . a discussion of performance for select products in the franchises follows . pharmaceutical segment oncology replace_table_token_11_th ( 1 ) alliance revenue represents merck 's share of profits , which are product sales net of cost of sales and commercialization costs ( see note 4 to the consolidated financial statements ) . 51 table of content s keytruda is an anti-pd-1 ( programmed death receptor-1 ) therapy that has been approved as monotherapy for the treatment of certain patients with cervical cancer , chl , cscc , escc , gastric or gastroesophageal junction adenocarcinoma , hnscc , hepatocellular carcinoma ( hcc ) , non-small-cell lung cancer ( nsclc ) , small-cell lung cancer ( sclc ) , melanoma , merkel cell carcinoma , msi-h or dmmr cancer including msi-h/dmmr colorectal cancer , primary mediastinal large b-cell lymphoma ( pmbcl ) , tmb-h cancer , and urothelial carcinoma including nmibc . keytruda is also approved for the treatment of certain patients : in combination with chemotherapy for metastatic squamous and nonsquamous nsclc , in combination with chemotherapy for hnscc , in combination with chemotherapy for tnbc , in combination with axitinib for rcc , and in combination with lenvima for endometrial carcinoma . the keytruda clinical development program includes studies across a broad range of cancer types . global sales of keytruda grew 30 % in 2020 driven by higher demand as the company continues to launch keytruda with multiple new indications globally , although the covid-19 pandemic had a dampening effect on growing demand . sales in the united states continue to build across the multiple approved indications , in
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on february 26 , 2015 , we successfully completed our tender offer to acquire shares of common stock , par value $ 0.01 per share , of gfi for $ 6.10 per share in cash and accepted for purchase 54.3 million shares tendered to us pursuant to the offer . the tendered 73 shares , together with the 17.1 million shares already owned by us , represented approximately 56 % of the then-outstanding shares of gfi . we issued payment for the tendered shares on march 4 , 2015 in the aggregate amount of $ 331.1 million . on april 28 , 2015 , we purchased from gfi approximately 43.0 million new shares at that date 's closing price of $ 5.81 per share , for an aggregate purchase price of $ 250 million . the purchase price was paid to gfi in the form of a note due on june 19 , 2018 that bore an interest rate of libor plus 200 basis points . the new shares and the note eliminate in consolidation . following the issuance of the new shares , we owned approximately 67 % of gfi 's outstanding common stock , which gave us control over the timing and process for the completion of a back-end merger ( the back-end mergers ) pursuant to the tender offer agreement . on january 12 , 2016 , we completed our acquisition ( the jpi merger ) of jersey partners , inc. ( jpi ) . the jpi merger occurred pursuant to a merger agreement ( the merger agreement ) , dated as of december 22 , 2015. shortly following the completion of the jpi merger , a subsidiary of bgc merged with and into gfi pursuant to a short-form merger under delaware law , with gfi continuing as the surviving entity ( the gfi merger ) . the back-end mergers allowed bgc to acquire the remaining approximately 33 percent of the outstanding shares of gfi common stock that bgc did not already own . following the closing of the back-end mergers , bgc and its affiliates now own 100 percent of the outstanding shares of gfi 's common stock . see note 4acquisitions to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for further information about the gfi transaction . in total , approximately 23.5 million shares of bgc class a common stock and $ 111.3 million in cash were issued or paid with respect to the closing of the back-end mergers , inclusive of adjustments . the total purchase consideration for all shares of gfi purchased by bgc was approximately $ 750 million , net of the $ 250.0 million note previously issued to gfi by bgc , which is eliminated in consolidation . this figure excludes the $ 29.0 million gain recorded in the first quarter of 2015 with respect to the appreciation of the 17.1 million shares of gfi held by bgc prior to the successful completion of the tender offer . the excess of total consideration over the fair value of the total net assets acquired , of approximately $ 453.8 million , has been recorded to goodwill and was allocated to our financial services . we believe the combination of bgc and gfi creates a strong and diversified financial services business , well positioned to capture future growth opportunities . through this combination , we expect to deliver substantial benefits to customers of the combined company , and we expect to become the largest and most profitable wholesale brokerage company . we also believe this is a highly complementary combination , which will result in meaningful economies of scale . while the front office operations will remain separately branded divisions , the back office , technology , and infrastructure of these two companies are integrating in a smart and deliberate way . in the fourth quarter of 2015 , we met our target of reducing financial services annualized expenses by at least $ 50 million by the first quarter of 2016. we had previously expected a minimum of $ 40 million in further annualized cost savings by the first quarter of 2017 , for a total of at least $ 90 million in annual savings . we now anticipate achieving a minimum of $ 100 million in annual savings by the end of 2016. the improvement to our pre-tax profitability we expect to achieve with the $ 100 million in annualized cost savings will be at least 25 percent higher than the full year revenues of trayport , which we have sold to ice for $ 650 million on december 11 , 2015. on july 10 , 2015 , the company guaranteed the obligations of gfi under the 8.375 % senior notes ; as a consequence of guaranteeing gfi 's debt , we have substantially improved the credit rating of gfi 's bonds and lowered future interest payments . we have also been able to free up capital set aside for regulatory and clearing purposes , allowing us to use our balance sheet more efficiently . as the integration of bgc and gfi continues , we expect to generate increased productivity per broker and to continue converting voice and hybrid broking to more profitable fully electronic trading , all of which should lead to increased revenues , profitability and cash flows . in addition , we expect our results to further improve as we invest the net proceeds from the $ 650 million trayport sale . trayport transaction on december 11 , 2015 , we completed the sale ( the trayport transaction ) of all of the equity interests in the entities that make up the trayport business ( the trayport business ) to intercontinental stock exchange , inc. ( ice ) . the trayport business was gfi 's electronic european energy software business . story_separator_special_tag the trayport transaction occurred pursuant to a stock purchase agreement , dated as of november 15 , 2015. at the closing , we received 2,527,658 shares of ice common stock issued with respect to the $ 650 million purchase price , which was adjusted at closing . trayport , prior to its sale , had generated revenues of approximately $ 80 million over the twelve months ended september 30 , 2015. bgc expects to pay effective cash taxes of no more than $ 64 million related to the trayport purchase price , or an expected rate of less than 10 percent . nasdaq transaction on june 28 , 2013 , we completed the sale ( the nasdaq transaction ) of certain assets to nasdaq , which purchased certain assets and assumed certain liabilities from us and our affiliates , including the espeed brand name and various assets comprising the fully electronic portion of our benchmark on-the-run u.s. treasury brokerage , market data and co-location service businesses ( the purchased assets or espeed ) , for cash consideration of $ 750 million paid at closing , plus an earn-out of up to 14,883,705 shares of nasdaq common stock to be paid ratably in each of the fifteen years following the closing in which the consolidated gross revenue of nasdaq is equal to or greater than $ 25 million . through december 31 , 2015 , we have received 2,976,741 shares of nasdaq common stock in accordance with the agreement . the contingent future issuances of nasdaq common stock are also subject to acceleration upon the occurrence of certain events , including the acquisition by any person of 50 % or more of nasdaq 's stock ( including by merger ) , nasdaq ceasing to hold purchased assets representing 50 % or more of the aggregate revenue attributable to the purchased assets as of the closing , and the sale of all or substantially all of nasdaq 's assets , as well as to certain anti-dilution provisions . 74 as a result of the sale of espeed , we only sold our on-the-run benchmark 2- , 3- , 5- , 7- , 10- , and 30-year fully electronic trading platform for u.s. treasury notes and bonds . we continue to offer voice brokerage for on-the-run u.s. treasuries , as well as across various other products in rates , credit , fx , market data and software solutions . as we continue to focus our efforts on converting voice and hybrid desks to electronic execution , our e-businesses , excluding trayport and including revenues from intra-company technology services , continued to grow their revenues and generated $ 224.3 million and $ 99.0 million in revenues during the year ended december 31 , 2015 , and 2014 respectively . our annualized fully electronic revenues are more than double those of espeed , which generated $ 48.6 million in revenues for the six months ended june 30 , 2013 and was sold in the second quarter of 2013 for $ 1.2 billion . for the purposes of this document and subsequent sec filings , all of our fully electronic businesses are referred to as fenics. these offerings include financial services segment fully electronic brokerage products , as well as offerings in market data and software solutions across both bgc and gfi . fenics results do not include the results of trayport , either before or after the completed sale to ice . going forward we expect these businesses to become an even more valuable part of bgc as they continue to grow faster than , and be substantially larger than espeed ever was for us . financial services : the financial intermediary sector has been a competitive area that grew over the first half of the past decade due to several factors . one factor was the increasing use of derivatives to manage risk or to take advantage of the anticipated direction of a market by allowing users to protect gains and or guard against losses in the price of underlying assets without having to buy or sell the underlying assets . derivatives are often used to mitigate the risks associated with interest rates , equity ownership , changes in the value of foreign currency , credit defaults by corporate and sovereign debtors and changes in the prices of commodity products . for the period from 1998 through 2007 , demand from financial institutions , financial services intermediaries and large corporations has increased volumes in the wholesale derivatives market , thereby increasing the business opportunity for financial intermediaries . another key factor in the growth of the financial intermediary sector during the same timeframe was the increase in the number of new financial products . as market participants and their customers strive to mitigate risk , new types of equity and fixed income securities , futures , options and other financial instruments have been developed . most of these new securities and derivatives are not immediately ready for more liquid and standardized electronic markets , and generally increase the need for trading and require broker-assisted execution . in recent years , our financial services businesses have faced more challenging market conditions . while our foreign exchange ( fx ) , energy and commodities , and equities and other businesses operated in a generally improved macro environment in recent periods , our credit and rates businesses have continued to face a challenging macro environment that has been part of a greater industry trend which has been attributed to a number of cyclical factors , including accommodative monetary policies by several major central banks including the federal reserve , bank of england , bank of japan and the european central bank . these accommodative monetary policies have resulted in historically low levels of volatility and interest rates across most financial markets . the global credit markets have also faced structural issues such as increased bank capital requirements under basel iii . consequently , these factors have contributed to lower trading volumes in our rates and credit asset classes across most geographies in which we operate .
| our brokerage revenues from energy and commodities increased $ 142.5 million , or 255.4 % , to $ 198.3 million for the year ended december 31 , 2015. this increase was primarily driven by our acquisition of gfi and organic growth . our brokerage revenues from equities and other asset classes increased $ 67.2 million , or 55.7 % , to $ 187.7 million for the year ended december 31 , 2015. this increase was primarily driven by our acquisition of gfi . total real estate brokerage revenues increased by $ 265.0 million for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. this increase was primarily driven by the additions of cornish & carey , ara , and excess space . in addition , our real estate services business generated strong double-digit organic growth . leasing and other services revenues increased by $ 121.0 million , or 28.9 % , to $ 539.7 million for the year ended december 31 , 2015 as compared to the prior year period . this increase was primarily driven by strong commercial real estate market fundamentals . real estate capital markets revenues increased by $ 144.0 million , or 115.0 % , to $ 269.2 million for the year ended december 31 , 2015 as compared to the prior year period . this increase was primarily driven by the acquisition of ara . real estate management services real estate management services revenue increased $ 23.9 million for the year ended december 31 , 2015. this increase was primarily driven by our acquisition of cfi . fees from related parties fees from related parties decreased by $ 3.0 million , or 10.7 % , for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. market data and software solutions market data and software solutions revenues increased by $ 85.6 million , or 903.5 % , for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. the increase was primarily driven by our acquisition of gfi . interest income interest income increased by
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the decrease was primarily the result of the recognition of deferred revenue at fair value upon emergence from bankruptcy , which resulted in lower revenue in subsequent periods ; the sale of the networking business in july 2017 ; and lower demand for the company 's unified communications products and maintenance services mainly due to extended procurement cycles resulting from the bankruptcy filing . the lower demand for our products in prior periods also contributed , in part , to lower maintenance services revenue for fiscal 2018 . the decrease was partially offset by higher contact center professional services sales ; the favorable impact of foreign currency exchange rates ; and incremental revenue from the spoken acquisition . the following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated : percentage of total revenue successor predecessor non-gaap combined predecessor non-gaap combined predecessor yr. to yr. percentage change , net of foreign currency impact ( in millions ) period from december 16 , 2017 through september 30 , 2018 period from october 1 , 2017 through december 15 , 2017 fiscal year ended september 30 , 2018 fiscal year ended september 30 , 2017 fiscal year ended september 30 , 2018 fiscal year ended september 30 , 2017 yr. to yr. percentage change products & solutions $ 1,052 $ 253 $ 1,305 $ 1,297 46 % 40 % 1 % 0 % networking — — — 140 0 % 4 % ( 100 ) % ( 100 ) % services 1,401 351 1,752 1,835 61 % 56 % ( 5 ) % ( 5 ) % unallocated amounts ( 206 ) — ( 206 ) — ( 7 ) % 0 % ( 1 ) ( 1 ) total revenue $ 2,247 $ 604 $ 2,851 $ 3,272 100 % 100 % ( 13 ) % ( 14 ) % ( 1 ) not meaningful products & solutions revenue for fiscal 2018 was $ 1,305 million compared to $ 1,297 million for fiscal 2017 . the increase was primarily attributable to the favorable impact of foreign currency exchange rates and incremental revenue from the spoken acquisition , partially offset by lower unified communications revenue . networking revenue for fiscal 2017 was $ 140 million . the networking business was sold to extreme in july 2017 . 47 services revenue for fiscal 2018 was $ 1,752 million compared to $ 1,835 million for fiscal 2017 . the decrease was primarily due to lower maintenance services revenue and the sale of the networking business , partially offset by the favorable impact of foreign currency exchange rates and higher contact center professional services sales . unallocated amounts for fiscal 2018 represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy and excluded from segment revenue . the following table displays revenue and the percentage of revenue to total sales by location for the periods indicated : percentage of total revenue successor predecessor non-gaap combined predecessor non-gaap combined predecessor yr. to yr. percentage change , net of foreign currency impact ( in millions ) period from december 16 , 2017 through september 30 , 2018 period from october 1 , 2017 through december 15 , 2017 fiscal year ended september 30 , 2018 fiscal year ended september 30 , 2017 fiscal year ended september 30 , 2018 fiscal year ended september 30 , 2017 yr. to yr. percentage change u.s. $ 1,184 $ 331 $ 1,515 $ 1,798 53 % 55 % ( 16 ) % ( 16 ) % international : europe , middle east and africa 603 166 769 834 27 % 26 % ( 8 ) % ( 11 ) % asia pacific 256 57 313 334 11 % 10 % ( 6 ) % ( 7 ) % americas international - canada and latin america 204 50 254 306 9 % 9 % ( 17 ) % ( 16 ) % total international 1,063 273 1,336 1,474 47 % 45 % ( 9 ) % ( 11 ) % total revenue $ 2,247 $ 604 $ 2,851 $ 3,272 100 % 100 % ( 13 ) % ( 14 ) % revenue in the u.s. for fiscal 2018 was $ 1,515 million compared to $ 1,798 million for fiscal 2017 . the decrease in u.s. revenue was primarily attributable to the recognition of deferred revenue at fair value upon emergence from bankruptcy , which results in lower revenue in subsequent periods ; the impact of the sale of the networking business in july 2017 ; a decrease in maintenance services revenue ; and lower sales of unified communications and contact center products , partially offset by incremental revenue from the spoken acquisition . revenue in europe , middle east and africa ( `` emea '' ) for fiscal 2018 was $ 769 million compared to $ 834 million for fiscal 2017 . the decrease in emea revenue was primarily attributable to the impact of the sale of the networking business and the recognition of deferred revenue at fair value upon emergence from bankruptcy , partially offset by an increase in demand for our unified communications products and the favorable impact of foreign currency exchange rates . revenue in asia pacific ( `` apac '' ) for fiscal 2018 was $ 313 million compared to $ 334 million for fiscal 2017 . the decrease in apac revenue was primarily attributable to the impact of the sale of the networking business and the recognition of deferred revenue at fair value upon emergence from bankruptcy , partially offset by higher sales of unified communications products and the favorable impact of foreign currency exchange rates . revenue in americas international for fiscal 2018 was $ 254 million compared to $ 306 million for fiscal 2017 . the decrease in americas international revenue was primarily attributable to the sale of the networking business ; the recognition of deferred revenue at fair value upon emergence story_separator_special_tag the decrease was primarily the result of the recognition of deferred revenue at fair value upon emergence from bankruptcy , which resulted in lower revenue in subsequent periods ; the sale of the networking business in july 2017 ; and lower demand for the company 's unified communications products and maintenance services mainly due to extended procurement cycles resulting from the bankruptcy filing . the lower demand for our products in prior periods also contributed , in part , to lower maintenance services revenue for fiscal 2018 . the decrease was partially offset by higher contact center professional services sales ; the favorable impact of foreign currency exchange rates ; and incremental revenue from the spoken acquisition . the following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated : percentage of total revenue successor predecessor non-gaap combined predecessor non-gaap combined predecessor yr. to yr. percentage change , net of foreign currency impact ( in millions ) period from december 16 , 2017 through september 30 , 2018 period from october 1 , 2017 through december 15 , 2017 fiscal year ended september 30 , 2018 fiscal year ended september 30 , 2017 fiscal year ended september 30 , 2018 fiscal year ended september 30 , 2017 yr. to yr. percentage change products & solutions $ 1,052 $ 253 $ 1,305 $ 1,297 46 % 40 % 1 % 0 % networking — — — 140 0 % 4 % ( 100 ) % ( 100 ) % services 1,401 351 1,752 1,835 61 % 56 % ( 5 ) % ( 5 ) % unallocated amounts ( 206 ) — ( 206 ) — ( 7 ) % 0 % ( 1 ) ( 1 ) total revenue $ 2,247 $ 604 $ 2,851 $ 3,272 100 % 100 % ( 13 ) % ( 14 ) % ( 1 ) not meaningful products & solutions revenue for fiscal 2018 was $ 1,305 million compared to $ 1,297 million for fiscal 2017 . the increase was primarily attributable to the favorable impact of foreign currency exchange rates and incremental revenue from the spoken acquisition , partially offset by lower unified communications revenue . networking revenue for fiscal 2017 was $ 140 million . the networking business was sold to extreme in july 2017 . 47 services revenue for fiscal 2018 was $ 1,752 million compared to $ 1,835 million for fiscal 2017 . the decrease was primarily due to lower maintenance services revenue and the sale of the networking business , partially offset by the favorable impact of foreign currency exchange rates and higher contact center professional services sales . unallocated amounts for fiscal 2018 represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy and excluded from segment revenue . the following table displays revenue and the percentage of revenue to total sales by location for the periods indicated : percentage of total revenue successor predecessor non-gaap combined predecessor non-gaap combined predecessor yr. to yr. percentage change , net of foreign currency impact ( in millions ) period from december 16 , 2017 through september 30 , 2018 period from october 1 , 2017 through december 15 , 2017 fiscal year ended september 30 , 2018 fiscal year ended september 30 , 2017 fiscal year ended september 30 , 2018 fiscal year ended september 30 , 2017 yr. to yr. percentage change u.s. $ 1,184 $ 331 $ 1,515 $ 1,798 53 % 55 % ( 16 ) % ( 16 ) % international : europe , middle east and africa 603 166 769 834 27 % 26 % ( 8 ) % ( 11 ) % asia pacific 256 57 313 334 11 % 10 % ( 6 ) % ( 7 ) % americas international - canada and latin america 204 50 254 306 9 % 9 % ( 17 ) % ( 16 ) % total international 1,063 273 1,336 1,474 47 % 45 % ( 9 ) % ( 11 ) % total revenue $ 2,247 $ 604 $ 2,851 $ 3,272 100 % 100 % ( 13 ) % ( 14 ) % revenue in the u.s. for fiscal 2018 was $ 1,515 million compared to $ 1,798 million for fiscal 2017 . the decrease in u.s. revenue was primarily attributable to the recognition of deferred revenue at fair value upon emergence from bankruptcy , which results in lower revenue in subsequent periods ; the impact of the sale of the networking business in july 2017 ; a decrease in maintenance services revenue ; and lower sales of unified communications and contact center products , partially offset by incremental revenue from the spoken acquisition . revenue in europe , middle east and africa ( `` emea '' ) for fiscal 2018 was $ 769 million compared to $ 834 million for fiscal 2017 . the decrease in emea revenue was primarily attributable to the impact of the sale of the networking business and the recognition of deferred revenue at fair value upon emergence from bankruptcy , partially offset by an increase in demand for our unified communications products and the favorable impact of foreign currency exchange rates . revenue in asia pacific ( `` apac '' ) for fiscal 2018 was $ 313 million compared to $ 334 million for fiscal 2017 . the decrease in apac revenue was primarily attributable to the impact of the sale of the networking business and the recognition of deferred revenue at fair value upon emergence from bankruptcy , partially offset by higher sales of unified communications products and the favorable impact of foreign currency exchange rates . revenue in americas international for fiscal 2018 was $ 254 million compared to $ 306 million for fiscal 2017 . the decrease in americas international revenue was primarily attributable to the sale of the networking business ; the recognition of deferred revenue at fair value upon emergence
| 52 the following table displays revenue and the percentage of revenue to total sales by location : replace_table_token_7_th revenue in the u.s. for fiscal 2017 and 2016 was $ 1,798 million and $ 2,072 million , respectively , a decrease of $ 274 million or 13 % . this decrease was primarily attributable to lower sales of unified communications products , including endpoints , sme telephony , and gateways ; networking products ; and contact center products , in addition to decreased global shared services revenue . revenue in emea for fiscal 2017 and 2016 was $ 834 million and $ 880 million , respectively , a decrease of $ 46 million or 5 % . the decrease in emea revenue was primarily attributable to lower sales of unified communication and networking products , and an unfavorable impact of foreign currency . revenue in apac for fiscal 2017 and 2016 was $ 334 million and $ 416 million , respectively , a decrease of $ 82 million or 20 % . the decrease in apac revenue was primarily attributable to lower sales of unified communications , principally endpoints , gateways , aura cm , video and sme telephony , and contact center products . revenue in americas international for fiscal 2017 and 2016 was $ 306 million and $ 334 million , respectively , a decrease of $ 28 million or 8 % . the decrease in americas international revenue was primarily attributable to lower sales of endpoints and gateways , and contact center and networking products , partially offset by increased demand for apcs and the favorable impact of foreign currency . we sell our products directly to end users and through an indirect sales channel . the following table provides a comparison of each for the periods indicated : replace_table_token_8_th gross profit the following table sets forth gross profit and gross margin by operating segment : replace_table_token_9_th ( 1 ) not meaningful gross profit for fiscal 2017 and 2016 was $ 2,008 million and $ 2,258 million , respectively , a decrease of $ 250 million or 11 % . the decrease was
| 14,831 |
typically , new restaurants open with an initial start-up period of higher than normalized sales volumes ( also referred to in the restaurant industry as the “ honeymoon ” period ) , which decrease to a steady level approximately 18 months after opening . however , operating costs during this initial 18 month period are also higher than normal , resulting in restaurant operating margins that are generally lower during the start-up period of operation and increase to a steady level approximately 18 months after opening . some new restaurants may experience a “ honeymoon ” period either shorter or longer than 18 months . average check . average check is calculated by dividing total restaurant sales by total entrees sold for a given time period . our management team uses this indicator to analyze trends in customers ' preferences , customer expenditures and the overall effectiveness of menu changes and price increases . average comparable unit volume . average comparable unit volume consists of the average sales of our comparable restaurants over a certain period of time . this measure is calculated by dividing total comparable restaurant sales in a given period by the total number of comparable restaurants in that period . this indicator assists management in measuring changes in customer traffic , pricing and our overall brand development . comparable unit sales . we consider a unit to be comparable , whether owned or managed , in the first full quarter following the 18th month of operation to remove the impact of new unit openings in comparing the operations of existing units . changes in comparable unit sales reflect changes in sales for the comparable group of units over a specified period of time . changes in comparable sales reflect changes in customer count trends as well as changes in average check , which reflects both menu mix shifts and menu pricing . our comparable unit base consisted of six units for the years ended december 31 , 2017 and december 31 , 2016 , respectively . key financial terms and metrics we evaluate our business using a variety of key financial measures : segment reporting we operate in three segments : “ owned restaurants ” , “ owned food , beverage and other ” , and “ managed and licensed operations ” . we believe these to be our reportable segments as they do not have similar economic or other characteristics to be aggregated into a single reportable segment . our owned restaurant segment consists of leased restaurant locations and competes in the full-service dining industry . our owned food , beverage and other segment consists of operations that are hybrid in nature , such as where we have a leased restaurant location and also have a food and beverage agreement at the same location , typically a hotel , and our offsite banquet offerings . the primary component of this segment is our operations at the w hotel in beverly hills , california . our managed and licensed operations segment includes all operations for which a management , incentive or license fee is received . management agreements generate management fees on net revenue and incentive fees on operating profit as defined in the applicable management agreement . license agreements generate revenue primarily through royalties earned on net revenue at each location . revenues associated with developmental support for licensed locations are also included within this segment . see note 19 to our consolidated financial statements set forth in item 8 of the annual report on form 10-k for further information on our segment reporting . 21 revenues owned restaurant net revenues . owned restaurant net revenues consists of food and beverage sales by owned restaurants net of any discounts associated with each sale . in 2017 , beverage sales comprised 34 % of food and beverage sales , before giving effect to any discounts , with food sales comprising the remaining 66 % . this indicator assists management in understanding the trends in gross margins of the units . owned food , beverage and other net revenue . owned food , beverage and other net revenues include the sales generated by the owned restaurant at the location and any ancillary f & b hospitality services at the same location . from time-to-time , offsite banquet opportunities arise and are reflected here . management , license and incentive revenue . management , license and incentive revenue includes : ( 1 ) management fees received pursuant to management and license agreements that are calculated based on a fixed percentage of revenues at the managed or licensed location ; ( 2 ) incentive fees based on the operating profitability of a particular venue , as defined in each agreement , ( 3 ) development support fees earned upon the satisfaction of performance criteria which are recognized upon the launch of a new location ; and ( 4 ) recognition of license fee revenues , which are recognized over the term of the license . we evaluate the performance of our managed and licensed properties based on sales growth , a key driver for our management/royalty fees , and on improvements in operating profitability margins , which combined with sales , drives incentive fee growth . our primary restaurant brand is stk and we specifically look at comparable revenues from both owned and managed stks to understand customer count trends and changes in average check as it relates to our primary restaurant brand . cost and expenses owned restaurant cost of sales . owned restaurant cost of sales includes all owned restaurant food and beverage expenditures . we measure cost of goods as a percentage of owned restaurant net revenues . owned restaurant cost of sales are generally influenced by the cost of food and beverage items , menu mix , discounting activity and restaurant level controls . purchases of beef represented approximately 33 % and 30 % of our food and beverage costs during 2017 and 2016 , respectively . see “ item 1a . risk factors — increases in commodity prices would adversely affect our results of operations. story_separator_special_tag ” owned restaurant operating expenses . we measure owned restaurant operating expenses as a percentage of owned restaurant net revenues . owned restaurant operating expenses include the following : payroll and related expenses . payroll and related expenses consists of manager salaries , hourly staff payroll and other payroll-related items , including taxes and fringe benefits . we measure our labor cost efficiency by tracking total labor costs as a percentage of owned restaurant net revenues . occupancy . occupancy comprises all occupancy costs , consisting of both fixed and variable portions of rent , deferred rent expense , which is a non-cash adjustment included in our adjusted ebitda calculation as defined below , common area maintenance charges , real estate property taxes , utilities and other related occupancy costs and is measured by considering both the fixed and variable components of certain occupancy expenses . direct operating expenses . direct operating expenses consists of supplies , such as paper , smallwares , china , silverware and glassware , cleaning supplies and laundry , credit card fees and linen costs . direct operating expenses are typically measured as a variable expense based on owned restaurant net revenues . outside services . outside services includes music and entertainment costs , such as the use of live dj 's , promoter costs , security services , outside cleaning services and commissions paid to event staff for banquet sales . repairs and maintenance . repairs and maintenance consists of general repair work to maintain our facilities , as well as computer maintenance contracts . we expect these costs to increase as the facility gets older . marketing . marketing includes the cost of promoting our brands and , at times , can include the cost of goods used specifically for complimentary purposes . marketing costs will typically be higher during the first 18 months of a unit 's operations . 22 general and administrative . general and administrative expenses are comprised of all corporate overhead expenses , including payroll and related benefits , professional fees , such as legal and accounting fees , insurance and travel expenses . certain centrally managed general and administrative expenses are allocated specifically to units and are reflected in owned restaurant operating expenses and include shared services such as reservations , events and marketing . we expect general and administrative expenses to be leveraged as we grow , become more efficient , and continue to focus on best practices and cost savings measures . depreciation and amortization . depreciation and amortization consists principally of charges related to the depreciation of fixed assets including leasehold improvements , equipment and furniture and fixtures . as we support our growth initiatives with an increasing number of managed and licensed restaurant openings , depreciation and amortization is not expected to increase significantly in the near future . pre-opening expenses . pre-opening expenses consist of costs incurred prior to opening an owned or managed stk unit at either a leased or f & b location . pre-opening expense are comprised principally of manager salaries and relocation costs , employee payroll , training costs for new employees and lease costs incurred prior to opening . we expect these costs to decrease as we focus our growth towards a capital light model . pre-opening expenses have varied from location to location depending on a number of factors , including the proximity of our existing restaurants ; the amount of rent expensed during the construction and in-restaurant training periods ; the size and physical layout of each location ; the number of management and hourly employees required to operate each restaurant ; the relative difficulty of the restaurant staffing process ; the cost of travel and lodging for different metropolitan areas ; the timing of the restaurant opening ; and the extent of unexpected delays , if any , in obtaining necessary licenses and permits to open the restaurant . equity in ( income ) loss of subsidiaries . this represents the income or loss that we record under the equity method of accounting for entities that are not consolidated . included in this amount is our ownership in bagatelle new york for which we have effective ownership of approximately 51 % , consisting of a 5.23 % direct ownership interest by us and a 45.9 % ownership interest through two of our subsidiaries . we also have a 10 % effective ownership in one 29 park , llc ( “ one 29 park ” ) . one 29 park operates a restaurant and manages the rooftop of a hotel located in new york , ny . until the fourth quarter of 2017 , we accounted for our investment in one 29 park under the equity method of accounting based on our assessment that we had significant influence over one 29 park 's operations . in the fourth quarter of 2017 , the majority ownership of one 29 park changed . as a result of this ownership change , we believe that we no longer have significant influence over the operations of one 29 park and now account for our investment in one 29 park under the cost method of accounting . in march 2018 , we entered into an agreement to sell our 10 % interest in one 29 park to the new ownership group for $ 0.6 million . other items ebitda and adjusted ebitda . ebitda and adjusted ebitda are presented in this annual report on form 10-k and are supplemental measures of financial performance that are not required by , or presented in accordance with , gaap . we define ebitda as net income before interest expense , provision for income taxes and depreciation and amortization . we define adjusted ebitda as net income before interest expense , provision for income taxes , depreciation and amortization , non-cash impairment loss , deferred rent , pre-opening expenses , lease termination expenses , non-recurring gains and losses , stock-based compensation and losses from discontinued operations .
| the increase is primarily due to increases in revenue at our two new york city restaurants . owned food , beverage and other revenues . owned food , beverage and other revenues increased $ 0.3 million , or 3.5 % , from $ 9.9 million for the year ended december 31 , 2016 to $ 10.2 million for the year ended december 31 , 2017. this increase was primarily due to an increase in revenue from off-site catering events . management and license fee revenue . management and license fee revenues increased $ 2.3 million , or 27.3 % , from $ 8.5 million for the year ended december 31 , 2016 to $ 10.8 million for the year ended december 31 , 2017. this was the result of an increase in incentive fees generated by our uk operations and new licensing deals . revenue generated from the restaurants and lounges for which we operate under management or license agreements , and from f & b services at hospitality venues impacts the amount of management and incentive fees earned . cost and expenses owned restaurant cost of sales . food and beverage costs for owned restaurants increased $ 1.8 million , or 12.8 % , from $ 13.8 million for the year ended december 31 , 2016 to $ 15.5 million for the year ended december 31 , 2017. this increase was primarily due to a full year of operations at our owned restaurants in orlando and denver . as a percentage of owned restaurant net revenues , cost of sales increased from 25.5 % for the year ended december 31 , 2016 to 26.5 % for the year ended december 31 , 2017. the increase in the percentage of food and beverage costs was driven by higher beef costs . food revenues as a percentage of total food and beverage revenues were approximately 64 % and 61 % for the years ended december 31 , 2017 and 2016 , respectively . food cost as a percentage of food revenues are typically
| 14,832 |
this change in philosophy occurred as many of our competitors implemented significant rate increases in 2011 and 2010. while we implemented a modest rate increase in 2011 , we do not believe we have the headwinds that many of our competitors will face in making pricing decisions in 2012. as a result , we believe the quality of our service and the consistency of our pricing is a winning strategy that will continue to provide opportunities for us to increase tonnage and market share in 2012. the increase in revenue during 2011 , as well as productivity improvements , enabled us to leverage our fixed cost network and generate significant improvement in our operating results . our net income increased in 2011 by $ 63.8 million , or 84.4 % , to $ 139.5 million and our operating ratio decreased by 310 basis points to 87.6 % , which is the best annual operating ratio produced in our company 's history . revenue the 27.1 % increase in revenue during 2011 was the result of increases in both tonnage and revenue per hundredweight . tonnage increased 13.1 % due to a 14.7 % increase in shipments that was partially offset by a 1.4 % decrease in weight per shipment . while a decrease in weight per shipment has historically been an indicator of weakness in the economy , we believe the decrease we experienced in 2011 was due to a decline in the number of heavier non-traditional ltl shipments , such as full-container load and truckload shipments , as a percent of our total shipments . revenue per hundredweight increased 12.5 % to $ 14.72 in 2011. this change reflects a much improved ltl pricing environment that supported our rate increases , as well as an increase in fuel surcharges . our fuel surcharges are designed to offset fluctuations in the cost of petroleum-based products and are one of many components included in the overall price for our services . revenue per hundredweight is a good indicator of pricing trends , but this metric is influenced by many other factors , such as changes in fuel surcharges , weight per shipment , length of haul and mix of freight ; therefore , changes in revenue per hundredweight do not necessarily indicate actual changes in underlying rates . our revenue per hundredweight , excluding fuel surcharges , increased 7.1 % in 2011 but was positively influenced by the decrease in weight per shipment and an increase in length of haul . fuel surcharge revenue increased to 16.4 % of revenue from 12.3 % in 2010 due to the increased price of diesel fuel during 2011. most of our tariffs and contracts provide for a fuel surcharge , which is recorded as additional revenue , as diesel fuel prices increase above stated levels . these levels are 21 generally indexed to the doe 's published fuel prices that reset each week . the fuel surcharge is one of many components included in the overall negotiated price for our transportation services with our customers , although it is generally considered to be a measure of the increase in cost of all petroleum products we use . we regularly monitor the components of our pricing , including base freight rates and fuel surcharges . we also address any individual account profitability issues with our customers as part of our effort to minimize the negative impact on our profitability that would likely result from a rapid and significant change in any of our operating expenses . operating costs and other expenses salaries , wages and benefits increased $ 147.3 million or 18.2 % in 2011 , which compares favorably with our revenue growth of 27.1 % . as a result , our salaries , wages and benefits improved to 50.8 % of revenue from 54.6 % in 2010. salaries and wages , excluding benefits , increased $ 109.9 million due to a 7.6 % increase in the total number of full-time employees and the impact from salary and wage increases provided to our employees in september 2011 and 2010. in addition , there was an increase in performance-based compensation due to the improvement in our financial and operational results . these increases were partially offset by the improved productivity of our linehaul , p & d and platform operations that resulted from increased density and a continued focus on efficiency . our linehaul laden load average , p & d shipments per hour and platform pounds handled per hour improved 0.3 % , 1.1 % and 0.1 % , respectively . employee benefit costs increased $ 37.3 million primarily due to an increase in the number of full-time employees , increased costs related to our group health plan and higher payroll-related taxes . as a percentage of salaries and wages , employee benefit costs increased slightly to 31.9 % in 2011 from 31.5 % in 2010. our group health plan requires a 90-day waiting period before newly hired employees are eligible to enroll . a significant number of employees were hired in the second half 2010 , and as a result , our group health costs increased as these new employees began to enroll in our plan in 2011. in addition , our group health costs increased due to changes required by the 2010 patient protection and affordable care act , which required us to provide dependant coverage until the age of 26. operating supplies and expenses increased to 18.9 % of revenue in 2011 from 16.5 % in 2010. this increase is primarily due to the increase in diesel fuel costs , excluding fuel taxes , which is the largest component of operating supplies and expenses . these costs increased 52.8 % during the year as a result of the combined effect of a 29.7 % increase in our average price per gallon and a 12.7 % increase in gallons consumed . the increase in fuel consumption is primarily due to a 14.7 % year-over-year increase in overall miles driven that was partially offset by an improvement in our average miles per gallon . story_separator_special_tag our increased fuel consumption also resulted in an increase in our fuel tax expenses and was the principal driver of the $ 7.9 million increase in operating taxes and licenses. we do not use diesel fuel hedging instruments and are therefore subject to market price fluctuations . depreciation and amortization expense decreased to 4.8 % of revenue in 2011 as compared to 5.4 % in 2010. although our capital expenditure requirements increased in 2011 , we were able to offset the cost of these additions by utilizing the available capacity of our fleet and service center network to create operating leverage on the 13.1 % increase in tonnage . our capital expenditure plan for 2012 is projected to be higher than 2011 and , as a result , our depreciation costs will likely increase in future periods . we purchase linehaul transportation and p & d services from other motor carriers and railroads . we also utilize independent contractors for our container operations . we utilize these services when it is economically beneficial or when there are imbalances of freight flow within our service center network . purchased transportation expense remained consistent at 3.4 % of revenue in 2011 and 2010. as it is typically more efficient and profitable for us to utilize our own personnel and equipment , we expect to continue to focus on balancing our internal resources with freight demand in an effort to reduce our use of purchased transportation in future periods . our effective tax rate for 2011 was 36.6 % as compared to 39.2 % in 2010. our effective tax rates in 2011 and 2010 were favorably impacted by alternative fuel tax credits for the use of propane in our operations . these fuel tax credits were originally scheduled to expire on december 31 , 2009 ; however , they were extended to december 31 , 2011 with the passage of the tax relief , unemployment insurance reauthorization , and job creation act of 2010. our 2011 rate also includes the favorable impact of tax credits related to our investment in alternative energy-producing assets . 22 2010 compared to 2009 key financial and operating metrics for 2010 and 2009 are presented below : replace_table_token_12_th during 2010 we achieved significant increases in our shipments and tonnage , which accelerated during the second half of the year . we believe these increases were the result of our ability to gain market share during the year as well as general growth in u.s. industrial production and manufacturing . as industry capacity tightened in 2010 , many of our competitors implemented significant rate increases . this reversed an industry trend of several years in which many of our competitors had discounted prices . while we implemented a modest general rate increase in november 2010 , our pricing philosophy remained consistent with our strategy throughout the recession , which was to provide best-in-class on-time and claims-free service at a fair and equitable price . the significant growth in our tonnage resulted in increased density in our network that generally resulted in increased efficiency and productivity . the overall improvement in our pricing during 2010 , combined with the increased density , resulted in improvements in our operating results . net income increased in 2010 by $ 40.8 million , or 116.9 % , to $ 75.7 million and our operating ratio decreased by 360 basis points to 90.7 % . our 2010 results also reflect reductions in our depreciation and amortization expenses of approximately $ 12.7 million , due to changes in the estimated useful lives and salvage values of certain equipment , which are described further under critical accounting policies below . revenue the 19.0 % increase in revenue during 2010 was the result of increases in tonnage and revenue per hundredweight . tonnage increased 15.4 % for the year ended december 31 , 2010 , due to the combination of a 10.0 % increase in shipments and a 4.9 % increase in weight per shipment . the growth in tonnage per day and shipments per day accelerated during the second half of the year , which we believe reflects our gain in market share as well as general economic improvement . we believe the increase in our weight per shipment during this time indicated an improving economy , although we also continued to gain market share with large national shippers that typically have heavier shipments . revenue per hundredweight increased 3.1 % to $ 13.09 from $ 12.70 in 2009. this increase primarily reflects an increase in fuel surcharges , which are designed to offset fluctuations in the cost of petroleum-based products and are one of many components included in the overall price for our services . excluding fuel surcharges , revenue per hundredweight remained consistent between 2010 and 2009 despite the negative effect on this metric from the increase in weight per shipment . this consistency reflects our ability to initiate price increases during 2010. as industry conditions improved during the year , our ability to obtain price increases strengthened . we experienced improvement in the year-over-year change in revenue per hundredweight , excluding fuel surcharges , for each month during the second half of 2010 and also implemented a general rate increase on certain of our tariffs effective november 15 , 2010. fuel surcharge revenue increased to 12.3 % of revenue from 9.6 % in 2009 , as a result of the increased price of diesel fuel during 2010. most of our tariffs and contracts provide for a fuel surcharge , which is recorded as additional revenue , as diesel fuel prices increase above stated levels . these levels are generally indexed to the doe 's published fuel prices that reset each week . the fuel surcharge is one 23 of many components included in the overall negotiated price for our transportation services with our customers , although it is generally considered to be a measure of the increase in cost of all petroleum products we use . we regularly monitor the components of our pricing , including base freight rates and fuel surcharges .
| we used a portion of the proceeds to refinance existing indebtedness , including paying down the outstanding balance on our senior unsecured revolving credit agreement . to facilitate our access to the equity market , we filed an automatic shelf registration statement with the securities and exchange commission ( the sec ) during the fourth quarter of 2009 that provides us with the opportunity to offer and sell shares of common stock on a delayed or continuous basis at indeterminate prices from time to time . pursuant to this automatic shelf registration , we filed a prospectus supplement and entered into an at-the-market equity offering sales agreement on february 2 , 2011 with stifel , nicolaus & company , incorporated ( stifel nicolaus weisel ) pursuant to which we had the ability to issue and sell , from time to time over a 12-month period through or to stifel nicolaus weisel , 25 shares of our common stock having an aggregate offering price of up to $ 100.0 million ( the atm program ) . from february 2 , 2011 through december 31 , 2011 , we issued 1,516,379 shares of common stock at an average price of $ 32.69 per share pursuant to the atm program for aggregate gross proceeds of $ 49.6 million and aggregate net proceeds of $ 48.4 million , after deducting commissions and other transaction costs of $ 1.2 million . there were no subsequent issuances pursuant to the atm program through february 2 , 2012 , which was the date on which the atm program expired . capital expenditures the table below sets forth our net capital expenditures for property and equipment , including those obtained through capital leases , for the years ended december 31 , 2011 , 2010 and 2009 : replace_table_token_14_th our capital expenditure requirements are generally based upon the projected increase in the number and size of service center facilities to support our plan for long-term growth , our planned tractor and trailer replacement cycle and forecasted revenue growth . our capital expenditures for tractors and trailers increased in
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the pmiers also specifically provide for the factors that are applied to calculate and determine a mortgage insurer 's minimum required assets to be updated every two years , with the next review scheduled to take place in 2017. see “ liquidity and capital resources— radian group—short-term liquidity needs ” and note 1 of notes to consolidated financial statements for additional information . 73 part ii item 7. management 's discussion and analysis of financial condition and results of operations for our mortgage insurance business , our competitors include other private mortgage insurers and governmental agencies , principally the fha and the va. we currently compete with other private mortgage insurers that are eligible to write business for the gses on the basis of price , underwriting guidelines , customer relationships , reputation , perceived financial strength ( including based on comparative credit ratings ) and overall service , including services and products that complement our mortgage insurance products and that are offered through our services business . we compete with the fha and va on the basis of loan limits , pricing , credit guidelines , terms of our insurance policies and loss mitigation practices . the fha 's reduction of its annual mortgage insurance premiums in january 2015 , combined with our premium changes in april 2016 to increase our pricing for borrowers with lower fico scores , has negatively impacted our ability to compete with the fha on certain high-ltv loans to borrowers with fico scores below 720. however , we believe that our pricing changes made during the first half of 2016 enable us to more effectively compete with the fha on certain high-ltv loans to borrowers with fico scores above 720 . 74 part ii item 7. management 's discussion and analysis of financial condition and results of operations the positive macroeconomic and credit trends during the recovery from the financial crisis have encouraged new insurers to join the private mortgage insurance industry , although more recently there has also been consolidation among industry participants . price competition continues as these newer entrants have sought to gain a greater presence in the market and more established industry participants seek to defend their market share and customer relationships . as a result of this competitive environment , recent pricing trends have included : ( i ) the use of a spectrum of filed rates to allow for formulaic , risk-based pricing ( commonly referred to as “ black-box ” pricing ) ; ( ii ) the use of customized ( often discounted ) rates on lender-paid , single premium policies and to a limited extent , on borrower-paid monthly premium policies ; and ( iii ) overall reductions in standard filed rates on borrower-paid monthly premium policies . in the recent past , the willingness of mortgage insurers to offer reduced pricing ( whether through filed or customized rates ) led to an increased demand from certain lenders for reduced rate products . this produced a marketplace where balancing both targeted returns on new business and an acceptable share of the insured market became more challenging for all participants . although there can be no assurance that there will not be broad-based declines in mortgage insurance pricing in the future , following the widespread industry pricing changes for standard rates that occurred during the first half of 2016 , pricing throughout the industry has been relatively stable with respect to borrower-paid monthly premium policies . further , in 2016 the california department of insurance issued guidance to the mortgage insurance industry stating that any approved discounting of a mortgage insurer 's rates must be provided to all similarly situated customers of the mortgage insurer . see “ item 1a . risk factors— our insurance subsidiaries are subject to comprehensive state insurance regulations and other requirements , which we may fail to satisfy . ” although the impact of this guidance is uncertain , it is possible that this guidance will discourage the discounting of rates within the mortgage insurance industry . business strategy . radian is focused on a number of strategic objectives , as described in “ radian 's long-term strategic objectives ” in “ item 1. business—general. ” with respect to our mortgage insurance business , we monitor various competitive and economic factors while seeking to balance both profitability and market share considerations in developing our pricing and origination strategies . we have taken a disciplined approach to establishing our premium rates and writing a mix of business that we expect to produce our targeted level of returns on a blended basis and an acceptable level of niw . see “ results of operations—mortgage insurance— niw , iif , rif. ” during 2016 , in furtherance of our mortgage insurance strategy , we : increased our filed rates for lender-paid mortgage insurance ; adjusted our borrower-paid , filed rates , effective on april 7 , 2016 , which generally had the effect of decreasing our standard rates on higher fico business , and raising our standard rates on lower fico business where the fha is already very competitive ; continued to use the authority set forth in our rate filings to provide customized premiums for lender-paid , single premium mortgage insurance while maintaining our focus on our overall risk and return targets , and beginning in the third quarter of 2016 , we elected to selectively participate in certain discounted single premium business that has been offered on an aggregated basis and is now priced at a level that is within our targeted returns ; and entered into the single premium qsr transaction to proactively manage the risk and return profile of radian guaranty 's insured portfolio , which resulted in increasing our return on required capital for single premium policies and decreasing the percentage of our single premium rif , net of reinsurance ceded. story_separator_special_tag see note 8 of notes to consolidated financial statements and “ liquidity and capital resources— radian group—short-term liquidity needs ” for more information about the single premium qsr transaction . as a result of the actions described above and as demonstrated by our strong niw generated in 2016 , we believe we are well positioned to compete for the high-quality business being originated today , including the generally more profitable , borrower-paid business , while at the same time maintaining projected returns on niw within our targeted ranges . in addition , the changes that we implemented to our filed premium rates in the first half of 2016 are expected to generate more consistent returns across the credit spectrum and provide more stable loss ratios in the event of further credit expansion . over the life of the policies , we expect our current pricing ( including the impact of the single premium qsr transaction ) will produce returns on required capital on new business on an unlevered basis ( i.e. , after-tax underwriting returns plus projected investment income ) of approximately 13 % to 14 % , and approximately 16 % to 17 % on a levered basis ( i.e. , after-tax returns taking into consideration a targeted corporate debt to capital ratio which is consistent with our current level ) . our actual portfolio returns will depend on a number of factors , including economic conditions , the amount and mix of niw that we are able to write at these new pricing levels and the amount of reinsurance we use . 75 part ii item 7. management 's discussion and analysis of financial condition and results of operations as part of our strategy to leverage our core expertise in credit risk management and expand our presence in the mortgage finance industry , during 2016 we participated in new front-end credit risk transfer pilot programs developed by fannie mae and freddie mac . these pilot programs involve participation as part of a panel of mortgage insurance company affiliates in writing credit insurance policies on loans that are to be purchased by the gses in the future ( i.e. , front-end ) , subject to certain pre-established credit parameters . our current commitment level for both of these pilot programs will result in premiums and required capital that are immaterial . we may participate in other gse credit risk transfer programs in the future . we are focused on growing our fee-based revenues as part of our long-term strategy . our services segment is a fee-based business that provides a diverse array of services to participants in multiple facets of the residential real estate and mortgage finance markets . while our services business overall is most successful in a healthy and robust housing and economic environment , we believe that the diversity of the services offered by our services segment positions us to generate revenue in both healthy and challenging mortgage market conditions . our strategy for future growth includes continuing to grow our mortgage insurance business and expanding our services business . a key element of this business strategy is to use our services segment to offer a range of mortgage and real estate-related products and services that complement our mortgage insurance business . this strategy is designed to satisfy demand in the market , grow our fee-based revenues , strengthen our existing mortgage insurance customer relationships , attract new customers and differentiate us from our mortgage insurance peers . our current capabilities are illustrated by the graphic , “ existing capabilities within mortgage finance industry ” in “ item 1. business—general. ” 2016 and other recent capital management developments during 2016 , we completed a series of transactions to strengthen our financial position . the combination of these actions had the impact of decreasing our diluted shares , improving radian group 's debt maturity profile and improving radian guaranty 's position under the pmiers financial requirements . this series of capital management transactions consists of : the issuance of $ 350 million aggregate principal amount of senior notes due 2021 ; the purchases of aggregate principal amounts of $ 30.1 million and $ 322.0 million , respectively , of our outstanding convertible senior notes due 2017 and 2019 ; the termination of the portion of the capped call transactions related to the purchased convertible senior notes due 2017 ; the completion of the share repurchase program announced in january 2016 , by purchasing an aggregate of 9.4 million shares of radian group common stock for $ 100.2 million , including commissions ; the implementation of the single premium qsr transaction , which had the effect of increasing the amount by which radian guaranty 's available assets exceed its minimum required assets under the pmiers financial requirements ; and the early redemption of the remaining $ 195.5 million aggregate principal amount of our senior notes due 2017. see notes 8 , 12 and 14 of notes to consolidated financial statements for additional information about these transactions . our purchases of convertible senior notes due 2017 and 2019 and the early redemption of the senior notes due 2017 resulted in a loss on induced conversion and debt extinguishment of $ 75.1 million for the year ended december 31 , 2016 . in connection with the termination of the capped call transactions related to the purchased convertible senior notes due 2017 , we received 0.2 million shares of radian group common stock , which was valued at $ 2.6 million based on a stock price on the closing date of $ 11.86 . following the purchases described above , $ 22.2 million and $ 68.0 million , respectively , of the principal amounts of the convertible senior notes due 2017 and 2019 remained outstanding as of december 31 , 2016 .
| see “ — use of non-gaap financial measure ” below for more information regarding items that are excluded from the operating results of our operating segments . we allocate to our mortgage insurance segment : ( i ) corporate expenses based on an allocated percentage of time spent on the mortgage insurance segment ; ( ii ) all interest expense except for interest expense related to the senior notes due 2019 that were issued to fund our purchase of clayton ; and ( iii ) all corporate cash and investments . we allocate to our services segment : ( i ) corporate expenses based on an allocated percentage of time spent on the services segment and ( ii ) all interest expense related to the senior notes due 2019 , the proceeds of which were used to fund our acquisition of clayton . no corporate cash or investments are allocated to the services segment . we have included clayton 's results of operations from the june 30 , 2014 date of acquisition . 84 part ii item 7. management 's discussion and analysis of financial condition and results of operations the following table highlights selected information related to our consolidated results of operations for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_9_th ( 1 ) for all periods presented , reflects changes to align our segment reporting structure with recent changes in personnel reporting lines and management oversight related to contract underwriting performed on behalf of third parties . revenue and expenses for this business are now reflected in the services segment . as a result , for all periods presented , services revenue and cost of services have increased , with offsetting reductions in mortgage insurance other income and other operating expenses . see notes 2 and 4 of notes to consolidated financial statements . ( 2 ) includes the results of clayton 's operations from the june 30 , 2014 acquisition date . ( 3 ) see “ — use of non-gaap financial
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revenues for 2012 , 2011 and 2010 were $ 316.9 million , $ 302.2 million and $ 283.0 million , respectively . we currently sell substantially all of our products to medical product manufacturers , independent distributors and through direct sales to the end user . most of our independent distributors handle the full line of our infusion administration products . we sell our i.v . administration and oncology products under two agreements with hospira . under a 1995 agreement , hospira purchases clave products , principally bulk , non-sterile connectors and oncology products . under a 2001 agreement , we sell custom infusion sets to hospira under a program referred to as setsource . our 1995 and 2001 agreements with hospira provide hospira with conditional exclusive and nonexclusive rights to distribute all existing icu medical products worldwide with terms that extend to 2018. we sell invasive monitoring and angiography to independent distributors and through direct sales . we also sell certain other products to a number of other medical product manufacturers . 28 we believe that as healthcare providers continue to either consolidate or join major buying organizations , the success of our products will depend , in part , on our ability , either independently or through strategic relationships such as our hospira relationship , to secure long-term contracts with large healthcare providers and major buying organizations . as a result of this marketing and distribution strategy we derive most of our revenues from a relatively small number of distributors and manufacturers . the loss of a strategic relationship with a customer or a decline in demand for a manufacturing customer 's products could have a material adverse effect on our operating results . we believe that achievement of our growth objectives worldwide will require increased efforts by us in sales and marketing and product development ; however , there is no assurance that we will be successful in implementing our growth strategy . the custom products market is small , when compared to the larger market of standard products , and we could encounter customer resistance to custom products . further , we could encounter increased competition as other companies see opportunity in this market . product development or acquisition efforts may not succeed , and even if we do develop or acquire additional products , there is no assurance that we will achieve profitable sales of such products . an adverse change in our relationship with hospira , or a deterioration of hospira 's position in the market , could have an adverse effect on us . increased expenditures for sales and marketing and product acquisition and development may not yield desired results when expected , or at all . while we have taken steps to control these risks , there are certain risks that may be outside of our control , and there is no assurance that steps we have taken will succeed . the following table sets forth , for the periods indicated , total revenues by market segment and its major product groups as a percentage of total revenues : replace_table_token_9_th we have an ongoing effort to increase systems capabilities , improve manufacturing efficiency , reduce labor costs , reduce time needed to produce an order , and minimize investment in inventory . these include the use of automated assembly equipment for new and existing products and use of larger molds and molding machines . in 2006 , we centralized our proprietary molding in salt lake city and expanded our production facility in mexico , which took over the majority of our manual assembly previously done in salt lake city . in 2010 and early 2011 , we expanded our production facility in mexico . in late 2010 , we completed construction of an assembly plant in slovakia that serves our european product distribution . in 2013 , we plan to convert existing warehouse space into manufacturing space and a new clean room in our salt lake city plant . we may establish additional production facilities outside the u.s. there is no assurance that we will achieve success in establishing manufacturing facilities outside the u.s. we distribute products through three distribution channels . we have reclassified 2011 and 2010 canada sales as international , which were previously reported as domestic sales in both domestic medical product manufacturers and domestic distributors/direct channels . product revenues for each distribution channel as a percentage of total channel product revenue were as follows : replace_table_token_10_th 29 sales to international customers do not include bulk clave products sold to hospira in the u.s. but used in i.v . products manufactured by hospira and exported . those sales are included in sales to medical product manufacturers . other sales to hospira for destinations outside the u.s. are included in sales to international customers . seasonality/quarterly results the healthcare business in the united states is subject to quarterly fluctuations due to frequency of illness during the seasons , elective procedures , and over the last few years , the economy . in europe , the healthcare business generally slows down in the summer months due to vacations resulting in fewer elective surgeries . also in europe , hospitals ' budgets tend to finish at the end of the year which may cause fewer purchases in the last three months of the year as hospitals await their new budgets in january . in addition , we can experience fluctuations in net sales as a result of variations in the ordering patterns of our largest customers , which may be driven more by production scheduling and their inventory levels , and less by seasonality . our expenses often do not fluctuate in the same manner as net sales , which may cause fluctuations in operating income that are disproportionate to fluctuations in our revenue . year-to-year comparisons we present summarized income statement data in item 6. selected financial data . the following table shows , for the three most recent years , the percentages of each income statement caption in relation to revenues . story_separator_special_tag replace_table_token_11_th comparison of 2012 to 2011 revenues were $ 316.9 million in 2012 , compared to $ 302.2 million in 2011 . domestic sales : net domestic sales in 2012 were $ 237.0 million , compared to net domestic sales of $ 224.5 million in 2011 , an increase of 6 % . net domestic sales to hospira in 2012 were $ 121.1 million , an increase of $ 5.5 million , or 5 % , from 2011 . infusion therapy sales increased $ 2.7 million , or 2 % , from 2011 and oncology sales increased $ 2.7 million , or 46 % , from 2011 . infusion therapy sales included a $ 0.9 million increase in sales of clave products and a $ 1.7 million increase in sales of custom infusion sets . the increase in clave product , custom infusion product and oncology sales was from higher unit sales due to conversion of products sold for needlefree connectors and increased market share through hospira . we expect u.s. sales to hospira in 2013 to be comparable to or slightly lower than 2012 due to hospira 's planned reduction in orders in the first quarter of 2013 , with orders expected to resume to normal levels in the remaining three quarters of 2013 , although there is no assurance that these expectations will be realized . 30 net other domestic sales ( excluding hospira ) in 2012 were $ 115.9 million , an increase of $ 7.0 million , or 6 % , from 2011 . infusion therapy sales increased $ 8.7 million , or 18 % , from 2011 , which was primarily from a $ 4.5 million increase in clave product sales and a $ 3.9 million increase in custom infusion set sales . oncology sales increased $ 2.0 million , or 44 % from 2011 . critical care sales decreased $ 4.4 million , or 10 % , from 2011 . the increased clave , custom infusion set and oncology sales were primarily due to increased unit sales . the decrease in critical care sales was primarily from increased competition that resulted in lower average sales prices and lower unit sales on certain items . we expect modest increases in other domestic sales ( excluding hospira ) in 2013 compared to 2012 , primarily from higher infusion therapy and oncology sales , although there is no assurance that these expectations will be realized . international sales : net international sales in 2012 were $ 79.9 million , compared to net international sales of $ 77.7 million in 2011 , an increase of 3 % . infusion therapy sales increased $ 5.0 million , or 12 % , from 2011 , which was primarily from a $ 3.4 million increase in custom infusion set sales and a $ 1.6 million increase in clave product sales . oncology sales increased $ 1.2 million , or 8 % , from 2011 . critical care sales decreased by $ 1.4 million , or 9 % , from 2011 . other product sales decreased by $ 2.6 million , or 39 % , from 2011 . the increases in infusion therapy and oncology were from increased unit sales from increased market share and demographic growth . the decrease in critical care sales was primarily due to increased competition and the decline of the euro to u.s. dollar . the decrease in other product sales was primarily from the sale of the orbit diabetes product line in 2011. geographically , our 2012 international sales were primarily in europe , the pacific rim , latin america , canada and africa . sales in the pacific rim , canada and africa increased by $ 5.5 million and were offset by $ 3.3 million in lower european sales . the lower european sales in 2012 were impacted by a weak euro . our 2012 international sales were negatively impacted by approximately $ 3.6 million due to the decrease in the average exchange rate of the euro to the u.s. dollar compared to 2011. we expect modest increases in international sales in 2013 compared to 2012 from higher infusion therapy and oncology sales , partially offset by lower critical care sales , although there is no assurance that these expectations will be realized . sales by market segment and other revenue : net infusion therapy sales were $ 215.3 million in 2012 , an increase of $ 16.4 million , or 8 % , from 2011 . the increase from 2011 was primarily from $ 7.0 million in increased clave product sales and $ 9.0 million in increased custom infusion set sales . the increase in clave product sales was primarily from higher domestic sales to both u.s. hospira and other domestic customers . custom infusion set sales increased in all channels from higher unit sales . we expect modest increases in infusion therapy sales in 2013 compared to 2012 , primarily from higher sales in clave products and custom infusion set sales . there is no assurance , however , that these expectations will be realized . net critical care sales were $ 55.5 million in 2012 , a decrease of $ 5.9 million , or 10 % , from 2011 . the decrease was primarily due to lower domestic sales from increased competition . we experienced lower unit sales in certain products and decreased our domestic critical care prices in the middle of 2011 to retain existing customers and attract new customers . we expect critical care sales to decrease in 2013 compared to 2012 from increased competition , although there is no assurance that these expectations will be realized . net oncology sales were $ 30.3 million in 2012 , an increase of $ 5.9 million , or 24 % , from 2011 . the increase was from higher sales in all channels . the increased sales was from increased market share and demographic growth . we expect significant growth in oncology sales in 2013 compared to 2012 , although there is no assurance that these expectations will be realized .
| the increased clave and custom infusion set sales were primarily due to increased unit sales . critical care sales decreased $ 1.8 million , or 4 % , from 2010 . the critical care decrease was primarily from increased competition in this market that resulted in lower average sales prices and lower unit sales on certain items . tego sales increased $ 3.2 million , or 133 % , from 2010 from increased unit sales . international sales : net international sales were $ 77.7 million in 2011 , compared to net international sales of $ 68.9 million in 2010 , an increase of 13 % . infusion therapy sales increased $ 4.2 million , or 11 % , from 2010 , which was primarily 32 from a $ 3.4 million increase in custom infusion set sales and a $ 1.0 million increase in clave product sales . oncology sales increased $ 3.5 million , or 34 % , from 2010 . the increases in infusion therapy and oncology were from increased unit sales from increased market share and demographic growth . geographically , our 2011 and 2010 international sales were primarily in europe , the pacific rim and latin america . our 2011 international sales were favorably impacted by a stronger euro compared to 2010. this resulted in approximately $ 1.9 million increase in sales because the average exchange rate of the euro to the u.s. dollar was higher in 2011 compared to 2010. sales by market segment and other revenue : net infusion therapy sales were $ 198.9 million in 2011 , an increase of $ 10.8 million , or 6 % , from 2010 . the increase was primarily from increased clave product sales which increased $ 11.0 million from 2010 . custom infusion set sales increased by $ 1.0 million from 2010 . other standard infusion therapy product sales decreased by $ 1.2 million from 2010. the increase in clave product sales was primarily
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looking forward , we are focused on continuing to successfully execute on existing national account opportunities while also actively pursuing new national account opportunities that leverage our customized , comprehensive turnkey project solutions , and expanding our addressable market with high-quality , basic lighting systems to meet the needs of value-oriented customer segments served by our other market channels . given our unique value proposition , capabilities and focus on customer service , we are optimistic about our business prospects and working to build sales momentum with existing and new customers . continued product innovation . we continue to innovate , developing lighting fixtures and features that address specific customer requirements , while also working to maintain a leadership position in energy efficiency , smart product design and installation benefits . for interior building applications , we have recently launched an antimicrobial troffer fixture which supports the suppression of bacteria , mold , fungi , and mildew , and are currently developing an air circulation troffer to support improved air circulation . we also continue to deepen our capabilities in the integration of smart lighting controls . our goal is to provide state-of-the-art lighting products with modular plug-and-play designs to enable lighting system customization from basic controls to advanced iot capabilities . leverage of orion 's smart lighting systems to support internet of things applications . we believe we are ideally positioned to help customers to efficiently deploy new iot controls and applications by leveraging the “ smart ceiling ” capabilities of their orion solid state lighting system . iot capabilities can include the management and tracking of facilities , personnel , resources and customer behavior , driving both sales and lowering costs . as a result , these added capabilities provide customers an even greater return on investment from their lighting system and make us an even more attractive partner . we plan to pursue the expansion of our iot , “ smart-building ” and “ connected ceiling ” and other related technology , software and controls products and services that we offer to our customers . while we intend to pursue these expansion strategies organically , we also are actively exploring potential business acquisitions which would more quickly add these types of expanded and different capabilities to our product and services offerings . develop maintenance service offerings . we believe we can leverage our construction management process expertise to develop a high-quality , quick-response , multi-location maintenance service offering . our experience with large national customers and our large installed base of fixtures position us well to extend a maintenance offering to historical customers , as well as to new customers . development of this recurring revenue stream is in the preliminary stage , but we believe there is significant market opportunity . support success of our esco and agent-driven distribution sales channels . we continue to focus on building our relationships and product and sales support for our esco and agent driven distribution channels . these efforts include an array of product and sales training efforts as well as the development of new products to cater to the unique needs of these sales channels . 35 tariffs and trade policies the united states government has been implementing various monetary , regulatory , and trade importation restraints , penalties , and tariffs . certain sourced finished products and certain of the components used in our products have been impacted by imposed tariffs on china imports . our efforts to mitigate the impact of added costs resulting from these government actions include a variety of activities , such as sourcing from non-tariff impacted countries and raising prices . if we are unable to successfully mitigate the impacts of these tariffs and other trade policies , our results of operations may be adversely affected . we believe that these mitigation activities will assist to offset added costs , and we currently believe that such tariffs will have a limited adverse financial effect on our results of operations . any future policy changes that may be implemented could have a positive or negative consequence on our financial performance depending on how the changes would influence many factors , including business and consumer sentiment . results of operations : fiscal 2020 versus fiscal 2019 the following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total revenue for each applicable period , together with the relative percentage change in such line item between applicable comparable periods ( in thousands , except percentages ) : replace_table_token_3_th * nm = not meaningful revenue . product revenue increased by 101.5 % , or $ 57.1 million , for fiscal 2020 versus fiscal 2019. this increase in product revenue was primarily a result of higher sales volume through our national account channel , and almost exclusively as a result of a major retrofit project for multiple locations for one of our national account customers . service revenue increased by 294.9 % , or $ 28.0 million , due to higher sales volume through our national account channel for the major retrofit project for one customer and the timing of those project installations . in fiscal 2020 , sales to this one national account customer represented 74.1 % of our total revenue . total revenue increased by 129.4 % , or $ 85.1 million , due to the items discussed above . cost of revenue and gross margin . cost of product revenue increased by 89.5 % , or $ 39.5 million , in fiscal 2020 versus the comparable period in fiscal 2019 primarily due to the corresponding increase in sales . cost of service revenue increased by 324.9 % , or $ 23.0 million , in fiscal 2020 versus fiscal 2019 primarily due to the corresponding increase in service revenue . gross margin increased from 22.1 % of revenue in fiscal 2019 to 24.6 % in fiscal 2020 , due to our higher sales levels covering fixed costs . 36 operating expenses general and administrative . story_separator_special_tag general and administrative expenses increased 9.3 % , or $ 1.0 million , in fiscal 2020 compared to fiscal 2019 , primarily due to higher bonus and employment costs . sales and marketing . our sales and marketing expenses increased 22.1 % , or $ 2.0 million , in fiscal 2020 compared to fiscal 2019. the increase year over year was primarily due to an increase in commission expense on higher sales and higher employment costs . research and development . research and development expenses increased by 24.9 % , or $ 0.3 million in fiscal 2020 compared to fiscal 2019 primarily due to higher employment costs . other income . other income in fiscal 2020 and fiscal 2019 represented product royalties received from licensing agreements for our patents . interest expense . interest expense in fiscal 2020 decreased by 43.4 % , or $ 0.2 million , from fiscal 2019. the decrease in interest expense was due to fewer sales of receivables . amortization of debt issue costs . amortization of debt issue costs in fiscal 2020 increased 140.6 % , or $ 0.1 million from fiscal 2019. the increase was due to the timing of the execution of our credit agreement . interest income . interest income in fiscal 2020 remained relatively flat compared to fiscal 2019. interest income relates to interest earned on sweep bank accounts . income taxes . income tax expense in fiscal 2020 increased by 1,000.0 % , or $ 0.1 million , from fiscal 2019. both periods include income tax expense for state tax liabilities . the increase in expense was driven by fiscal 2020 book income . 37 results of operations : fiscal 201 9 versus fiscal 2018 the following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total revenue for each applicable period , together with the relative percentage change in such line item between applicable comparable periods ( in thousands , except percentages ) : replace_table_token_4_th revenue . product revenue increased by 1.2 % , or $ 0.7 million , for fiscal 2019 versus fiscal 2018. the increase in product revenue was primarily a result of higher sales volume through our national account channel , and primarily the result of a major retrofit project for multiple locations for one of our national account customers . service revenue increased by 101.8 % , or $ 4.8 million , primarily due to higher sales volume through our national account channel and the timing of project installations . total revenue increased by 9.0 % , or $ 5.5 million , due to the items discussed above . excluding the impact of the adoption of asc 606 , product revenue increased by 5.1 % , or $ 2.9 million , service revenue increased by 56.2 % , or $ 2.6 million , and total revenue increased by 9.1 % , or $ 5.5 million , compared to fiscal year 2018. cost of revenue and gross margin . cost of product revenue increased by 6.5 % , or $ 2.7 million , in fiscal 2019 versus the fiscal 2018 primarily due to the increase in sales . cost of service revenue by increased 68.3 % , or $ 2.9 million , in fiscal 2019 versus fiscal 2018 primarily due to the increase in service revenue . gross margin decreased from 24.3 % of revenue in fiscal 2018 to 22.1 % in fiscal 2019 , primarily due to our product mix on higher sales to one large national account customer . excluding the impact of the adoption of asc 606 , gross margin for fiscal 2019 was 24.4 % . operating expenses general and administrative . general and administrative . general and administrative expenses decreased by 22.3 % , or $ 2.9 million , in fiscal 2019 compared to fiscal 2018 , primarily due to $ 1.8 million in employee separation costs incurred in fiscal 2018 , offset by the release of a $ 1.4 million loss contingency accrual , which did not recur in fiscal 2019 , as well as reduced employee costs and consulting expense as a result of our prior year cost reduction plan . impairment of assets . no impairment charge was recorded in fiscal 2019. during fiscal 2018 , we performed a review of our definite and indefinite-lived tangible and intangible assets for impairment . in conjunction with this review , we determined that the carrying value of our harris trade name intangible asset exceeded its fair value . as a result , we recorded an impairment charge of $ 0.7 million in fiscal 2018 . 38 sales and marketing . our sales and marketing expenses decreased by 23.4 % , or $ 2.8 million , in fisc al 2019 compared to fiscal 2018. excluding the impact of the adoption of asc 606 , sales and marketing expenses decreased by 11.1 % , or $ 1.3 million , in fiscal 2019 compared to fiscal 2018. the decrease year over year was primarily due to reduced employee co sts due to the impact of our prior year cost reduction plan , and lower travel and entertainment and marketing expenses . research and development . research and development expenses decreased by 27.9 % , or $ 0.5 million in fiscal 2019 compared to fiscal 2018 primarily due to lower employee costs as a result of our prior year cost reduction plan , as well as a decrease in testing costs based on timing of new product rollouts and reduced consulting expenses . other income . other income in fiscal 2019 and fiscal 2018 represented product royalties received from licensing agreements for our patents . interest expense . interest expense in fiscal 2019 increased by 48.0 % , or $ 0.2 million , from fiscal 2018. the increase in interest expense was due to increased third party financing costs related to the sale of receivables . amortization of debt issue costs .
| we believe the market for led lighting products and related controls continues to grow . due to their size and flexibility in application , we also believe that led lighting systems can address opportunities for retrofit applications that can not be satisfied by other lighting technologies . our led lighting technologies have become the primary component of our revenue as we continue to strive to be a leader in the led market . in fiscal 2020 , we began to successfully capitalize on our capability of being a full service , turn-key provider of led lighting and controls systems with design , build , installation and project management services , including being awarded a very large project for a major national account . as a result of this success , we have begun to evolve our business strategy to focus on further expanding the nature and scope of our products and services offered to our customers . this further expansion of our products and services includes pursuing projects to develop recurring revenue streams , including providing lighting and electrical maintenance services and utilizing control sensor technology to collect data and assisting customers in the digitization of this data , along with other potential services . we also plan to pursue the expansion of our iot , “ smart-building ” and “ connected ceiling ” and other related technology , software and controls products and services that we offer to our customers . we currently plan on investing significant time , resources and capital into expanding our offerings in these areas with no expectation that they will result in us realizing material revenue in the near term and without any assurance they will succeed or be profitable . in fact , it is likely that these efforts will reduce our profitability , at least in the near term as we invest resources and incur expenses to develop these offerings . while we intend to pursue these expansion strategies organically , we also are actively exploring potential business acquisitions which would more quickly add these types
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the acquisition of the 50 % interest in riverchase galleria from our joint venture partner and the acquisition of 605 n. michigan avenue during the fourth quarter of 2016 resulted in an offsetting $ 22.3 million increase in base minimum rents . in addition , the acquisition of our joint venture partner 's interest in neshaminy during the second quarter of 2017 and the transaction at 218 west 57th street , 530 fifth avenue and 685 fifth avenue during the third quarter of 2017 resulted in a $ 14.7 million increase in base minimum rents . lease termination income increased $ 13.1 million primarily due to lease terminations at multiple tenants spread across the portfolio during 2017 . tenant recoveries decreased $ 24.5 million primarily due to our sale of an interest in fashion show during the third quarter of 2016. this resulted in $ 18.5 million less tenant recoveries during 2017 compared to 2016 as the property is now accounted for as an unconsolidated real estate affiliate . in addition , the sale of two operating properties during the third quarter of 2016 and the conveyance of one property to the lender during the second quarter of 2017 resulted in $ 6.4 million less tenant recoveries . the acquisition of the 50 % interest in riverchase galleria from our joint venture partner during the fourth quarter of 2016 resulted in an offsetting $ 8.6 million increase in tenant recoveries . overage rents decreased $ 7.7 million across the portfolio . management fees and other corporate revenues increased $ 9.3 million primarily due to $ 7.2 million in property and asset management fees related to the seritage joint venture during 2017 ( note 3 ) , a $ 4.3 million one-time profit participation payment received during 2017 related to our aeropostale joint venture ( note 5 ) , $ 3.4 million in property management fees related to the joint venture formed with fashion show during the third quarter of 2016 and $ 2.5 million in leasing fees at 530 fifth avenue . this is partially offset by the divestiture of our investment in seritage growth properties stock in 2016 , which resulted in a $ 13.1 million gain ( note 2 ) . real estate taxes increased $ 7.6 million primarily due to the acquisition of the 50 % interest in riverchase galleria from our joint venture partner , the acquisition of 605 n. michigan avenue during the fourth quarter of 2016 and the acquisition of our joint venture partner 's interest in neshaminy during the second quarter of 2017. this resulted in a $ 4.7 million increase in real estate taxes during 2017 compared to 2016. in addition , the transaction at 218 west 57th street , 530 fifth avenue and 685 fifth avenue during the third quarter of 2017 resulted in a $ 2.1 million increase in real estate taxes . our sale of a 50 % interest in fashion show during the third quarter of 2016 resulted in offsetting $ 1.5 million reduction in real estate taxes as the property is now accounted for as an unconsolidated real estate affiliate . property maintenance costs decreased $ 5.2 million primarily due to continued efforts to manage operating expenses . in addition , our sale of a 50 % interest in fashion show during the third quarter of 2016 resulted in a $ 1.2 million reduction in property maintenance costs as the property is now accounted for as an unconsolidated real estate affiliate . marketing costs decreased $ 2.1 million primarily due to a change in corporate strategy that resulted in a net reduction in spending . provision for loan loss of $ 29.6 million relates to the settlement of the rique note receivable during 2016 ( note 14 ) . 29 property management and other costs increased $ 6.6 million primarily due to bonus savings in the prior year . provision for impairment of $ 73.0 million is related to impairment charges recorded on three operating properties during 2016 ( note 2 ) . depreciation and amortization increased $ 32.6 million primarily due to tenant write offs . interest expense decreased $ 29.3 million primarily due to our sale of a 50 % interest in fashion show during the third quarter of 2016. this resulted in $ 20.1 million less interest expense during 2017 compared to 2016 as the property is now accounted for as an unconsolidated real estate affiliate . in addition , we paid down a mortgage note at one of our operating properties during 2016 , resulting in a $ 5.5 million decrease in interest expense ( note 6 ) and conveyed one property to the lender in full satisfaction of the debt during the second quarter of 2017 , resulting in a $ 5.8 million decrease in interest expense . we also sold two operating properties during 2016 , resulting in a $ 2.7 million decrease in interest expense ( note 3 ) . the decreases were partially offset by an increase in the libor rate over the prior year . in addition , the transaction at 218 west 57th street , 530 fifth avenue and 685 fifth avenue resulted in a $ 5.6 million increase in interest expense over the period . the gain on foreign currency during 2017 is related to the impact of changes in the exchange rate on the proceeds from the settlement of a note receivable denominated in brazilian reais and received in conjunction with the sale of aliansce in the third quarter of 2013 ( note 14 ) . story_separator_special_tag the gain from changes in control of investment properties and other of $ 79.1 million during 2017 relates to the transaction at 218 west 57th street , 530 fifth avenue and 685 fifth avenue , the acquisition of the remaining 50 % interest in 8 of the 12 anchor boxes included in the gsph joint venture with seritage growth properties , the acquisition of the remaining interest in neshaminy mall and our sale of our interests in two properties ( note 3 ) . the gain on extinguishment of debt during 2017 relates to one property which was conveyed to the lender in full satisfaction of the debt ( note 3 ) . benefit from income taxes increased $ 11.8 million primarily due to the one-time benefit resulting from the change in future federal statutory tax rates due to the passing of the tax cuts and jobs act of 2017 on december 22 , 2017. equity in income of unconsolidated real estate affiliates decreased by $ 78.9 million primarily due to the acquisition of the 50 % interest in riverchase galleria from our joint venture partner during the fourth quarter of 2016. this resulted in $ 55.6 million less equity in income of unconsolidated real estate affiliates during 2017 compared to 2016 . in addition , income recognition on condominiums decreased by $ 26.3 million during the period ( note 5 ) . our sale of a 50 % interest in fashion show during the third quarter of 2016 resulted in offsetting $ 8.7 million increase in equity in income of unconsolidated real estate affiliates . unconsolidated real estate affiliates - gain on investment of $ 12.0 million during 2017 is related to the sale of a portion of our interest in aeropostale ( note 3 ) . year ended december 31 , 2016 and 2015 the following table is a breakout of the components of minimum rents : replace_table_token_20_th base minimum rents decreased by $ 39.6 million primarily due to the sale of an interest in ala moana center during the first quarter of 2015 and the sale of an interest in fashion show during the third quarter of 2016. this resulted in $ 45.6 million less base minimum rents during 2016 compared to 2015 as the properties are now accounted for as unconsolidated real estate affiliates 30 ( defined in note 1 ) . the resulting increase in base minimum rents is a result of rents from new developments , an increase in occupancy and contractual rent steps between 2015 and 2016 . tenant recoveries decreased $ 21.5 million primarily due to the sale of an interest in ala moana center during the first quarter of 2015 and the sale of an interest in fashion show during the third quarter of 2016. this resulted in $ 21.5 million less tenant recoveries during 2016 compared to 2015 as the properties are now accounted for as unconsolidated real estate affiliates . in addition , the sale of two operating properties during the first quarter of 2016 resulted in a $ 8.2 million decrease in tenant recoveries . the offsetting increase in tenant recoveries is primarily due to higher real estate tax recoveries of $ 11.1 million during 2016 . management fees and other corporate revenues increased $ 9.2 million primarily due to the divestiture of our investment in seritage growth properties stock , which resulted in a $ 13.1 million gain in 2016 ( notes 2 and 4 ) . in addition , the joint venture formed at fashion show during 2016 resulted in $ 2.5 million in management fees . this was partially offset by a $ 6.0 million fee related to the residential condominium joint venture at ala moana center during 2015. other revenue decreased $ 11.8 million primarily due to the recognition of gains on the sale of air rights at ala moana center . in 2015 , gains of $ 25.0 million were recognized , and in 2016 , $ 13.1 million of previously deferred gains were recognized . real estate taxes increased $ 6.8 million primarily due an increase in taxes at retail properties located in texas , partially offset by the sale of an interest in ala moana center during the first quarter of 2015 and the sale of an interest in fashion show during the third quarter of 2016. the sales resulted in $ 2.8 million less real estate taxes during 2016 compared to 2015 as the properties are now accounted for as unconsolidated real estate affiliates . in addition , the sale of two operating properties during the first quarter of 2016 resulted in a $ 2.1 million decrease in real estate taxes . property maintenance costs decreased $ 5.0 million primarily due to the sale of an interest in ala moana center during the first quarter of 2015 and the sale of an interest in fashion show during the third quarter of 2016. this resulted in $ 1.1 million less property maintenance costs during 2016 compared to 2015 as the properties are now accounted for as unconsolidated real estate affiliates . in addition , the sale of two operating properties during the first quarter of 2016 resulted in a $ 1.1 million decrease in property maintenance costs . the additional decrease is primarily due to continued efforts to manage operating expenses . marketing costs decreased $ 8.8 million primarily due to a strategic change that resulted in a net reduction in spending . other property operating costs decreased $ 20.2 million primarily due to the sale of an interest in ala moana center during the first quarter of 2015 and the sale of an interest in fashion show during the third quarter of 2016. this resulted in $ 9.0 million less other property operating costs during 2016 compared to 2015 as the properties are now accounted for as unconsolidated real estate affiliates . in addition , the sale of two operating properties during the first quarter of 2016 resulted in a $ 6.5 million decrease in other property operating costs .
| significant components of net cash provided by ( used in ) investing activities include : 2017 activity development of real estate and property improvements , $ ( 662.8 ) million , net proceeds from distributions received from unconsolidated real estate in excess of income , $ 166.9 million , contributions to unconsolidated real estate affiliates $ ( 120.4 ) million ; and proceeds from repayment of loans to joint ventures and joint venture partners $ 51.0 million . 2016 activity proceeds from the sale of joint venture interests and real estate assets of $ 1.7 billion ( note 3 ) ; sale of marketable securities for $ 46.4 million ; partially offset by contributions to unconsolidated real estate affiliates , net of distributions of $ ( 53.1 ) million ; development of real estate and property improvements of $ ( 547.4 ) million ; and acquisition of real estate and real estate interests of $ ( 577.8 ) million . 2015 activity development of real estate and property improvements of $ ( 694.6 ) million ; acquisition of marketable securities for $ ( 33.3 ) million ; acquisition of real estate and real estate interests of $ ( 384.3 ) million ; and loans to venture partners of $ ( 328.8 ) million ; partially offset by proceeds from the sale of joint venture interests and real estate assets of $ 1.2 billion . cash flows from financing activities net cash used in financing activities was $ 738.3 million for the year ended december 31 , 2017 , $ 1,564.1 million for the year ended december 31 , 2016 , and $ 778.2 million for the year ended december 31 , 2015 . significant components of net cash used in financing activities include : 2017 activity acquisition of 12.7 million shares of our common stock for $ ( 273.9 ) million ; cash distributions paid to common and preferred stockholders of $ ( 1,020.0 ) and $ ( 15.9 ) million , respectively ; and proceeds from warrant exercises of $ 551.2 million . 2016 activity acquisition of 1.4 million shares of our common stock for $ ( 34.0 ) million ; cash distributions paid to common and preferred stockholders of $ ( 680.7 ) and $ ( 15.9 ) million , respectively ; and 36 principal payments on mortgages , notes and loans payable , net of proceeds from refinancing or issuance of $ ( 834.7 ) million . 2015 activity acquisition of 4.3 million
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as a result , cash distributions from rio vista are shared by the holders of the common units and our general partner based on a formula whereby our general partner receives disproportionately more distributions per percentage interest than the holders of the common units as annual cash distributions exceed certain milestones . rio vista made the following distributions during the years ended december 31 , 2006 and 2007 : replace_table_token_18_th the amount of the distributions paid represents the minimum quarterly distribution required to be made by rio vista pursuant to the partnership agreement . as of december 31 , 2007 , rio vista had made all of the required minimum distributions to its common unitholders . a distribution of $ 607,000 and $ 13,000 for the quarter ended december 31 , 2007 was made on february 14 , 2008 to the common unitholders and our general partner , respectively . 48 debt obligations rzb loan agreement in july 2007 , rio vista and regional entered into a $ 5 million loan agreement ( rzb loan agreement ) with rzb finance llc ( rzb ) dated july 26 , 2007. the loan is due on demand , with a one-year maturity . any borrowings under the rzb loan agreement bear a variable annual rate of interest equal to the higher of ( a ) the rate of interest established from time to time by jpmorgan chase bank , n.a . as its base rate or its prime rate , or ( b ) the weighted average overnight funds rate of the federal reserve system plus 0.50 % , in each case plus a margin of 4.75 % . under the rzb loan agreement , either rio vista or penn octane is required to maintain a minimum net worth of $ 10 million . in connection with the rzb loan agreement , regional granted to rzb a security interest in all of regional 's assets , and rio vista delivered to rzb a pledge of the outstanding capital stock of regional . penn octane , regional and rvop have also provided a guaranty of rio vista 's obligations under the rzb loan agreement in favor of rzb . as of december 31 , 2007 , rio vista has $ 5 million outstanding under the rzb loan agreement and was in compliance with all of the covenants thereunder . tcw credit facility in connection with the acquisition of certain of the oklahoma assets , rio vista penny llc , an indirect , wholly-owned subsidiary of rio vista , entered into a $ 30 million senior secured credit facility ( tcw credit facility ) with tcw asset management company and certain tcw energy fund x investors ( collectively , tcw ) in november 2007. the tcw credit facility has a maturity date of august 29 , 2010. however , at any time during the period from may 19 , 2008 through november 19 , 2009 , tcw has the right to demand payment of $ 2,250,000 of the amount outstanding under the tcw credit facility . the tcw credit facility is secured by a first lien on all of the oklahoma assets and associated production proceeds . the interest rate on borrowings under the tcw credit facility is 10.5 % , increasing to 12.5 % if there is an event of default . payments under the tcw credit facility are interest-only until december 29 , 2008. the tcw credit facility has no prepayment penalty . certain rio vista subsidiaries have guaranteed payment of the obligations outstanding under the tcw credit facility . rio vista penny and rio vista go llc , an indirect , wholly-owned subsidiary of rio vista , both of which hold all of the oklahoma assets , are prohibited from making upstream distributions to rio vista before november 30 , 2008. thereafter , upstream distributions to rio vista not in excess of 75 % of quarterly cash flow are permitted subject to certain conditions . as of december 31 , 2007 , rio vista had $ 23.7 million outstanding under the tcw credit facility and was in compliance with all of the covenants thereunder . rzb credit facility guarantee as of december 31 , 2007 , penn octane had a $ 10,000,000 credit facility with rzb for demand loans and standby letters of credit ( rzb credit facility ) . in connection with the spin-off of the lpg business by penn octane to rio vista , rio vista agreed to guarantee penn octane 's obligations with respect to the rzb credit facility . in connection with rio vista 's guaranty , rio vista granted rzb a security interest and assignment in any and all of rio vista 's accounts , real property , buildings , pipelines , fixtures and interests therein or relating thereto . in addition , rio vista may not permit to exist any subsequent lien , security interest , mortgage , charge or other encumbrance of any nature on any of its properties or assets , except in favor of rzb , without the consent of rzb . rio vista may also be prohibited from making any distributions to unitholders if it would cause an event of default , or if an event of default is existing , under the rzb credit facility . under the rzb credit facility , penn octane pays a fee with respect to each letter of credit thereunder in an amount equal to the greater of ( i ) $ 500 , ( ii ) 2 % of the maximum face amount of such letter of credit , or ( iii ) such higher amount as may be agreed to between penn octane and rzb . any loan amounts outstanding under the rzb credit facility accrue interest at a rate equal to the rate announced by the jpmorgan chase bank as its prime rate ( 7.25 % at december 31 , 2007 ) plus 2.5 % . story_separator_special_tag pursuant to the rzb credit facility , rzb has sole and absolute discretion to limit or terminate its participation in the rzb credit facility and to refrain from making any loans or issuing any letters of credit thereunder . rzb also has the right to demand payment of any and all amounts outstanding under the rzb credit facility at any time . 49 moores note as partial consideration for the acquisition of certain of the oklahoma assets by rio vista penny , rio vista delivered a promissory note in november 2007 to gary moores in the aggregate principal amount of $ 500,000. the note bears interest at 7 % per annum and matures on may 19 , 2008. beginning february 19 , 2008 , gary moores has the option to convert the outstanding principal and interest of the note into common units of rio vista at a conversion price equal to 90 % of the 10-day average closing price of such common units as reported by the nasdaq stock market at the time of conversion . the conversion option may be exercised on only one occasion and expires on may 19 , 2008. as of december 31 , 2007 , $ 493,000 , net of $ 7,000 discount remained outstanding under the note . regional note in connection with the regional acquisition , regional issued a promissory note in the amount of $ 1.0 million to be paid in four equal semiannual installments beginning six months from the date of the regional acquisition . rio vista has recorded a discount of $ 116,000 , ( 10 % effective rate ) representing the portion of interest associated with the note , which shall be amortized over the term of the note . for the period of july 28 , 2007 through december 31 , 2007 , $ 37,000 was amortized . leases norfolk southern leases . on january 1 , 2003 , regional ( as lessee ) entered into a lease agreement with norfolk southern railway company ( as lessor ) for approximately 3.1 acres of land which is utilized in connection with regional 's existing operations at regional 's facilities in hopewell , virginia . the lease includes the right to maintain existing warehouses , storage tanks for handling petroleum and chemical products , and necessary appurtenances . the lease term was january 1 , 2003 through december 31 , 2005. the lease has not been renewed and may be terminated by either party upon 30 days ' written notice . rent is $ 1,500 per month subject to adjustment based on inflation . on august 21 , 2003 , regional ( as lessee ) entered into a siding lease agreement with norfolk southern railway company ( as lessor ) for approximately 750 feet of railroad sidings on land which is utilized in connection with regional 's existing operations at regional 's facilities in hopewell , virginia . the sidings may be used for handling various chemical products . the siding lease began on august 21 , 2003 and continues until terminated by either party with 30 days ' written notice . rent is $ 4,875 per year , payable in advance . as replacement of the foregoing leases , regional is currently negotiating with norfolk southern the purchase of approximately 3.5 acres of land and the lease of approximately 1.9 acres of land on a long-term basis . on june 1 , 2007 , regional executed a letter of intent from norfolk southern dated may 29 , 2007. regional received a letter form norfolk southern dated july 26 , 2007 , approving the purchase of the land and the lease on the terms contained in the letter of intent . regional is awaiting definitive documents from norfolk southern in order to complete the purchase and lease transactions . other . regional has several leases for parking and other facilities which are short term in nature and can be terminated by the lessors or regional upon giving 60 days notice of cancellation . agreements gas service and sales agreements during the period from november 19 , 2007 through december 31 , 2007 , go entered into an agreement with clearwater enterprises , llc ( clearwater ) to provide monthly services in relationship to the brooken system pipeline . in accordance with terms of the agreement , clearwater ( i ) receives pipeline nominations from the various shippers on the brooken system , ( ii ) allocates volumes to the wellhead based upon the volumes delivered to the brooken interconnect , ( iii ) prepares gathering and compression fee invoices on behalf of the company , and ( iv ) prepares pipeline imbalance and cashout statements . the monthly gathering management fee that go pays for these services is $ 3,000. the agreement is month-to-month unless and until terminated by either party upon 30 days notice . 50 in addition , during the period from november 19 , 2007 through december 31 , 2007 , substantially all of the gas sales associated with rio vista 's oil and gas properties were made to clearwater . these gas sales were governed by an agreement that expires in 2009 and continues yearly thereafter , until canceled by either party 30 days notice . during march 2008 , certain of the clearwater agreements were amended to name rio vista operating llc as the contracting party based on rio vista operating llc 's assumption of operations of the oil and gas properties . gas compression agreements go entered into a one-year lease agreement with hanover compression limited partnership for the use of a compressor . the lease continues monthly until cancelled by either party with 30 days notice . minimum base lease payments of $ 10,500 plus taxes and are due monthly . the base amount is subject to semi-annual adjustments .
| cost of goods sold . cost of goods sold for the year ended december 31 , 2006 was $ 1.8 million compared with $ 2.1 million for the year ended december 31 , 2005. the cost of goods sold consists of those costs associated with operation of the us mexico pipelines and matamoros terminal facility . all costs associated with rio vista 's lpg sales business prior to its sale , except for costs associated with the us mexico pipelines and matamoros terminal facility , which were used for rio vista 's lpg transportation business , have been reclassified as discontinued operations ( see below ) . selling , general and administrative expenses . selling , general and administrative expenses were $ 2.8 million for the year ended december 31 , 2006 compared with $ 3.9 million for the year ended december 31 , 2005 , a decrease of $ 1.1 million or 28.2 % . these costs were comprised of indirect selling , general and administrative expenses directly incurred by rio vista or allocated by penn octane to rio vista in accordance with the omnibus agreement . salary related costs allocated by penn octane were based on the percentage of time spent by those employees ( including executive officers ) in performing rio vista related matters compared with the overall time spent working by those employees . the decrease was principally attributable to reduced professional fees and payroll related costs during the year ended december 31 , 2006 . 46 other income ( expense ) . other expense was approximately $ ( 0.1 ) million for the year ended december 31 , 2006 and consisted of interest expense on debt then in effect . other expense was approximately $ ( 0.4 ) million for the year ended december 31 , 2005 and primarily consisted of amortization of loan discount related to detachable warrants . discontinued operations the following discussion of rio vista 's results of operations from discontinued operations of its lpg sales business for the periods january
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the effective dates for both of the premium rate increases are january 9 , 2012 for new business and february 28 , 2012 for renewal business . a forms filing was made immediately after the rate filing to segregate the sinkhole coverage and to include updated policy language as a result of the property insurance bill which became law in may 2011 ( senate bill 408 ) . this forms filing is currently pending with the oir with an expected approval and implementation month 21 of march 2012. with the approval of this forms filing , sinkhole coverage will be removed from certain base homeowners policies and the coverage will be offered via endorsement for an additional surcharge , and a mandatory 10 % deductible , to those policyholders that meet the proposed eligibility standards . revised inspection and eligibility requirements will not be imposed upon existing policyholders who elect to continue sinkhole coverage at their policy renewal . sinkhole coverage and form changes for dwelling fire were filed at the same time and are similar in nature to those filed for homeowners . notification requirements for sinkhole coverage changes , once approved , will dictate the actual effective date for renewal business depending on the date of approval from the oir . coverage for catastrophic ground cover collapse will remain a covered peril under all standard policy forms . on february 22 , 2012 , we declared a dividend of $ 0.10 per share on our outstanding common stock payable on april 6 , 2012 , to shareholders of record at the close of business on march 28 , 2012. impact of new accounting pronouncement as discussed below in new accounting pronouncements issued but not yet adopted , we intend to prospectively adopt new accounting guidance in the first quarter of 2012 related to accounting for costs associated with acquiring or renewing insurance contracts . this guidance will result in a reduction of our net deferred policy acquisition costs by approximately 20 % to 30 % , which will cause us to recognize a material charge against earnings during the first quarter of 2012. this charge represents an acceleration of deferred charges in the period of adoption , which would have ultimately been recognized within a twelve-month period . thus , our adoption of this new accounting guidance will likely have a material impact on our results of operations in the first quarter of 2012. prior year rate increases impacting current results on october 19 , 2009 , upcic received approval for a premium rate increase for its homeowner 's program within florida . the premium rate increase averaged approximately 14.6 percent statewide . the effective dates for the premium rate increase were october 22 , 2009 for new business and december 11 , 2009 for renewal business . on november 3 , 2009 , upcic received approval for a premium rate increase for its dwelling fire program within florida . the premium rate increase averaged approximately 14.8 percent statewide . the effective dates for the premium rate increase were november 5 , 2009 for new business and december 29 , 2009 for renewal business . 2011-2012 reinsurance program in the normal course of business , we limit the maximum net loss that can arise from large risks , risks in concentrated areas of exposure and catastrophes , such as hurricanes or other similar loss occurrences , by reinsuring certain levels of risk in various areas of exposure with other insurers or reinsurers under our reinsurance agreements . see item 1 management of exposure to catastrophic losses. our intention is to limit our exposure and the insurance entities ' exposure thereby protecting stockholders ' equity and the insurance entities ' capital and surplus , even in the event of catastrophic occurrences , through reinsurance agreements . without these reinsurance agreements , the insurance entities would be more substantially exposed to catastrophic losses with a greater likelihood that those losses could exceed their statutory capital and surplus . any such catastrophic event , or multiple catastrophes , could have a material adverse effect on the insurance entities ' solvency and our results of operations , financial condition and liquidity . quota share effective june 1 , 2011 through may 31 , 2012 , upcic entered into a quota share reinsurance contract with everest re . everest re has the following ratings from each of the rating agencies : a+ from a.m. best company , a+ from standard and poor 's rating services and aa3 from moody 's investors service , inc. under the quota share contract , upcic cedes 50 % of its gross written premiums , losses and lae for policies with coverage for wind risk with a ceding commission equal to 25 % of ceded gross written premiums . in addition , the quota share contract has a limitation for any one occurrence not to exceed $ 34.8 million ( of which upcic 's net liability on the first $ 34.8 million of losses in a first event scenario is $ 17.4 million , in a second event scenario is $ 17.4 million and in a third event scenario is $ 30 million ) and a limitation from losses arising out of events that are assigned a catastrophe serial number by the property claims services ( pcs ) office not to exceed $ 69.6 million . the contract requires upcic to reassume 100 % of the attritional loss and lae activity from 30 % to 37.5 % of gross written premium and has a limitation for lae not to exceed 30 % of indemnity losses paid during the 22 contract period . further , the contract limits the amount of premium which can be deducted for inuring reinsurance to $ 288 million , excluding reinstatement premiums , or $ 326 million , including reinstatement premiums , if any . excess per risk effective june 1 , 2011 through may 31 , 2012 , upcic entered into a multiple line excess per risk contract with various reinsurers . story_separator_special_tag under the multiple line excess per risk contract , upcic obtained coverage of $ 1.4 million in excess of $ 600 thousand ultimate net loss for each risk and each property loss , and $ 1 million in excess of $ 300 thousand for each casualty loss . a $ 7 million aggregate limit applies to the term of the contract . effective june 1 , 2011 through may 31 , 2012 , upcic entered into a property per risk excess contract covering ex-wind only policies . under the property per risk excess contract , upcic obtained coverage of $ 400 thousand in excess of $ 200 thousand for each property loss . a $ 2 million aggregate limit applies to the term of the contract . the total cost of our multiple line excess reinsurance program effective june 1 , 2011 through may 31 , 2012 is $ 4 million of which our cost is 50 % , or $ 2 million and the quota share reinsurers ' cost is the remaining 50 % . the total cost of our property per risk reinsurance program effective june 1 , 2011 through may 31 , 2012 is $ 575 thousand . effective october 1 , 2011 through may 31 , 2012 , appcic entered into a multiple line excess per risk contract with various reinsurers . under the multiple line excess per risk contract , appcic obtained coverage of $ 8.4 million in excess of $ 600 thousand ultimate net loss for each risk and each property loss , and $ 1 million in excess of $ 300 thousand for each casualty loss . a $ 21 million aggregate limit applies to the term of the contract . the total cost of the appcic multiple line excess reinsurance program effective october 1 , 2011 through may 31 , 2012 is a minimum premium of $ 31,475 , of which our cost is 50 % or $ 15,737 and the quota share reinsurers ' cost is the remaining 50 % , which is equated as follows : $ 25,000 minimum premium on 87.5 % of the contract , $ 75,000 minimum premium on 10 % of the contract and $ 84,000 minimum premium on 2.5 % of the contract . the final premium will be determined by applying how much business appcic writes during this timeframe based on a predetermined pricing algorithm within the reinsurance contract . excess catastrophe effective june 1 , 2011 through may 31 , 2012 , under excess catastrophe contracts , upcic obtained catastrophe coverage of $ 541.3 million in excess of $ 185 million covering certain loss occurrences including hurricanes . the coverage of $ 541.3 million in excess of $ 185 million has a second full limit available to upcic . additional premium is calculated pro rata as to amount and 100 % as to time , as applicable . effective june 1 , 2011 through may 31 , 2012 , upcic purchased reinstatement premium protection which reimburses upcic for its cost to reinstate the catastrophe coverage of the first $ 399.3 million ( part of $ 541.3 million ) in excess of $ 185 million . effective june 1 , 2011 through may 31 , 2012 , under an excess catastrophe contract specifically covering risks located in georgia , north carolina and south carolina , upcic obtained catastrophe coverage of 50 % of $ 24.8 million in excess of $ 10 million and 100 % of $ 20 million in excess of $ 34.8 million covering certain loss occurrences including hurricanes . both coverages have a second full limit available to upcic . additional premium is calculated pro rata as to amount and 100 % as to time , as applicable . the cost of upcic 's excess catastrophe contracts specifically covering risks in georgia , north carolina and south carolina is $ 3.9 million . 23 effective june 1 , 2011 through may 31 , 2012 , upcic also obtained subsequent catastrophe event excess of loss reinsurance to cover certain levels of upcic 's net retention through three catastrophe events including hurricanes , as follows : replace_table_token_11_th upcic also obtained coverage from the florida hurricane catastrophe fund ( fhcf ) , which is administered by the florida state board of administration ( sba ) . under the reimbursement agreement , the fhcf would reimburse upcic , for each loss occurrence during the contract year , for 90 % of the ultimate loss paid by upcic in excess of its retention plus 5 % of the reimbursed losses to cover loss adjustment expenses , subject to an aggregate contract limit . a covered event means any one storm declared to be a hurricane by the national hurricane center for losses incurred in florida , both while it is a hurricane and through subsequent downgrades . for the contract year june 1 , 2011 to may 31 , 2012 , upcic purchased the traditional fhcf coverage and did not purchase the temporary increase in coverage limit option offered to insurers by the fhcf . upcic 's estimate of its traditional fhcf coverage is based upon upcic 's exposure in-force as of june 30 , 2011 , as reported by upcic to the fhcf on september 1 , 2011 and is 90 % of $ 1.208 billion in excess of $ 456 million . the estimated premium for this coverage is $ 73.2 million . also at june 1 , 2011 , the fhcf made available , and upcic obtained , $ 10.0 million of additional catastrophe excess of loss coverage with one free reinstatement of coverage to carriers qualified as limited apportionment companies or companies that participated in the insurance capital build-up incentive ( icbui ) program offered by the fhcf , such as upcic . this particular layer of coverage at june 1 , 2011 is $ 10.0 million in excess of $ 34.8 million . the premium for this coverage is $ 5.0 million .
| net unrealized losses on investments of $ 18.4 million , recorded during year ended december 31 , 2011 , reflect the net decrease in value of investments held in our trading portfolio as of december 31 , 2011 as well as the reversal of unrealized gains or losses for securities held at december 31 , 2010 and subsequently sold . these unrealized losses in the trading portfolio for the year ended december 31 , 2011 , were partially offset by realized gains of $ 2.4 million and foreign currency gains on investments of $ 1.5 million recorded during the same period . the unrealized losses reflect a decline in the value of our equity securities holdings during the second half of the year ended december 31 , 2011.we will continue to record future changes in the market value of our trading portfolio directly to earnings as unrealized gains and losses on investments . all investment securities held at june 30 , 2010 , were classified as available-for-sale with net unrealized losses reflected in accumulated other comprehensive income in the condensed consolidated statement of financial condition . during 2010 , management evaluated the trading activity of our investment portfolio , investing strategy and overall investment program . as a result of this evaluation , we reclassified the available-for-sale portfolio as a trading portfolio effective july 1 , 2010. since july 1 , 2010 , changes in the market value of our trading portfolio are recorded directly to revenues as unrealized gains or losses on investments . in previous periods , the changes in unrealized gains and losses on the available-for-sale portfolio were appropriately included in other comprehensive income rather than current period income . commission revenue is comprised principally of reinsurance commission sharing agreements . the increase in commission revenue of $ 1.6 million is due to an increase in the amount of ceded premiums . the increase in other revenues of $ 935 thousand is primarily due to a higher volume of referrals made to other insurance companies for coverage that we do not offer . the increase in losses and lae expenses is due to the servicing of additional policies from the growth in the average number of policies in-force and the associated increase in the aggregate total insured value
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irt 's markets have outperformed both the regional and national markets in terms of their ability to absorb new deliveries . strong employment outlook . we believe the broader economic trends across the united states , including the tax cuts and jobs act signed in 2017 , will benefit job growth for the foreseeable future . market trends . we continue to believe that the class b apartment market offers the most opportunity to consistently increase rents and is much less likely to be impacted from construction of new apartment supply . we also believe that the class b apartment sector has much less exposure to home ownership as we see far fewer move outs due to home purchases in our class b portfolio as compared to our class a portfolio . we are experiencing some challenges in a few of our markets where new apartment properties are being delivered , impacting our occupancy and ability to drive rents , as some tenants seek out the low rental pricing typically charged by new apartment properties in lease-up . typically , once this supply pressure abates , occupancies and the ability to push rental rates return . interest rate environment . we expect interest rates to rise in 2018 as the united states federal reserve targets to achieve its unemployment and inflationary goals . as a result , we expect benchmark rates for lending to rise and eventually , capitalization rates . as of december 31 , 2017 , all of our debt is effectively fixed rate , using fixed rate mortgages and interest rate derivatives . as a result , we do not expect an increase in our interest expense in 2018 from a rising interest rate environment . however , an increase in capitalization rates may affect the pricing of properties we wish to buy or sell . 38 story_separator_special_tag style= '' font-style : normal ; '' > during the year ended december 31 , 2016 , we recognized a $ 45.0 million loss due to our management internalization . 40 year ended december 31 , 2016 compared to the year ended december 31 , 2015 replace_table_token_12_th ( a ) same store portfolio consists of 22 properties , which represent 6,451 units . revenue rental income . rental revenue increased $ 39.2 million to $ 137.4 million for the year ended december 31 , 2016 from $ 98.2 million for the year ended december 31 , 2015. the increase was primarily attributable to $ 45.0 million of rental income from the acquisition of 20 properties during the year ended december 31 , 2015 present for a full year of operations in 2016 , and an increase of $ 1.7 million due to improved occupancy and rental rates at our same store properties . the increase was partially offset by a decrease of $ 8.0 million of rental income related to four properties that were disposed of and not present for a full year of operations in 2016. tenant reimbursement and other income . tenant reimbursement and other income increased $ 4.5 million to $ 15.9 million for the year ended december 31 , 2016 from $ 11.4 million for the year ended december 31 , 2015. the increase was primarily attributable to $ 4.9 million of tenant reimbursement and other income from the acquisition of 20 properties during the year ended december 31 , 2015 present for a full year of operations in 2016 , and an increase of $ 0.4 million of tenant reimbursement and other income in our same store portfolio . the increase was partially offset by a decrease of $ 0.9 million of tenant reimbursement and other income related to four properties that were disposed of and not present for a full year of operations in 2016. expenses property operating expenses . property operating expenses increased $ 16.8 million to $ 63.1 million for the year ended december 31 , 2016 from $ 46.3 million for the year ended december 31 , 2015. the increase was primarily attributable to $ 19.6 million of real estate operating expense from the acquisition of 20 properties during the year ended december 31 , 2015 present for a full year of operations in 2016 , and an increase of $ 0.4 million of real estate operating expense in our same store portfolio . this increase was partially offset by a decrease of $ 3.4 million of real estate operating expenses related to four properties that were disposed of and not present for a full year of operations in 2016. property management expenses . property management expenses increased $ 1.1 million to $ 4.8 million for the year ended december 31 , 2016 from $ 3.7 million for the year ended december 31 , 2015. the increase was primarily attributable to $ 1.5 million of property management expense from the acquisition of 20 properties during the year ended december 31 , 2015 present for a full 41 year of operations in 2016. the increase was partially offset by a decrease of $ 0.3 million of property management expense related to four properties that were disposed of and not present for a full year of op erations in 2016. general and administrative expenses . general and administrative expenses increased $ 1.2 million to $ 3.4 million for the year ended december 31 , 2016 from $ 2.2 million for the year ended december 31 , 2015. this was primarily due to an increase of $ 0.7 million of stock based compensation and $ 0.5 million of professional fees for the year ended december 31 , 2016 compared to the year ended december 31 , 2015. asset management fees . story_separator_special_tag asset management fees increased $ 1.8 million to $ 7.4 million for the year ended december 31 , 2016 from $ 5.6 million for the year ended december 31 , 2015. the increase was primarily due to the growth of our portfolio of real estate properties which occurred in 2015 and the related capital used to complete the acquisitions as well as the offering that was completed in october 2016. additionally , as part of the tsre merger in september 2015 , we changed the structure of our advisory contract with rait . through september 30 , 2015 , the asset management fees payable to rait were calculated as 75 basis points of our average gross real estate assets , with an incentive fee due equal to 20 % of any excess core ffo over a 7 % core ffo return . as of october 1 , 2015 , the fee structure became a base fee of 1.5 % of cumulative equity with an incentive fee equal to 20 % of core ffo in excess of $ 0.20 per share . we terminated the advisory agreement requiring us to pay these asset management fees on december 20 , 2016 in connection with the management internalization . acquisition and integration expenses . acquisition and integration expenses were $ 13.6 million for the year ended december 31 , 2015. these expenses primarily related to the tsre merger in which we acquired 19 properties in 2015. depreciation and amortization expense . depreciation and amortization expense increased $ 6.7 million to $ 34.8 million for the year ended december 31 , 2016 from $ 28.1 million for the year ended december 31 , 2015. the increase was primarily attributable to $ 11.5 million of depreciation and amortization expense from the acquisition of 20 properties during the year ended december 31 , 2015 present for a full year of operations in 2016. the increase was partially offset by a decrease of $ 1.9 million of depreciation and amortization expense related to four properties that were disposed of and not present for a full year of operations in 2016 and by a decrease of $ 3.3 million of amortization expense in our same store portfolio . interest expense . interest expense increased $ 11.9 million to $ 35.5 million for the year ended december 31 , 2016 from $ 23.6 million for the year ended december 31 , 2015. the increase was primarily attributable to $ 7.8 million of additional interest expense on debt obtained in connection with the tsre merger that was present for a full year of operation in 2016 , and $ 6.7 million attributable to additional debt obtained on properties acquired during the year ended december 31 , 2015 and present for a full year of operations in 2016. the increase was partially offset by a decrease of $ 1.6 million of interest expense related to four properties that were disposed of and not present for a full year of operation in 2016 and by a decrease of $ 1.1 million of interest expense related to the loan payoff of our oklahoma city portfolio of properties . net gains ( losses ) on sale of assets . during the year ended december 31 , 2016 , three multi-family properties were sold resulting in gains of $ 31.8 million . gains ( losses ) on extinguishment of debt . during the year ended december 31 , 2016 , we recognized a $ 1.2 million loss on the extinguishment of the debt related to the write-off of the unamortized deferred financing costs associated with debt that was extinguished . management internalization expense . during the year ended december 31 , 2016 , we recognized a $ 45.0 million loss due to our management internalization . non-gaap financial measures funds from operations and core funds from operations we believe that ffo and core ffo , or cffo , each of which is a non-gaap financial measure , are additional appropriate measures of the operating performance of a reit and us in particular . we compute ffo in accordance with the standards established by the national association of real estate investment trusts , or nareit , as net income or loss allocated to common shares ( computed in accordance with gaap ) , excluding real estate-related depreciation and amortization expense , gains or losses on sales of real estate and the cumulative effect of changes in accounting principles . cffo is a computation made by analysts and investors to measure a real estate company 's operating performance by removing the effect of items that do not reflect ongoing property operations , including stock compensation expense , depreciation and amortization of other items not included in ffo , amortization of deferred financing costs , acquisition and integration expenses , other non-operating gains or losses related to items such as defeasance costs we incur when we sell a property subject to secured debt , asset sales , debt extinguishments , 42 acquisition re lated debt extinguishment expenses , gains on the tsre merger , and management internalization expenses , from the determination of ffo . irt incurs acquisition expenses in connection with acquisitions of real estate properties and expenses those costs when in curred in accordance with gaap . as these expenses are one-time and reflective of investing activities rather than operating performance , irt adds back these costs to ffo in determining cffo . our calculation of cffo differs from the methodology used for calculating cffo by certain other reits and , accordingly , our cffo may not be comparable to cffo reported by other reits . our management utilizes ffo and cffo as measures of our operating performance , and believe they are also useful to investors , because they facilitate an understanding of irt 's operating performance after adjustment for certain non-cash or non-recurring items that are required by gaap to be expensed but may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods .
| property management expenses increased $ 1.2 million to $ 6.0 million for the year ended december 31 , 2017 from $ 4.8 million for the year ended december 31 , 2016. this increase coincides with the abovementioned increase in property management income driven by our management internalization . after our management internalization , property management expenses include costs incurred to directly support on-site management . prior to this , property management expenses included property and construction management fees paid to our former property manager . 39 general and administrative expenses . general and administrative expenses decreased $ 1.4 million to $ 9.5 million for the year ended december 31 , 2017 from $ 10.9 million for the year ended december 31 , 2016. after our management internalization , general and administrative expenses included office and compensation expenses , including stock-based compensation , for our asset management and corporate employees . prior to this , general and administrative expenses were mostly comprised of fees paid to our former advisor . acquisition and integration expenses . acquisition and integration expenses were $ 1.3 million for the year ended december 31 , 2017. these expenses primarily related to the acquisition of the hpi portfolio . depreciation and amortization expense . depreciation and amortization expense decreased $ 0.6 million to $ 34.2 million for the year ended december 31 , 2017 from $ 34.8 million for the year ended december 31 , 2016. the decrease was primarily attributable to a $ 3.7 million decrease of amortization expense related to intangible assets in our same store portfolio . this decrease was offset by a $ 3.2 million increase in depreciation and amortization expense related to our 10 acquisitions in 2017. interest expense . interest expense decreased $ 6.8 million to $ 28.7 million for the year ended december 31 , 2017 from $ 35.5 million for the year ended december 31 , 2016. the decrease was primarily due to debt reductions in 2016 when our term loan was fully repaid and our credit facility balance decreased by $ 121.5
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in addition , we plan to close on a $ 80 million term loan and exercise the $ 70 million accordion feature on our revolving credit facility during the first quarter of 2012. the following is a discussion of our highlights for the years ended december 31 , 2011 , 2010 and 2009 , which should be read in conjunction with the financial statements appearing in item 8 of this annual report on form 10-k. unless otherwise indicated , this discussion is for both medical properties trust , inc. and mpt operating partnership , l.p. as medical properties trust , inc. has no significant operations other than those of mpt operating partnership , l.p. 2011 highlights in 2011 , our primary business goals were to continue our growth pattern , improve diversification of our portfolio , recapitalize our balance sheet with longer-term unsecured debt , and increase our access to liquidity . we took the following actions to achieve these goals , among others : acquired real estate assets , entered into leases , made new loan investments and obtained equity interests in several tenants ( under the ridea guidelines ) totaling approximately $ 330 million as noted below : gilbert hospital real estatea 19-bed , 4-year old general acute care facility located in a suburb of phoenix , arizona for $ 17.1 million . we acquired this asset subject to an existing lease that expires in may 2022. atrium medical center at corinth real estatea 60-bed long-term acute care facility in the dallas area for $ 23.5 million . facility is subject to a lease that expires in june 2024. in addition , through one of our affiliates , we invested $ 1.3 million to acquire a 10 % interest in the operations of the facility . we also made a $ 5.2 million working capital loan . bayonne medical center real estatea 6-story , 278-bed acute care hospital in the new jersey area of metropolitan new york for $ 58 million . facility will be leased to the operator under a 15-year lease . alvarado hospital real estatea 306-bed general acute care facility in san diego , california for $ 70 million . this facility will be leased to the operator under a 10-year lease . northland ltach hospital real estatea 35-bed long-term acute care facility located in kansas city for $ 19.5 million . we acquired this asset subject to an existing lease that expires in 2028. vibra specialty hospital of desoto real estatea 40-bed long-term acute care facility in desoto , texas for $ 13.0 million . this facility will be leased for a fixed term of 15 years . in addition , we have made a $ 2.5 million equity investment in the operator of this facility for a 25 % equity ownership . new braunfels real estatea 40-bed long-term acute care facility in new braunfels , texas for $ 10.0 million . this facility will be leased for a fixed term of 15 years . in addition , we have made a $ 1.4 million equity investment for a 25 % equity ownership in the operator of this facility and funded a $ 2.0 million working capital loan . emerus development projectentered into agreements with a joint venture of emerus holding , inc. and baptist health system , to acquire , provide for development funding and lease three acute care hospitals for $ 30.0 million in the suburban markets of san antonio , texas . with the execution of these agreements , we funded $ 7.4 million during the fourth quarter of 2011 , of which $ 6.2 million was used to acquire land for these three facilities . the three facilities upon 37 index to financial statements completion will be leased under a master lease structure with an initial term of 15 years and three five-year extension options . we currently expect construction of these three facilities to be completed in the fourth quarter of 2012. hoboken university medical center real estatea 350-bed acute care facility located in hoboken , new jersey . the total investment for this transaction was $ 75.0 million , comprising $ 50.0 million for the acquisition of an 100 % ownership of the real estate , a secured working capital loan of up to $ 20.0 million ( $ 15.1 million outstanding at december 31 , 2011 ) , and the purchase of a $ 5.0 million convertible note which provides us with the option to acquire up to 25 % of the hospital operator . the lease with the tenant has an initial term of 15 years . with these new investments , all of our diversification metrics have improved as noted below : tenant diversificationfrom an investment concentration perspective , prime represented 25.3 % of our total assets at december 31 , 2011 , down from 26.7 % in the prior year . individual property diversificationon an individual property basis , we had no investment of any single property greater than 5.6 % of our total assets as of december 31 , 2011 , down from 6.7 % in the prior year . geographic diversificationinvestments located in california represented 26.8 % of our total assets at december 31 , 2011 , down from 28.6 % in the prior year . substantially modified our credit profile by refinancing most of our secured debt with unsecured debt by issuing $ 450 million of senior unsecured notes with a fixed rate of 6.875 % due in 2021. in connection with these notes , we amended our existing credit agreement to go unsecured on our revolving credit facility , extend the maturity to october 2015 and lowered our interest rate spread . sold our morgantown and sherman oaks facilities for $ 41 million , resulting in gains of $ 5.4 million . with the financing activities and property sales noted above , we funded our 2011 acquisition activity as well as paid off certain loans ( including the remaining portion of our 2006 exchangable notes ) and extended our debt maturities . story_separator_special_tag at december 31 , 2011 ( and excluding any subsequent events ) , we have approximately $ 50 million of principal payments due through october 2015 . 2010 highlights in 2010 , our primary business goals were to recapitalize our balance sheet with longer-term debt and lower leverage , increase our access to liquidity and accelerate our acquisitions of healthcare real estate . we took the following actions to achieve these goals among others : replaced old $ 220 million credit facility with a new $ 480 million credit facility and completed a $ 279 million stock offering , establishing a low leverage platform with more than $ 500 million of available capital for acquisition growth ; purchased $ 128.8 million of our 6.125 % senior notes , leaving only $ 9.2 million of the 2006 exchangeable notes remaining to be paid by november 2011 ; paid $ 30 million term loan maturing in 2010 ; completely paid down $ 40 million revolver ; committed to more than $ 200 million in healthcare real estate investments : acquired three inpatient rehabilitation hospitals in texas with a new tenant for $ 74 million ; commenced redevelopment of the river oaks hospital in houston ; entered into $ 30 million agreement to develop phoenix-area general acute care hospital ; 38 index to financial statements acquired two free standing long term acute care hospitals and a third property in the first quarter 2011 , all leased to and operated by kindred healthcare inc. ( formerly rehabcare ) , the nation 's third largest operator of ltachs , for $ 83.4 million . sold our inglewood property for $ 75 million in cash realizing a $ 6.2 million gain , received $ 40 million in early payment of loans , and received $ 12 million in early receipt of rent related to transactions with prime , lowering prime concentration to 26.7 % of our total assets ; sold our montclair hospital for $ 20 million in cash realizing a gain of $ 2.2 million ; sold our sharpstown facility in houston , texas for $ 3 million in cash realizing a $ 0.7 million gain ; received pre-payment of our marina mortgage loan of $ 43 million ; entered into interest rate swaps to fix $ 60 million of our senior notes starting october 30 , 2011 ( date on which the interest rate was scheduled to turn variable ) through the maturity date at a rate of 5.675 % and to fix $ 65 million of our senior notes , starting july 30 , 2011 ( date on which the interest rate was scheduled to turn variable ) through maturity date , at a rate of 5.507 % , which was expected to result in a $ 2.5 million annual savings on interest expense based on the then current fixed rate ; and recorded a $ 12 million charge to recognize the estimated impairment of our monroe working capital loan . 2009 highlights in 2009 , our primary business goal was to preserve capital during the recent economic and credit crisis . below are actions taken to achieve that goal along with other highlights for the year : issued 13.3 million shares of common stock resulting in net proceeds of $ 67.8 million ; sold an acute care facility to prime for $ 15.0 million , realizing a gain of $ 0.3 million ; executed a $ 20 million mortgage loan , of which we advanced $ 15.0 million by end of year . loan is collateralized by prime 's desert valley facility . the purpose of the mortgage loan is to help fund a $ 35 million expansion and renovation project ; re-leased our bucks county facility within six months of terminating the previous lease on the facility due to tenant defaults ; terminated leases on two of our louisiana ( covington and denham springs ) facilities but subsequently re-leased the denham springs facility with a new operator at similar terms within 2 months of the prior lease termination ; entered into an at-the-market offering , which allows us to sell up to $ 50 million in stock the proceeds from which will be used for general corporate purposes , which may from time to time include reduction of our debt balances and investments in healthcare real estate and other assets ; and settled the stealth litigation . critical accounting policies in order to prepare financial statements in conformity with accounting principles generally accepted in the united states , we must make estimates about certain types of transactions and account balances . we believe that our estimates of the amount and timing of our revenues , credit losses , fair values ( either as part of a purchase price allocation or impairment analysis ) and periodic depreciation of our real estate assets , and stock compensation expense , along with our assessment as to whether an entity that we do business with should be consolidated with our results , have significant effects on our financial statements . each of these items involves estimates that require us to make subjective judgments . we rely on our experience , collect historical and current market data , and develop relevant assumptions to arrive at what we believe to be reasonable estimates . under different conditions or assumptions , materially different amounts could be reported related to the accounting 39 index to financial statements policies described below . in addition , application of these accounting policies involves the exercise of judgment on the use of assumptions as to future uncertainties and , as a result , actual results could materially differ from these estimates . our accounting estimates include the following : revenue recognition : we receive income from operating leases based on the fixed , minimum required rents ( base rents ) per the lease agreements . rent revenue from base rents is recorded on the straight-line method over the terms of the related lease agreements for new leases and the remaining terms of existing leases for acquired properties .
| the increase in base rents and percentage rent is primarily due to incremental revenue from acquisitions made in 2011 and 2010 and additional rent generated from annual escalation provisions in our leases . straight line rents significantly increased from the prior year primarily due to approximately $ 1.7 million of unbilled rent that was reclassed to billed rent in the second quarter of 2010 with the additional rent payment received on our shasta property and the write-off/reserve of $ 2.5 million and $ 0.2 million in straight-line rent receivables associated with our monroe and cleveland facilities , respectively . interest income decreased from the prior year due to the prepayment of $ 40 million in loans in the second quarter of 2010. real estate depreciation and amortization during 2011 was $ 32.9 million , compared to $ 22.8 million in 2010 , a 44.1 % increase , due to the incremental depreciation from the properties acquired during 2010 and 2011. property-related expenses during 2011 decreased from $ 4.4 million in 2010 to $ 1.1 million in 2011 due to the write-off of $ 2.4 million in receivables related to a former tenant in the fourth quarter of 2010 and $ 1.3 million of utility costs , repair and maintenance expense , legal , and property taxes associated with vacant facilities in 2010. no similar costs were incurred in 2011 as all of our facilities are currently fully operating with the exception of those facilities that are under development . in the 2011 second quarter , we recognized a $ 0.6 million real estate impairment charge related to our denham springs facility , while , in the 2010 first quarter , we recognized a $ 12 million loan impairment charge related to our monroe facility . general and administrative expenses in 2011 and 2010 totaled $ 27.2 million and $ 26.5 million , respectively . we incurred higher travel costs and office expenses in 2011 , which was offset by a $ 2.8 million charge recognized during the second quarter of 2010 as a result of the resignation of an executive officer . acquisition expenses increased from $ 2.0
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collaboration revenue we have entered into various agreements related to our activities to research , develop , manufacture , and commercialize product candidates and utilize our technology platforms . depending on the terms of the arrangement , we may defer the recognition of all or a portion of the consideration received because the performance obligations are satisfied over time . our collaboration agreements may require us to deliver various rights , services , and or goods across the entire life cycle of a product or product candidate . in agreements involving multiple goods or services promised to be transferred to a customer , we must assess , at the inception of the contract , whether each promise represents a separate performance obligation ( i.e . , is `` distinct '' ) , or whether such promises should be combined as a single performance obligation . at the inception of the contract , the transaction price reflects the amount of consideration we expect to be entitled to in exchange for transferring promised goods or services to our customer . we review our estimate of the transaction price each period and make revisions to such estimates as necessary . in arrangements where we satisfy performance obligation ( s ) during the development phase over time , we recognize collaboration revenue over time typically using an input method on the basis of our research and development costs incurred relative to the total expected cost which determines the extent of our progress toward completion . due to the variability in the scope of activities and length of time necessary to develop a drug product , potential delays in development programs , changes to development plans and budgets as programs progress , including if we and our collaborators decide to expand or contract our clinical plans for a drug candidate in various disease indications , and uncertainty in the ultimate requirements to obtain governmental approval for commercialization , revisions to our estimates are likely to occur periodically , and could result in material changes to the amount of revenue recognized each year in the future . when we are entitled to reimbursement of all or a portion of the research and development expenses that we incur under a collaboration , we record those reimbursable amounts proportionately as we recognize our expenses . if the collaboration is a cost-sharing arrangement in which both we and our collaborator perform development work and share costs , we also recognize , as research and development expense in the period when our collaborator incurs development expenses , a portion of the collaborator 's development expenses that we are obligated to reimburse . our collaborators provide us with estimated development expenses for the most recent fiscal quarter . our collaborators ' estimates are reconciled to their actual expenses for such quarter in the subsequent fiscal quarter , and our portion of our collaborators ' development expenses that we are obligated to reimburse is adjusted on a prospective basis accordingly , as necessary . under certain of our collaboration agreements , product sales and cost of sales may be recorded by our collaborators as they are deemed to be the principal in the transaction . we share in any profits or losses arising from the commercialization of such products , and record our share of the variable consideration , representing net product sales less cost of goods sold and shared commercialization and other expenses , as collaboration revenue in the period in which such underlying sales occur and costs are incurred by the collaborator . our collaborator provides us with our estimated share of the profits or losses from commercialization of such products for the most recent fiscal quarter . our collaborators ' estimates of profits or losses for such quarter are reconciled to actual profits or losses in the subsequent fiscal quarter , and our share of the profit or loss is adjusted on a prospective basis accordingly , as necessary . 61 in arrangements where the collaborator records product sales , we may be obligated to use commercially reasonable efforts to supply commercial product to our collaborators and may be reimbursed for our manufacturing costs as commercial product is shipped to our collaborators ; however , recognition of such cost reimbursements as collaboration revenue is deferred until the product is sold by our collaborators to third-party customers . stock-based compensation we recognize stock-based compensation expense for grants under our long-term incentive plans to employees and non-employee members of our board of directors based on the grant-date fair value of those awards . the grant-date fair value of an award is generally recognized as compensation expense over the award 's requisite service period . we use the black-scholes model to compute the estimated fair value of stock option awards . using this model , fair value is calculated based on assumptions with respect to ( i ) expected volatility of our common stock price , ( ii ) the periods of time over which employees and members of our board of directors are expected to hold their options prior to exercise ( expected lives ) , ( iii ) expected dividend yield on our common stock , and ( iv ) risk-free interest rates , which are based on quoted u.s. treasury rates for securities with maturities approximating the options ' expected lives . expected volatility has been estimated based on actual movements in our stock price over the most recent historical periods equivalent to the options ' expected lives . expected lives are principally based on our historical exercise experience with previously issued employee and board of directors option grants . the expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future . stock-based compensation expense also includes an estimate , which is made at the time of grant , of the number of awards that are expected to be forfeited . this estimate is revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . story_separator_special_tag the assumptions used in computing the fair value of stock option awards reflect our best estimates but involve uncertainties related to market and other conditions , many of which are outside of our control . changes in any of these assumptions may materially affect the fair value of stock option awards granted and the amount of stock-based compensation recognized in future periods . income taxes we recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns , including deferred tax assets and liabilities for expected amounts of global intangible low-taxed income ( `` gilti '' ) inclusions . deferred tax assets and liabilities are determined as the difference between the tax basis of assets and liabilities and their respective financial reporting amounts ( `` temporary differences '' ) at enacted tax rates in effect for the years in which the differences are expected to reverse . a valuation allowance is established for deferred tax assets for which it is more likely than not that some portion or all of the deferred tax assets will not be realized . we periodically re-assess the need for a valuation allowance against our deferred tax assets based on all available evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies , results of recent operations , and our historical earnings experience by taxing jurisdiction . significant judgment is required in making this assessment . uncertain tax positions , for which management 's assessment is that there is more than a 50 % probability of sustaining the position upon challenge by a taxing authority based upon its technical merits , are subjected to certain recognition and measurement criteria . significant judgment is required in making this assessment , and , therefore , we re-evaluate uncertain tax positions and consider various factors , including , but not limited to , changes in tax law , the measurement of tax positions taken or expected to be taken in tax returns , and changes in facts or circumstances related to a tax position . we adjust the level of the liability to reflect any subsequent changes in the relevant facts and circumstances surrounding the uncertain positions . inventories we capitalize inventory costs associated with our products prior to regulatory approval when , based on management 's judgment , future commercialization is considered probable and the future economic benefit is expected to be realized ; otherwise , such costs are expensed . the determination to capitalize inventory costs is based on various factors , including status and expectations of the regulatory approval process , any known safety or efficacy concerns , potential labeling restrictions , and any other impediments to obtaining regulatory approval . we periodically analyze our inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value , and write-down such inventories as appropriate . in addition , our products are subject to strict quality control and monitoring which we perform throughout the manufacturing process . if certain batches or units of product no longer meet quality specifications or become obsolete due to expiration , we record a charge to write down such unmarketable inventory to its estimated realizable value . 62 contingencies we accrue , based on management 's judgment , for an estimated loss when the potential loss from claims or legal proceedings is considered probable and the amount can be reasonably estimated . as additional information becomes available , or , based on specific events such as the outcome of litigation or settlement of claims , we reassess the potential liability related to pending claims and litigation , and may change our estimates . story_separator_special_tag style= '' vertical-align : bottom ; background-color : # cceeff ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; '' > 108.9 157.4 101.2 reimbursement of commercialization-related expenses ( 1 ) 10.3 8.9 7.0 amounts recognized in connection with up-front payments received 92.7 243.8 80.0 other ( 11.3 ) ( 12.4 ) ( 3.5 ) total immuno-oncology 254.7 552.1 323.5 total sanofi collaboration revenue $ 1,426.8 $ 1,111.1 $ 877.2 ( 1 ) the corresponding commercialization-related costs incurred by us are recorded within selling , general and administrative expense . ( 2 ) the corresponding costs incurred by us in connection with such production is recorded within cost of collaboration and contract manufacturing . antibody the company 's discovery and preclinical development agreement ( `` antibody discovery agreement '' ) with sanofi ended on december 31 , 2017 without any extension and , therefore , there was no further funding from sanofi under the antibody discovery agreement after 2017 . `` reimbursement of commercialization-related expenses '' in the table above represents reimbursement of internal and external costs incurred by regeneron in connection with commercializing dupixent , praluent , and kevzara . 64 regeneron 's share of profits ( losses ) in connection with the commercialization of dupixent , praluent , and kevzara is summarized below : year ended december 31 , ( in millions ) 2019 2018 2017 dupixent , praluent , and kevzara net product sales * $ 2,811.0 $ 1,325.4 $ 464.5 regeneron 's share of collaboration profits ( losses ) 233.0 ( 227.0 ) ( 442.6 ) reimbursement of development expenses incurred by sanofi in accordance with regeneron 's payment obligation ( 23.7 ) — — regeneron 's share of profits ( losses ) in connection with commercialization of antibodies $ 209.3 $ ( 227.0 ) $ ( 442.6 ) regeneron 's share of collaboration profits as a percentage of dupixent , praluent , and kevzara net product sales 7 % * * * * * global net product sales of dupixent , praluent , and kevzara are recorded by sanofi * * percentage not meaningful we and sanofi share commercial expenses related to dupixent , praluent , and kevzara in accordance with the companies ' license and collaboration agreement .
| results of operations net income replace_table_token_4_th revenues replace_table_token_5_th net product sales net product sales of eylea in the united states increased in 2019 compared to 2018 due to higher sales volume , partly offset by an increase in sales-related deductions primarily due to higher rebates and discounts . on september 28 , 2018 , the fda approved libtayo for the treatment of patients with metastatic or locally advanced cscc and sales commenced thereafter . revenue from product sales is recorded net of applicable provisions for rebates , chargebacks , and discounts ; distribution-related fees ; and other sales-related deductions . the following table summarizes the provisions , and credits/payments , for sales-related deductions . 63 replace_table_token_6_th sanofi collaboration revenue year ended december 31 , ( in millions ) 2019 2018 2017 antibody : reimbursement of research and development expenses - discovery agreement — — $ 130.0 reimbursement of research and development expenses - license and collaboration agreement $ 277.7 $ 265.3 378.4 reimbursement of commercialization-related expenses ( 1 ) 479.9 417.2 368.8 reimbursement for manufacturing of commercial supplies ( 2 ) 206.7 127.6 35.1 regeneron 's share of profits ( losses ) in connection with commercialization of antibodies 209.3 ( 227.0 ) ( 442.6 ) other ( 1.5 ) ( 24.1 ) 84.0 total antibody 1,172.1 559.0 553.7 immuno-oncology : reimbursement of research and development expenses - discovery agreement 54.1 154.4 138.8 reimbursement of research and development expenses - license and collaboration agreement < td colspan= '' 2 ''
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our selling , general and administrative expenses increased $ 0.3 million due to increased compensation expense offset slightly by a decrease of $ 0.1 million in bad debt expense . depreciation and amortization . depreciation expense increased $ 0.1 million due to capital projects being completed and placed in service during the second half of 2016. other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . 47 marine transportation segment comparative results of operations for the twelve months ended december 31 , 2018 and 2017 replace_table_token_13_th revenues . an increase of $ 1.8 million in inland revenue was primarily related to new equipment being placed in service . revenue was also impacted by an increase in pass-through revenue ( primarily fuel ) of $ 2.1 million . an offsetting decrease of $ 3.1 million is attributable to revenue related to equipment sold or being classified as idle or held for sale . a $ 0.2 million increase in offshore revenues is primarily the result of increased utilization . operating expenses . the decrease in operating expenses is primarily a result of decreased labor and burden of $ 1.8 million , a reclassification of labor and burden from operating expense to selling general and administrative expense for the 2018 period of $ 0.7 million , repairs and maintenance of $ 0.8 million , barge rental expense of $ 1.0 million , property and liability insurance premiums of $ 1.0 million , and outside towing of $ 0.3 million . these decreases were offset by an increase in pass through expenses ( primarily fuel ) of $ 2.2 million , marine jones act claims of $ 0.4 million , and contract labor of $ 0.3 million . selling , general and administrative expenses . selling , general and administrative expenses increased primarily due to the reclassification of expenses from operating expense to selling , general , and administrative expense of $ 0.7 million for the 2018 period . impairment of long-lived assets . this represents the loss on impairment of non-core operating assets . depreciation and amortization . depreciation and amortization increased as a result of recent capital expenditures offset by asset disposals . other operating loss , net . other operating loss represents losses from the disposition of property , plant and equipment . 48 comparative results of operations for the twelve months ended december 31 , 2017 and 2016 replace_table_token_14_th inland revenues . a decrease of $ 7.2 million is primarily attributable to decreased transportation rates and decreased utilization of the inland fleet resulting from an abundance of supply of marine equipment in our predominantly gulf coast market . offshore revenues . a $ 2.4 million decrease in offshore revenues is primarily the result of the 2016 period including the recognition of previously deferred revenues of $ 1.5 million and decreased utilization of the offshore fleet due to downtime associated with regulatory inspections of $ 0.7 million . operating expenses . the decrease in operating expenses is primarily a result of decreased labor and burden of $ 3.9 million , repairs and maintenance of $ 1.3 million , jones act claims of $ 0.8 million , pass-through expenses ( primarily barge tank cleaning ) of $ 0.7 million , outside towing of $ 0.4 million , barge rental expense of $ 0.4 million , property taxes of $ 0.3 million , operating supplies of $ 0.3 million , and property insurance premiums of $ 0.2 million . selling , general and administrative expenses . selling , general and administrative expenses increased primarily due to the 2016 period including the collection of a previously deemed uncollectible receivable of $ 0.5 million , offset by decreased legal fees of $ 0.1 million . impairment of long-lived assets . this represents the loss on impairment of non-core operating assets . loss on impairment of goodwill . this represents the loss on impairment of goodwill in the marine transportation reporting unit during the second quarter of 2016. depreciation and amortization . depreciation and amortization decreased as a result of the disposal of property , plant and equipment combined with the impairment of long-lived assets recognized in the fourth quarter of 2016 , offset by recent capital expenditures . other operating loss , net . other operating loss represents losses from the disposition of property , plant and equipment . 49 interest expense comparative components of interest expense , net for the twelve months ended december 31 , 2018 and 2017 replace_table_token_15_th comparative components of interest expense , net for the twelve months ended december 31 , 2017 and 2016 replace_table_token_16_th indirect selling , general and administrative expenses replace_table_token_17_th the increase in indirect selling , general and administrative expenses from 2017 to 2018 is primarily a result of increased unit based compensation expense . the increase in indirect selling , general and administrative expenses from 2016 to 2017 is primarily a result of a $ 0.6 million increase in audit , consulting and other professional fees . martin resource management allocates to us a portion of its indirect selling , general and administrative expenses for services such as accounting , treasury , clerical , engineering , legal , billing , information technology , administration of insurance , general office expenses and employee benefit plans and other general corporate overhead functions we share with martin resource management retained businesses . this allocation is based on the percentage of time spent by martin resource management personnel that provide such centralized services . gaap also permits other methods for allocation of these expenses , such as basing the allocation on the percentage of revenues contributed by a segment . the allocation of these expenses between martin resource management and us is subject to a number of judgments and estimates , regardless of the 50 method used . we can provide no assurances that our method of allocation , in the past or in the future story_separator_special_tag our selling , general and administrative expenses increased $ 0.3 million due to increased compensation expense offset slightly by a decrease of $ 0.1 million in bad debt expense . depreciation and amortization . depreciation expense increased $ 0.1 million due to capital projects being completed and placed in service during the second half of 2016. other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . 47 marine transportation segment comparative results of operations for the twelve months ended december 31 , 2018 and 2017 replace_table_token_13_th revenues . an increase of $ 1.8 million in inland revenue was primarily related to new equipment being placed in service . revenue was also impacted by an increase in pass-through revenue ( primarily fuel ) of $ 2.1 million . an offsetting decrease of $ 3.1 million is attributable to revenue related to equipment sold or being classified as idle or held for sale . a $ 0.2 million increase in offshore revenues is primarily the result of increased utilization . operating expenses . the decrease in operating expenses is primarily a result of decreased labor and burden of $ 1.8 million , a reclassification of labor and burden from operating expense to selling general and administrative expense for the 2018 period of $ 0.7 million , repairs and maintenance of $ 0.8 million , barge rental expense of $ 1.0 million , property and liability insurance premiums of $ 1.0 million , and outside towing of $ 0.3 million . these decreases were offset by an increase in pass through expenses ( primarily fuel ) of $ 2.2 million , marine jones act claims of $ 0.4 million , and contract labor of $ 0.3 million . selling , general and administrative expenses . selling , general and administrative expenses increased primarily due to the reclassification of expenses from operating expense to selling , general , and administrative expense of $ 0.7 million for the 2018 period . impairment of long-lived assets . this represents the loss on impairment of non-core operating assets . depreciation and amortization . depreciation and amortization increased as a result of recent capital expenditures offset by asset disposals . other operating loss , net . other operating loss represents losses from the disposition of property , plant and equipment . 48 comparative results of operations for the twelve months ended december 31 , 2017 and 2016 replace_table_token_14_th inland revenues . a decrease of $ 7.2 million is primarily attributable to decreased transportation rates and decreased utilization of the inland fleet resulting from an abundance of supply of marine equipment in our predominantly gulf coast market . offshore revenues . a $ 2.4 million decrease in offshore revenues is primarily the result of the 2016 period including the recognition of previously deferred revenues of $ 1.5 million and decreased utilization of the offshore fleet due to downtime associated with regulatory inspections of $ 0.7 million . operating expenses . the decrease in operating expenses is primarily a result of decreased labor and burden of $ 3.9 million , repairs and maintenance of $ 1.3 million , jones act claims of $ 0.8 million , pass-through expenses ( primarily barge tank cleaning ) of $ 0.7 million , outside towing of $ 0.4 million , barge rental expense of $ 0.4 million , property taxes of $ 0.3 million , operating supplies of $ 0.3 million , and property insurance premiums of $ 0.2 million . selling , general and administrative expenses . selling , general and administrative expenses increased primarily due to the 2016 period including the collection of a previously deemed uncollectible receivable of $ 0.5 million , offset by decreased legal fees of $ 0.1 million . impairment of long-lived assets . this represents the loss on impairment of non-core operating assets . loss on impairment of goodwill . this represents the loss on impairment of goodwill in the marine transportation reporting unit during the second quarter of 2016. depreciation and amortization . depreciation and amortization decreased as a result of the disposal of property , plant and equipment combined with the impairment of long-lived assets recognized in the fourth quarter of 2016 , offset by recent capital expenditures . other operating loss , net . other operating loss represents losses from the disposition of property , plant and equipment . 49 interest expense comparative components of interest expense , net for the twelve months ended december 31 , 2018 and 2017 replace_table_token_15_th comparative components of interest expense , net for the twelve months ended december 31 , 2017 and 2016 replace_table_token_16_th indirect selling , general and administrative expenses replace_table_token_17_th the increase in indirect selling , general and administrative expenses from 2017 to 2018 is primarily a result of increased unit based compensation expense . the increase in indirect selling , general and administrative expenses from 2016 to 2017 is primarily a result of a $ 0.6 million increase in audit , consulting and other professional fees . martin resource management allocates to us a portion of its indirect selling , general and administrative expenses for services such as accounting , treasury , clerical , engineering , legal , billing , information technology , administration of insurance , general office expenses and employee benefit plans and other general corporate overhead functions we share with martin resource management retained businesses . this allocation is based on the percentage of time spent by martin resource management personnel that provide such centralized services . gaap also permits other methods for allocation of these expenses , such as basing the allocation on the percentage of revenues contributed by a segment . the allocation of these expenses between martin resource management and us is subject to a number of judgments and estimates , regardless of the 50 method used . we can provide no assurances that our method of allocation , in the past or in the future
| offsetting this increase was a 9 % decrease in sales volumes offset by a 1 % increase in average sales price at our shore based terminals resulting in a $ 5.4 million decrease in products revenues . cost of products sold . a 28 % increase in sales volumes combined with a 10 % increase in average cost per gallon at our blending and packaging facilities resulted in a $ 19.0 million increase in cost of products sold . offsetting this increase was a 9 % decrease in sales volume offset by a 2 % increase in average cost per gallon at our shore based terminals resulting in a $ 5.5 million decrease in cost of products sold . operating expenses . operating expenses at our shore-based terminals decreased by $ 8.0 million primarily due to the 2017 period including an increase in the accrual related to asset retirement obligations of $ 6.3 million . additionally , lease expense decreased $ 0.7 million as a result of closing several facilities . operating expenses at our specialty terminals decreased $ 1.8 million , primarily due to the 2017 period including $ 2.5 million in hurricane expenses offset by an increase of $ 1.0 million in expenses at our hondo facility which was placed in service in july of 2017. offsetting this decrease was a $ 0.8 million increase at our smackover refinery due to an increase in utilities of $ 0.4 million , $ 0.2 million in repairs and maintenance , and $ 0.2 million in professional fees . selling , general and administrative expenses . selling , general and administrative expenses decreased primarily as a result of decreased legal expenses . impairment of long-lived assets . this represents the loss on impairment of non-core operating assets in 2017 . 42 depreciation and amortization . the decrease in depreciation and amortization is due to the disposition of assets at several closed shore-based facilities , offset by recent capital expenditures . other operating income , net . other operating income ,
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sce expects to receive such guidance in the second half of 2017. charge ready program in january 2016 , the cpuc approved sce 's $ 22 million charge ready phase 1 pilot program , which will allow sce to install light-duty vehicle charging infrastructure , provide rebates to offset the cost of qualified customer-owned charging stations , and implement a supporting market education effort . under the phase 1 pilot program , sce will build , own and maintain the electric infrastructure needed to serve the qualified charging stations at participating customer locations . participating customers will install , own , maintain , and operate the charging stations . by the end of january 2017 , sce had executed agreements for 50 sites to deploy 776 charge ports . the results of this pilot will help shape phase 2 of the program . sce will file an application to obtain cpuc approval for phase 2 after at least one year ( phase 1 launched in late may 2016 ) and 1,000 charge ports have been deployed . transportation electrification plan in january 2017 , sce filed a transportation electrification plan with the cpuc that aims to accelerate the adoption of electric transportation , which is critical to california 's climate change and ghg reduction objectives . the plan proposes a five-year program to fund medium- and heavy-duty vehicle charging infrastructure that follows the model developed for sce 's charge ready program discussed above . the proposal has an estimated five-year cost of $ 554 million ( $ 532 million capital ) in 2016 dollars . in addition , the plan proposes six pilot projects to be considered by the cpuc on an accelerated basis . the pilot projects would install charging infrastructure for electric transit buses and the port of long beach ; build clusters of fast charging sites in urban areas , and establish programs that would incentivize electric vehicle adoption . the estimated total cost of the six pilot projects is approximately $ 19 million ( $ 14 million capital ) in 2016 dollars . sce expects to propose additional programs and pilots in the future . all of the plan 's proposed transportation electrification projects are subject to cpuc review and the timing and amount of capital investments for any approved project will depend upon implementation decisions , including scope and pace of adoption and grc ratemaking decisions and other cpuc actions . sce is unable to predict an expected outcome on or timing of implementation of any of the proposed projects . the capital costs for these proposed projects are not included in sce 's capital spending and rate base forecasts provided above . 6 edison international dividend policy in december 2016 , edison international declared a 13 % increase to the annual dividend rate from $ 1.92 per share to $ 2.17 per share . edison international plans to increase its dividends to common shareholders at a higher than industry average growth rate within its target payout ratio of 45 % to 55 % of sce earnings in steps over time . this is expected to yield a dividend growth at a faster pace than sce 's earnings growth . regulatory proceedings 2018 general rate case in september 2016 , sce filed its 2018 grc application for the three-year period 2018 – 2020 , which requested a 2018 revenue requirement of $ 5.885 billion , an increase of $ 222 million over the projected 2017 grc authorized revenue requirement . in addition , sce requested $ 48 million in one-time balancing and memorandum account recoveries . this represents a 2.7 % increase over presently authorized total rates . sce 's 2018 grc request also includes proposed revenue requirement increases of $ 533 million in 2019 and $ 570 million in 2020. for 2019 and 2020 , respectively , these represent 4.2 % and 5.2 % increases over presently authorized total rates . the capital programs requested in sce 's 2018 grc are focused on safety and reliability through investments in the distribution grid to replace aging equipment and enhance capabilities to integrate increasing amounts of ders . for further information , see `` —capital program '' above . sce 's 2018 grc request identifies areas of reduced operating cost to partially mitigate the customer rate impacts of the request . sce requested that the cpuc issue a final decision by the end of 2017. if the schedule for a final decision is delayed , sce will request the cpuc to issue an order directing that the authorized revenue requirement changes be effective january 1 , 2018. sce can not predict the revenue requirement the cpuc will ultimately authorize for 2018 through 2020 or forecast the timing of a final decision . permanent retirement of san onofre replacement steam generators were installed at san onofre in 2010 and 2011. on january 31 , 2012 , a leak suddenly occurred in one of the heat transfer tubes in san onofre 's unit 3 steam generators . the unit was safely taken off-line and subsequent inspections revealed excessive tube wear . unit 2 was off-line for a planned outage when areas of unexpected tube wear were also discovered . on june 6 , 2013 , sce decided to permanently retire units 2 and 3. san onofre cpuc proceedings in november 2014 , the cpuc approved the san onofre oii settlement agreement , which resolved the cpuc 's investigation regarding the steam generator replacement project at san onofre and the related outages and subsequent shutdown of san onofre . story_separator_special_tag subsequently , the san onofre oii proceeding record was reopened by a joint ruling of the assigned commissioner and the assigned alj to consider whether , in light of the company not reporting certain ex parte communications on a timely basis , the san onofre oii settlement agreement remained reasonable , consistent with the law and in the public interest , which is the standard the cpuc applies in reviewing settlements submitted for approval . in comments filed with the cpuc in july 2016 , sce asserted that the settlement agreement continues to meet this standard and therefore should not be disturbed . a number of the parties to the oii , however , have requested that the cpuc either modify the san onofre oii settlement agreement or vacate its previous approval of the settlement and reinstate the oii for further proceedings . in a december 2016 joint ruling , the assigned commissioner and the assigned alj expressed concerns about the extent to which the failure to timely report ex parte communications had impacted the settlement negotiations and directed sce to meet and confer with the other parties in the oii to consider changing the terms of the san onofre oii settlement agreement . the ruling set out a schedule requiring that at least two meet and confer sessions be held in the first quarter of 2017 and requiring the parties to submit a joint status report to the cpuc by april 28 , 2017 if no modifications have been agreed to by some or all of the parties as a result of the meet and confer process . sce has recorded a regulatory asset to reflect the expected recoveries under the san onofre oii settlement agreement . at december 31 , 2016 , $ 857 million remains to be collected . for more information on the challenges to the settlement of the san onofre oii and the claims that sce is pursuing against mhi , see `` notes to consolidated financial statements—note 11. commitments and contingencies—contingencies—san onofre related matters . '' 7 cost of capital on february 7 , 2017 , sce , pacific gas and electric company , sdg & e , and socalgas ( collectively , the “ investor-owned utilities ” ) , ora and turn jointly filed a petition to modify the prior cpuc decisions addressing the investor-owned utilities ' costs of capital . the requested modifications would extend the next cost of capital application filing deadline two years to april 22 , 2019 for the year 2020 ; reset sce 's authorized cost of long-term debt and preferred stock in 2018 ; and reduce sce 's authorized roe . subject to the cpuc 's approval of the petition for modification , sce 's authorized roe will be reduced from the current 10.45 % to 10.30 % beginning on january 1 , 2018. the updated cost of capital and corresponding revenue requirement impact will be submitted to the cpuc in september 2017 , to be effective january 1 , 2018. while the actual changes to sce 's revenue requirement resulting from the petition for modification will not be known until sce 's filing in september 2017 , sce estimates that its annual revenue requirement will be reduced by approximately $ 66 million ( approximately $ 39 million after-tax ) , beginning in 2018. changes in market interest rates can have material effects on the cost of sce 's future financings and consequently on the estimated change in annual revenue requirements . the petition for modification provides that sce 's long-term debt , preferred stock and common equity costs will be reset for the year 2018 and will then remain unchanged until december 31 , 2019 unless they are changed by the operation of the cost of capital adjustment mechanism . sce 's current ratemaking capital structure ( 48 % common equity , 43 % long-term debt , and 9 % preferred equity ) will remain unchanged and the cost of capital adjustment mechanism would not operate in 2017 but could operate in 2018 to change the cost of capital for 2019. if the mechanism is activated for 2019 , sce 's new 10.30 % roe will be adjusted according to the existing terms of the mechanism . energy efficiency incentive mechanism in december 2016 , the cpuc awarded sce incentives of approximately $ 18 million , approximately 75 % of the requested award , for part 2 of the 2014 program year and part 1 of the 2015 program year savings . there is no assurance that the cpuc will make an award for any given year . ferc formula rates in november 2016 , sce filed its 2017 annual update with the ferc with the rates effective from january 1 , 2017 to december 31 , 2017. the update provided support for an increase in sce 's transmission revenue requirement of $ 97 million or 9 % over amounts currently authorized in rates . the increase is mainly due to the completion of several major transmission projects in 2015 and to recover prior undercollections . ferc has approved sce 's formula or methodology for setting transmission rates under its jurisdiction through 2017. sce is required to file a replacement rate methodology by november 2017 , to be effective january 2018. long beach service interruptions in july 2015 , sce 's customers who are served via the network portion of sce 's electric system in long beach , california experienced service interruptions due to multiple underground vault fires and underground cable failures . no personal injuries were reported in connection with these events . sce expects to incur penalties as a result of these events . although resolution will be subject to settlement discussions with sed and cpuc review and approval , sce has recorded a liability for the estimated loss . story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; padding-left:18px ; '' > higher pre-tax income in 2016 , as discussed above . higher preferred
| an increase in ferc-related revenue of $ 68 million primarily related to higher operating costs including amortization of the regulatory asset associated with the coolwater-lugo transmission project and rate base growth partially offset by a $ 15 million increase in 2015 due to a change in estimate under the ferc formula rate mechanism . an increase in revenue of $ 25 million ( $ 15 million after-tax ) related to the incremental return on the pole loading rate base recorded through the pole loading balancing account . an increase of $ 46 million primarily due to tax benefits recognized in 2015 related to net operating loss carrybacks for san onofre decommissioning costs resulting in a reduction in revenue in 2015 ( offset in income taxes ) . a decrease in revenue of $ 52 million for incremental tax benefits refunded to customers . in 2016 , sce recorded a revenue refund to customers of $ 133 million for 2012 – 2014 incremental tax benefits related to repair deductions ( offset in income taxes as discussed below ) . this revenue refund resulted from the cpuc 's approval of sce 's request to refund incremental tax repair deductions that were not addressed in sce 's 2015 grc decision . partially offsetting 9 the refund of 2012 – 2014 incremental tax repair deductions , sce recognized $ 81 million lower incremental tax repairs and other benefits refunded to customers through balancing accounts in 2016. energy efficiency incentive awards were $ 18 million in 2016 compared to $ 29 million in 2015. in addition , in 2016 , the cpuc approved a settlement agreement in which sce agreed to refund $ 13 million related to incentive awards sce received for savings achieved by its 2006 – 2008 energy efficiency programs . sce 's portion of neil insurance and legal cost recoveries of approximately $ 20 million in 2015 arising from the outage and shutdown of the san onofre units 2 and 3 generating stations . a decrease of $ 29 million for other operating revenue resulting from lower contributions received from customers due to the retroactive extension of bonus depreciation in the path act of 2015. lower operation and maintenance expense of $ 38 million primarily due
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marketing expenses incurred by our international streaming segment have been significant and fluctuate dependent upon the number of international territories in which our streaming service is offered and the timing of the launch of new territories . we do not incur marketing expenses for the domestic dvd segment . we have demonstrated our ability to grow domestic streaming contribution margin as evidenced by the increase in contribution margin from 17 % in 2012 to 33 % in 2015. as a result of our focus on growing the streaming segments , contribution margins for the domestic and international streaming segments are lower than for our domestic dvd segment . 18 story_separator_special_tag paid international streaming memberships accounted for 35 % of total average paid streaming memberships as of december 31 , 2015 , as compared to 27 % of total average paid streaming memberships as of december 31 , 2014 . 20 international marketing expenses for the year ended december 31 , 2015 increased as compared to the year ended december 31 , 2014 mainly due to expenses for territories launched in the last eighteen months . international contribution losses increased $ 173.6 million year over year due to our increased spending for our international expansion and the impact of foreign currency exchange rate fluctuations . year ended december 31 , 2014 as compared to the year ended december 31 , 2013 the increase in our international revenues was primarily due to the 82 % growth in the average number of paid international memberships as well as the 1 % increase in average monthly revenue per paying member resulting from the price increase on our most popular streaming plan and the introduction of the premium plan , offset partially by the impact of exchange rate fluctuations . average paid international streaming memberships accounted for 27 % of total average paid streaming memberships as of december 31 , 2014 , as compared to 20 % of total average paid streaming memberships as of december 31 , 2013. the increase in international cost of revenues was primarily due to a $ 311.5 million increase in content expenses including content for our new markets as well as more exclusive and original programming . other costs increased $ 60.3 million primarily due to increases in our streaming delivery expenses , costs associated with our customer service call centers and payment processing fees , all driven by our growing member base . international marketing expenses for the year ended december 31 , 2014 increased as compared to the year ended december 31 , 2013 mainly due to expenses for territories launched during 2014. international contribution losses improved $ 114.5 million year over year , as a result of growing memberships and revenues faster than content and marketing spending . domestic dvd segment replace_table_token_9_th year ended december 31 , 2015 as compared to the year ended december 31 , 2014 in the domestic dvd segment , we derive revenues from our dvd-by-mail membership services . the price per plan for dvd-by-mail varies from $ 4.99 to $ 15.99 per month according to the plan chosen by the member . dvd-by-mail plans differ by the number of dvds that a member may have out at any given point . members electing access to high definition blu-ray discs , in addition to standard definition dvds , pay a surcharge ranging from $ 2 to $ 4 per month for our most popular plans . the decrease in our domestic dvd revenues was due to a 16 % decrease in the average number of paid memberships . the decrease in domestic dvd cost of revenues was primarily due to a $ 21.0 million decrease in content expenses and a $ 38.9 million decrease in delivery expenses resulting from a 21 % decrease in the number of dvds mailed to members . the decrease in shipments was driven by a decline in the number of dvd memberships coupled with a decrease in usage by these members . other costs , primarily those associated with processing and customer service expenses , decreased $ 13.1 million primarily due to a decrease in hub operation expenses resulting from the decline in dvd shipments . 21 our domestic dvd segment had a contribution margin of 50 % for the year ended december 31 , 2015 , up from 48 % for the year ended december 31 , 2014 due to the decrease in dvd usage by paying members . year ended december 31 , 2014 as compared to the year ended december 31 , 2013 the decrease in our domestic dvd revenues was due to a 16 % decrease in the average number of paid memberships . the decrease in domestic dvd cost of revenues was primarily due to a $ 16.0 million decrease in content expenses and a $ 43.0 million decrease in delivery expenses resulting from a 22 % decrease in the number of dvds mailed to members . the decrease in shipments was driven by a decline in the number of dvd memberships coupled with a decrease in usage by these members . other costs , primarily those associated with processing and customer service expenses , decreased $ 15.6 million primarily due to a decrease in hub operation expenses resulting from the decline in dvd shipments . our domestic dvd segment had a contribution margin of 48 % for the year ended december 31 , 2014 , and was relatively flat as compared to the year ended december 31 , 2013. consolidated operating expenses technology and development technology and development expenses consist of payroll and related costs incurred in making improvements to our service offerings , including testing , maintaining and modifying our user interface , our recommendation , merchandising and streaming delivery technology and infrastructure . technology and development expenses also include costs associated with computer hardware and software . story_separator_special_tag replace_table_token_10_th year ended december 31 , 2015 as compared to the year ended december 31 , 2014 the increase in technology and development expenses was primarily due to a $ 133.2 million increase in personnel-related costs resulting from an increase in compensation for existing employees and a 20 % growth in average headcount supporting continued improvements in our streaming service and our international expansion . in addition , third party expenses , including costs associated with cloud computing , increased $ 23.8 million . year ended december 31 , 2014 as compared to the year ended december 31 , 2013 the increase in technology and development expenses was primarily due to an $ 87.4 million increase in personnel-related costs , including stock-based compensation expense , resulting from an increase in compensation for existing employees and a 12 % growth in average headcount supporting continued improvements in our streaming service and our international expansion . general and administrative general and administrative expenses consist of payroll and related expenses for corporate personnel , as well as professional fees and other general corporate expenses . replace_table_token_11_th year ended december 31 , 2015 as compared to the year ended december 31 , 2014 general and administrative expenses increased primarily due to a $ 120.1 million increase in personnel-related costs , including stock-based compensation expense , resulting from a 51 % increase in average headcount primarily to support our international expansion and increased production of original content , and an increase in compensation for existing employees . 22 year ended december 31 , 2014 as compared to the year ended december 31 , 2013 general and administrative expenses increased primarily due to a $ 70.6 million increase in personnel-related costs , including stock-based compensation expense , resulting from a 37 % increase in average headcount primarily to support our international expansion , and an increase in compensation for existing employees . in addition , there was an $ 11.6 million increase in legal costs for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. interest expense interest expense consists primarily of the interest associated with our outstanding long-term debt obligations , including the amortization of debt issuance costs , as well as interest on our lease financing obligations . replace_table_token_12_th year ended december 31 , 2015 as compared to the year ended december 31 , 2014 interest expense for the year ended december 31 , 2015 consists primarily of $ 127.1 million of interest on our notes . the increase in interest expense for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 is due to the higher aggregate principal of interest bearing notes outstanding . year ended december 31 , 2014 as compared to the year ended december 31 , 2013 interest expense for the year ended december 31 , 2014 consists primarily of $ 46.8 million of interest on our notes . the increase in interest expense for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 is due to the higher aggregate principal of interest bearing notes outstanding . interest and other income ( expense ) interest and other income ( expense ) consists primarily of interest earned on cash , cash equivalents and short-term investments and foreign exchange gains and losses on foreign currency denominated balances . replace_table_token_13_th year ended december 31 , 2015 as compared to the year ended december 31 , 2014 interest and other income ( expense ) decreased for the year ended december 31 , 2015 as compared to the prior year due to a $ 37.3 million foreign exchange loss , incurred primarily in the first quarter of 2015. the foreign exchange loss was primarily driven by the remeasurement of significant content liabilities denominated in currencies other than functional currencies in our european entities coupled with the strengthening of the u.s. dollar . year ended december 31 , 2014 as compared to the year ended december 31 , 2013 interest and other income ( expense ) for the year ended december 31 , 2014 was relatively flat as compared to the prior year . losses on foreign currency denominated balances were $ 8.2 million and $ 8.4 million for the years ended december 31 , 2014 and 2013 , respectively . extinguishment of debt in connection with the redemption of the outstanding $ 200.0 million aggregate principal amount of the 8.50 % notes , we recognized a loss on extinguishment of debt of $ 25.1 million in the year ended december 31 , 2013 , which consisted of expenses associated with the redemption , including a $ 19.4 million premium payment pursuant to the make-whole provision in the indenture governing the 8.50 % notes . for further detail see note 5 of item 8 , financial statements and supplementary data . 23 provision for income taxes replace_table_token_14_th year ended december 31 , 2015 as compared to the year ended december 31 , 2014 the decrease in our effective tax rate for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 is mainly due to an increase in r & d credits and a decrease in state and local income taxes . in 2015 , the difference between our 14 % effective tax rate and the federal statutory rate of 35 % was $ 30.4 million primarily due to a $ 13.4 million release of tax reserves on previously unrecognized tax benefits as a result of an irs audit settlement leading to the reassessment of our reserves for all open years , $ 16.5 million related to the retroactive reinstatement of the 2015 federal research and development ( “ r & d ” ) credit and the california r & d credit ; partially offset by state income taxes , foreign taxes and nondeductible expenses . on december 18 , 2015 , the protecting americans from tax hikes act of 2015 ( h.r .
| year ended december 31 , 2014 as compared to the year ended december 31 , 2013 the increase in our domestic streaming revenues was due to the 22 % growth in the average number of paid memberships , as well as to the 2 % increase in average monthly revenue per paying membership resulting from our price increase for new members in the second quarter of 2014 and introduction of the higher priced plan in 2013. the increase in domestic streaming cost of revenues was primarily due to the $ 242.3 million increase in content expenses relating to our existing and new streaming content , including more exclusive and original programming . in addition , streaming delivery expenses increased by $ 59.5 million and other costs , such as payment processing fees and customer service call centers , increased $ 36.6 million due to our growing member base . domestic marketing expenses increased primarily due to an increase in advertising and public relations spending . our domestic streaming segment had a contribution margin of 27 % for the year ended december 31 , 2014 , which increased as compared to the contribution margin of 23 % for the year ended december 31 , 2013 due to growth in paid memberships and revenue , which continued to outpace content and marketing spending . 19 international streaming segment replace_table_token_8_th in the international streaming segment , we derive revenues from monthly membership fees for services consisting solely of streaming content to our members outside the united states . we launched our streaming service in canada in september 2010 and have continuously expanded our services internationally as shown below . in january 2016 we announced the availability of our streaming service virtually everywhere in the world , with the exception of the people 's republic of china and territories where u.s. companies are not allowed to operate . year ended december 31 , 2015 as compared to the year ended december 31 , 2014 the increase in our international revenues was due to the 66 % growth in the average number of paid international memberships offset partially by a 10 % decrease in average monthly revenue per paying membership . the decrease in average monthly revenue per paying membership was due to the impact of
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during fiscal years 2017 , 2016 and 2015 , we had net inventory write-downs of $ 19.0 million , $ 26.2 million and $ 28.6 million , respectively . when the company records a write-down on inventory , it establishes a new , lower cost basis for that inventory , and subsequent changes in facts and circumstances will not result in the restoration or increase in that newly established cost basis . long-lived assets we evaluate the recoverability of property , plant and equipment in accordance with accounting standards codification ( “ asc ” ) no . 360 , property , plant , and equipment ( “ asc 360 ” ) . we perform periodic reviews to determine whether facts and circumstances exist that would indicate that the carrying amounts of property , plant and equipment might not be fully recoverable . if facts and circumstances indicate that the carrying amount of property , plant and equipment might not be fully recoverable , we compare projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful lives against their respective carrying amounts . in the event that the projected undiscounted cash flows are not sufficient to recover the carrying value of the assets , the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets . evaluation of impairment of property , plant and equipment requires estimates in the forecast of future operating results that are used in the preparation of the expected future undiscounted cash flows . actual future operating results and the remaining economic lives of our property , plant and equipment could differ from our estimates used in assessing the recoverability of these assets . these differences could result in impairment charges , which could have a material adverse impact on our results of operations . intangible assets and goodwill we account for intangible assets in accordance with asc no . 350 , intangibles-goodwill and other ( “ asc 350 ” ) . we review goodwill and purchased intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable , such as when reductions in demand or significant economic slowdowns in the semiconductor industry are present . intangible asset reviews are performed when indicators exist that could indicate the carrying value may not be recoverable based on comparisons to undiscounted expected future cash flows . if this comparison indicates that there is impairment , the impaired asset is written down to fair value , which is typically calculated using : ( i ) quoted market prices or ( ii ) discounted expected future cash flows utilizing a discount rate consistent with the guidance provided in fasb concepts statement no . 7 , using cash flow information and present value in accounting measurements . impairment is based on the excess of the carrying amount over the fair value of those assets . goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired . in accordance with asc 350 , the company tests goodwill for impairment at the reporting unit level ( operating segment or one level below an operating segment ) on an annual basis or more frequently if the company believes indicators of impairment exist . as part of its analysis , the company first performs a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if , as a result of the qualitative assessment , the company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , then the company performs the quantitative goodwill impairment test . this test involves comparing the fair values of the applicable reporting units with their aggregate carrying values , including goodwill . the company generally determines the fair value of the company 's reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as the market approach which includes the guideline company method . if the carrying amount of a reporting unit exceeds the reporting 25 unit 's fair value , the company recognizes an impairment of goodwill measured as the amount by which a reporting unit 's carrying value exceeds its fair value with the loss recognized not to exceed the total amount of goodwill allocated to the reporting unit . accounting for income taxes we must make certain estimates and judgments in the calculation of income tax expense , determination of uncertain tax positions , and in the determination of whether deferred tax assets are more likely than not to be realized . the calculation of our income tax expense and income tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations . asc 740-10 , income taxes ( “ asc 740-10 ” ) , prescribes a recognition threshold and measurement framework for financial statement reporting and disclosure of tax positions taken or expected to be taken on a tax return . under asc 740-10 , a tax position is recognized in the financial statements when it is more likely than not , based on the technical merits , that the position will be sustained upon examination , including resolution of any related appeals or litigation processes . a tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50 % likelihood of being realized upon settlement . although we believe that our computation of tax benefits to be recognized and realized are reasonable , no assurance can be given that the final outcome will not be different from what was reflected in our income tax provisions and accruals . story_separator_special_tag such differences could have a material impact on our net income and operating results in the period in which such determination is made . see note 15 : “ income taxes ” in the notes to consolidated financial statements included in part iv , item 15 ( a ) of this annual report for further information related to asc 740-10. we evaluate our deferred tax asset balance and record a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized . in the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount , an adjustment to the deferred tax asset valuation allowance would be recorded . this adjustment would increase income in the period such determination was made . likewise , should it be determined that all or part of the net deferred tax asset would not be realized in the future , an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period such determination is made . in assessing the need for a valuation allowance , historical levels of income , expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered . realization of our deferred tax asset is dependent primarily upon future taxable income in the u.s. and certain foreign jurisdictions . our judgments regarding future profitability may change due to future market conditions , changes in u.s. or international tax laws and other factors . these changes , if any , may require material adjustments to the net deferred tax asset and an accompanying reduction or increase in net income in the period in which such determinations are made . litigation and contingencies from time to time , we receive notices that our products or manufacturing processes may be infringing the patent or other intellectual property rights of others , notices of stockholder litigation or other lawsuits or claims against us . we periodically assess each matter in order to determine if a contingent liability in accordance with asc no . 450 , contingencies ( “ asc 450 ” ) , should be recorded . in making this determination , management may , depending on the nature of the matter , consult with internal and external legal counsel and technical experts . we expense legal fees associated with consultations and defense of lawsuits as incurred . based on the information obtained , combined with management 's judgment regarding all of the facts and circumstances of each matter , we determine whether a contingent loss is probable and whether the amount of such loss can be estimated . should a loss be probable and estimable , we record a contingent loss in accordance with asc 450. in determining the amount of a contingent loss , we take into consideration advice received from experts in the specific matter , the current status of legal proceedings , settlement negotiations which may be ongoing , prior case history and other factors . should the judgments and estimates made by management be incorrect , we may need to record additional contingent losses that could materially adversely impact our results of operations . alternatively , if the judgments and estimates made by management are incorrect and a particular contingent loss does not occur , the contingent loss recorded would be reversed thereby favorably impacting our results of operations . story_separator_special_tag was primarily attributable to a decrease in salaries and related expenses of $ 11.0 million as a result of headcount reductions related to restructuring programs and spending control efforts . the level of selling , general and administrative expenditures as a percentage of net revenues will vary from period to period , depending on the level of net revenues and our success in recruiting sales and administrative personnel needed to support our operations . impairment of long-lived assets impairment of long-lived assets was $ 7.5 million in fiscal year 2017 and $ 160.6 million in fiscal year 2016 , which represented 0.3 % and 7.3 % of net revenues , respectively . the $ 153.1 million decrease was primarily due to the classification of our wafer manufacturing facility in san antonio , texas as held for sale in the first quarter of fiscal year 2016 which was written down to fair value , less cost to sell , resulting in an impairment of $ 157.7 million . 28 impairment of long-lived assets was $ 160.6 million in fiscal year 2016 and $ 67.0 million in fiscal year 2015 , which represented 7.3 % and 2.9 % of net revenues , respectively . the $ 93.6 million increase was primarily due to the classification of our wafer manufacturing facility in san antonio , texas as held for sale in the first quarter of fiscal year 2016 which was written down to fair value , less cost to sell , resulting in an impairment of $ 157.7 million . for further details of the asset impairments , please refer to note 9 : “ impairment of long-lived assets ” in our consolidated financial statements included in part iv , item 15 ( a ) to this annual report . impairment of goodwill and intangible assets there was no impairment of goodwill and intangible assets in fiscal year 2017 and $ 27.6 million of impairment in fiscal year 2016 , which represented 1.3 % of fiscal year 2016 net revenues . this decrease was driven by a $ 27.6 million impairment during fiscal year 2016 of in-process research and development obtained in previous acquisitions , primarily from the acquisition of volterra . impairment of goodwill and intangible assets was $ 27.6 million in fiscal year 2016 and $ 93.0 million in fiscal year 2015 , which represented 1.3 % and 4.0 % of net revenues , respectively .
| this decrease was partially offset by an increase in net revenues in automotive of 32 % , primarily driven by infotainment . 27 approximately 88 % , 89 % and 88 % of our net revenues in fiscal years 2017 , 2016 and 2015 , respectively , were derived from customers located outside the united states , primarily in asia and europe . while less than 1.0 % of our sales are denominated in currencies other than u.s. dollars , we enter into foreign currency forward contracts to mitigate our risks on firm commitments and net monetary assets denominated in foreign currencies . the impact of changes in foreign exchange rates on net revenues and our results of operations for fiscal years 2017 , 2016 and 2015 were immaterial . gross margin our gross margin as a percentage of net revenue was 63.0 % in fiscal year 2017 compared to 56.7 % in fiscal year 2016 . our gross margin increased by 6.3 percentage points , partially driven by lower accelerated depreciation in fiscal year 2017 of $ 65.0 million ( 3.1 percentage point increase to gross margin ) and partially driven by improved factory utilization and cost reduction initiatives ( 3.2 percentage point increase to gross margin ) . our gross margin as a percentage of net revenue was 56.7 % in fiscal year 2016 compared to 55.1 % in fiscal year 2015 . our gross margin increased by 1.6 percentage points , primarily from a $ 73.8 million , or 8.1 % , decrease in production related costs ( 1.3 percentage point increase to gross margin ) . these reduced production related costs were primarily due to the realization of benefits from increased outsourcing of manufacturing , improved utilization of our wafer fabrication facility and cost savings initiatives , as well as due to the 4.9 % decrease in net revenue , and to a lesser extent due to the mix of products sold . research and
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see note 13 to the company 's consolidated financial statements under item 8 , financial statements and supplementary data for a description of the national welders exchange transaction . strategic products sales of strategic products generated strong growth of 10 % in fiscal 2008. strategic products include safety products , medical , specialty and bulk gases as well as carbon dioxide and dry ice . the company has focused on these products over the last decade to broaden its product portfolio and diversify against traditional industrial cyclicality . many of the strategic products are sold to customers in non-cyclical sectors of the economy , including medical , life sciences , food processing and environmental markets . in addition , some of these products represent a strong cross-selling opportunity within our broad base of existing customers . the company believes its focus on these strategic products and markets will help to mitigate the impact of a slowing economic environment . supply constraints the industrial gas industry is working through supply constraints related to certain gases , such as helium , argon and carbon dioxide . throughout fiscal 2008 , there has been an industry-wide helium shortage resulting in a significant increase in helium costs and reduced volumes available for sale . more recently , the company 's helium supply constraints have been mitigated through new supply agreements and relaxed allocations . the company 's position in argon is also constrained , but has improved recently , as new sources have eased some of the supply issues and gas production capacity is at its highest during the winter months due to lower ambient air temperatures . the company believes that it will continue to be able to keep its customers supplied by constantly evaluating and improving product sourcing strategies . in some areas of the country , carbon dioxide is also under pressure , as old supply sources have been depleted without being replaced . in october 2007 , the company announced an agreement with shell oil to build a 450 ton-per-day plant in deer park , texas , to better serve the houston and south texas areas . the deer park plant is expected to begin operating by january 2009. the company also announced a joint marketing alliance with renew energy , llc , wisconsin 's newest and largest ethanol plant , which will enable airgas ' carbon dioxide subsidiary to market beverage-grade liquid carbon dioxide co-product from the plant . the company began distributing carbon dioxide under the marketing alliance in march 2008. the company will continue to search for new supply sources of carbon dioxide in areas in which supply is limited . 23 reinstated stock repurchase plan in november 2005 , the company 's board of directors approved a stock repurchase plan ( the repurchase plan ) that provided the company with the authorization to repurchase up to $ 150 million of its common stock . the repurchase plan was suspended in july 2006 while the company consummated its acquisitions of linde ag 's u.s. bulk and packaged gas assets . in march 2008 , the company reinstated its repurchase plan and repurchased 496 thousand shares for $ 21.6 million . as of march 31 , 2008 , the company has the remaining authorization to spend up to $ 116 million on future purchases of its common stock under the repurchase plan . 24 income statement commentary net sales net sales increased 25 % in fiscal 2008 compared to fiscal 2007 driven by acquisition growth of 18 % and strong same-store sales growth of 7 % . pricing and volume sales gains contributed equally to same-store sales growth . the company estimates same-store sales based on a comparison of current period sales to prior period sales , adjusted for acquisitions and divestitures . the pro forma adjustments consist of adding acquired sales to , or subtracting sales of divested operations from , sales reported in the prior period . the table below reflects actual sales and does not include the pro forma adjustments used in calculating the same-store sales metric . the intercompany eliminations represent sales from the all other operations business segment to the distribution business segment . net sales replace_table_token_3_th the distribution business segment 's principal products include industrial , medical specialty gases , and process chemicals ; cylinder and equipment rental ; and hardgoods . industrial , medical and specialty gases are distributed in cylinders and bulk containers . equipment rental fees are generally charged on cylinders , cryogenic liquid containers , bulk and micro-bulk tanks , tube trailers and welding equipment . hardgoods consist of welding consumables and equipment , safety products , and maintenance , repair and operating ( mro ) supplies . distribution business segment sales increased 24 % compared to the prior year driven by sales contributed by both current and prior year acquisitions of $ 431 million and same-store sales growth of $ 221 million ( 7 % ) . sales growth from acquired businesses was principally attributable to the acquisitions of linde bulk gas and linde packaged gas customers that are now served by the distribution business segment . the increase in distribution same-store sales resulted from gas and rent same-store sales growth of $ 135 million ( 8 % ) and higher hardgoods sales of $ 86 million ( 6 % ) . strong same-store sales growth in the company 's core gas and welding hardgoods business reflected broad-based demand from industrial markets as well as strong demand in the energy and infrastructure construction sectors , which include projects such as power plants , refineries , pipelines , water treatment plants , bridges and airports . the distribution business segment 's sales were also driven by strong sales growth of strategic products . fiscal 2008 acquisitions are expected to contribute more than $ 180 million to the distribution business segment sales growth in fiscal 2009. the distribution segment 's gas and rent same-store sales growth of 8 % reflects both price increases and volume growth , which contributed equally to sales growth . story_separator_special_tag sales of strategic gas products increased 12 % driven by bulk , medical and specialty gas sales gains . bulk gas sales volumes were up 14 % reflecting volume growth from enhanced production capabilities and expanded geographic market coverage associated with the linde bulk gas acquisition . the company 's strong position as a bulk gas distributor also helped increase the number of new bulk customer contracts signed during the year . medical gas sales grew 9 % attributable to continued success with the hospital , physician and dental care markets , all of which have strong future growth prospects . the walk-o2-bout ® medical cylinder program tailored for the respiratory therapy market also contributed to medical gas sales . strong specialty gas sales growth of 12 % was driven by demand from key customers in bio-tech , life sciences , research , and environmental monitoring markets . the company expects these specialty gas markets to continue to propel 25 specialty gas sales growth in the future . rental revenues benefited from the company 's rental welder business that generated 24 % same-store sales growth in the current year . the company 's rental welder business was helped by its sales concentration in energy and infrastructure construction . hardgoods same-store sales growth of 6 % reflects both volume and price gains , which contributed about equally to growth . the company 's successful radnor ® private label brand of products generated sales growth of 24 % in the current year , reaching a total of $ 159 million . sales of radnor brand products were helped by the stocking of these products in the branch stores obtained from the linde packaged gas acquisition . same-store sales of safety products increased 8 % resulting from the success of the telemarketing operations ( telesales ) and effective cross-selling of safety products to new and existing customers . hardgoods same-store sales growth slowed to 4 % in the fourth quarter driven by lower volumes reflecting the recent slowness in certain industrial markets . the all other operations business segment consists of the company 's gas operations division , airgas merchant gases and national welders . the gas operations division produces and or distributes certain gas products , principally carbon dioxide , dry ice , nitrous oxide , specialty gases , anhydrous ammonia , refrigerants and related supplies , services and equipment . the linde bulk gas business acquired in march 2007 and renamed airgas merchant gases manages production , distribution and administrative functions for the acquired air separation plants . airgas merchant gases principally acts as an internal wholesale supplier to the distribution business segment . the business units in the distribution business segment manage the customer relationships and bill the bulk gas customers . accordingly , the majority of the operating profits related to bulk gas sales are reported in the distribution business segment . national welders is a producer and distributor of industrial , medical and specialty gases and hardgoods principally in north carolina and south carolina . fiscal 2008 sales of the all other operations ' business segment increased $ 260 million ( 45 % ) compared to the prior year resulting from acquisitions and same-store sales growth . acquisitions contributed 36 % to the segment 's sales growth , which was primarily driven by sales of $ 109 million of acquired sales from airgas merchant gases . sales of airgas merchant gases to the distribution business segment also drove much of the increase in intercompany sales , which are eliminated in consolidation . the addition of national welders ' portion of the acquired linde packaged gas business contributed $ 44 million to acquired sales . other acquisitions in this segment included refrigerant businesses , which contributed $ 37 million to acquired sales . same-store sales growth of 9 % was driven by sales gains of anhydrous ammonia , refrigerant and carbon dioxide products . sales volume gains of ammonia resulted from strong demand from customers in the chemical production industry . sales growth of refrigerants was driven by higher volumes , particularly in the fourth quarter of fiscal 2008 , as customers sourced product in advance of the warmer summer months . sales growth of carbon dioxide and dry ice reflected continued success in the food processing , food and beverage service , pharmaceutical and biotech industries . 26 gross profits gross profits do not reflect depreciation expense and distribution costs . as disclosed in note 1 to the company 's consolidated financial statements under item 8 , financial statements and supplementary data , the company reflects distribution costs as an element of selling , distribution and administrative expenses and recognizes depreciation on all its plant and equipment in the consolidated statement of earnings line depreciation. other companies may report certain or all of these costs as elements of their cost of products sold and , as such , the company 's gross profits discussed below may not be comparable to those of other entities . gross profits increased 28 % principally from acquisitions and sales growth . the gross margin in the current year increased 90 basis points to 52.0 % compared to 51.1 % in the prior year , with the increase driven primarily by a favorable shift in product mix towards higher-margin gas as well as the impact of pricing . gross profit replace_table_token_4_th the distribution business segment 's gross profits increased 25 % compared to the prior year . the distribution business segment 's gross margin was 50 % versus 49.6 % in the prior year . the 40 basis point increase in the gross margin reflected the favorable shift in product mix toward gas and rent as well as the impact of price increases . gas and rent as a percentage of the distribution business segment 's sales was 54.1 % in the current year as compared to 52.0 % in the prior year . the all other operations business segment 's gross profits increased 39 % primarily from acquisitions .
| in fiscal 2007 , the company recognized stock-based compensation expense of $ 15.4 million ( $ 10.9 million after tax ) , or $ 0.13 per diluted share . since the company adopted sfas 123r using the modified prospective method , no stock-based compensation expense was reflected in earnings prior to april 1 , 2006. acquisitions during fiscal 2007 , the company completed 13 acquisitions with combined annual sales of approximately $ 336 million . these acquisitions included the september 2006 purchase of houston , texas-based aeriform corporation , a distributor of industrial gases and related hardgoods . aeriform , with 29 locations and 240 employees in texas , louisiana , oklahoma and kansas , generated annual revenue of $ 65 million . in november 2006 , the company purchased the union industrial gas group , a distributor of industrial gases and related hardgoods . the union industrial gas group , with 14 locations and 100 employees in new mexico , texas and louisiana , had annual revenue of $ 38 million . in january 2007 , the company purchased cfc refimax , a leading full-service refrigerant supplier and reclamation company . cfc refimax , based in atlanta , georgia with 50 employees , generated annual revenue of $ 19 million . in march 2007 , the company completed the linde bulk gas acquisition . the linde bulk gas acquisition , consisting of eight air separation units ( asus ) and 300 employees , produced annual revenue of $ 176 million for the year ended december 31 , 2006. the total aggregate purchase price for the fiscal 2007 acquisitions was $ 688 million , of which $ 495 million was paid for the linde bulk gas acquisition . 30 financing in july 2006 , the company amended and restated its senior credit facility with a syndicate of lenders . the increased borrowing capacity under the senior credit facility provided the company with financing to close the march 2007 linde bulk gas acquisition , refinance $ 100 million of its 7.75 % medium-term notes in september 2006 , and redeem its $ 225 million 9.125 %
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included in our distribution expense category are labor costs for drivers , fuel , third party freight costs , local delivery and transfer truck leases or rentals , vehicle repairs and maintenance , supplies and insurance . our selling and marketing expenses primarily include salary , commission and other incentive compensation expenses for sales personnel , advertising , promotion and marketing costs , telephone and other communication expenses , credit card fees and bad debt expense . since 2009 , personnel costs have accounted for approximately 80 % of our selling and marketing expenses . most of our product sales personnel are paid on a commission basis . the number and quality of our sales force is critical to our ability to respond to our customers ' needs and increase our sales volume . our objective is to continually evaluate our sales force , develop and implement training programs , and utilize appropriate measurements to assess our selling effectiveness . our general and administrative expenses primarily include the costs of our corporate offices and financial services center that provide corporate and field management , treasury , accounting , legal , payroll , business development , human resources and information systems functions . these costs include wages and benefits for corporate , regional and administrative personnel , stock-based compensation and other incentive compensation , accounting , legal and other professional fees , it system support and maintenance expenses , and telephone and other communication costs . seasonality our operating results are subject to quarterly variations based on a variety of factors , influenced primarily by seasonal changes in weather patterns . during the winter months we tend to have higher demand for our products because there are more weather related accidents . in addition , the cost of salvage vehicles tends to be lower as more weather related accidents occur , generating a larger supply of total loss vehicles . critical accounting policies and estimates 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 accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates , assumptions , and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , assumptions , and judgments , including those related to revenue recognition , inventory valuation , business combinations , goodwill impairment , self-insurance programs , contingencies , accounting for income taxes , and stock-based compensation . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . the results of these estimates form the basis for our judgments about the carrying values of assets and liabilities and our recognition of revenue . actual results may differ from these estimates . 36 revenue recognition we recognize and report revenue from the sale of vehicle replacement products when they are shipped or picked up and title has transferred , subject to a reserve for returns , discounts and allowances that management estimates based upon historical information . a product would ordinarily be returned within a few days of shipment . our customers may earn discounts based upon sales volumes or sales volumes coupled with prompt payment . allowances are normally given within a few days following product shipment . we analyze historical returns and allowances activity by comparing the items to the original invoice amounts and dates . we use this information to project future returns and allowances on products sold . if actual returns and allowances are higher than our historical experience , there would be an adverse impact on our operating results in the period of occurrence . for an additional fee , we also sell extended warranty contracts for certain mechanical products . revenue from these contracts is deferred and recognized ratably over the term of the contracts , or three years in the case of lifetime warranties . inventory accounting aftermarket and refurbished product inventory . aftermarket and refurbished product inventory is recorded at the lower of cost or market . our aftermarket inventory cost is based on the average price we pay for parts , and includes expenses incurred for freight and overhead costs . for items purchased from foreign sources , import fees and duties and transportation insurance are also included . our refurbished product inventory cost is based on the average price we pay for cores , and includes expenses incurred for freight , refurbishing costs and overhead . salvage and remanufactured inventory . salvage inventory is recorded at the lower of cost or market . our salvage inventory cost is established based upon the price we pay for a vehicle , including auction , storage and towing fees , as well as expenditures for buying and dismantling . inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility 's inventory at expected selling prices . the average cost to sales percentage is derived from each facility 's historical vehicle profitability for salvage vehicles purchased at auction or from contracted rates for salvage vehicles acquired under direct procurement arrangements . remanufactured inventory cost is based upon the price paid for cores , and also includes expenses incurred for freight , direct manufacturing costs and overhead . for all inventory , our carrying value is reduced regularly to reflect the age and current anticipated demand for our products . if actual demand differs from our estimates , additional reductions to our inventory carrying value would be necessary in the period such determination is made . business combinations we record our acquisitions under the purchase method of accounting , under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values . story_separator_special_tag we utilize management estimates and , in some instances , independent third-party valuation firms to assist in determining the fair values of assets acquired , liabilities assumed and contingent consideration granted . such estimates and valuations require us to make significant assumptions , including projections of future events and operating performance . the purchase price allocation is subject to change during the measurement period , which is limited to one year subsequent to the acquisition date . for certain acquisitions , we may issue contingent consideration under which additional payments will be made to the former owners if specified future events occur or conditions are met , such as meeting profitability or earnings targets . each contingent consideration obligation is measured at the acquisition date fair value of the consideration , which is determined using the discounted probability-weighted expected cash flows . at each subsequent reporting period , we remeasure the liability at fair value and record any changes to the fair value 37 through change in fair value of contingent consideration liabilities within other expense ( income ) on our consolidated statements of income . increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates , variances between actual results achieved and projected results , changes in the projected results of the acquired business , or changes in our assessment of the probabilities surrounding the achievement of targets detailed in the respective agreements . as of december 31 , 2011 , we recorded $ 82.4 million of contingent consideration liabilities . actual payouts under these contingent consideration arrangements will be determined at the end of the performance periods , and if the maximum payments were earned , the total payout would be approximately $ 110 million . goodwill impairment we are required to test our goodwill for impairment at least annually . in september 2011 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2011-08 , testing goodwill for impairment , which grants entities the option to first perform a qualitative assessment of whether it is more likely than not that a reporting unit 's fair value is less than its carrying value . under this asu , if an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value , the entity is required to perform the two-step impairment test for the reporting unit . the revised guidance also allows an entity to bypass the qualitative assessment and proceed directly to step one of the two-step impairment analysis where a fair value calculation is performed . this guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011. early adoption is also permitted , and we elected to adopt this guidance for our goodwill impairment tests in the fourth quarter of 2011. under both the qualitative assessment and the two-step quantitative impairment test , we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceed the carrying value . if these assumptions or estimates change in the future , we may be required to record impairment charges for these assets . in response to changes in industry and market conditions , we may be required to strategically realign our resources and consider restructuring , disposing of , or otherwise exiting businesses , which could result in an impairment of goodwill . we are organized into four operating segments : wholesalenorth america ; wholesaleeurope ; self service ; and heavy-duty truck . we have also concluded that these four operating segments are reporting units for purposes of goodwill impairment testing in 2011. we perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist . during 2011 , we did not identify any events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts . therefore , we did not perform any impairment tests other than our annual test in the fourth quarter of 2011. in 2011 , we performed a qualitative assessment under the guidance of asu 2011-08 for our wholesalenorth america and self service reporting units . based on our analyses , we determined it was more likely than not that the fair value of each of these reporting units exceeded the respective carrying value , and no adjustments to goodwill were required . after considering the results of the heavy-duty truck 2010 impairment test and the growth in the reporting unit in 2011 , we elected to bypass the qualitative assessment and proceed directly to the quantitative two-step goodwill impairment test for this reporting unit . in our step one calculation , we established the fair value of the reporting unit using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach . we believe that using two methods to determine fair value limits the chances of an unrepresentative valuation . the results of this test indicated that the goodwill was not impaired . a 10 % decrease in the fair value estimate of the heavy-duty truck reporting unit would not have changed this determination . given the limited period of time between the acquisition date of ecp and the date of our impairment test , we updated our quantitative assessment of the reporting unit 's fair value from the acquisition date to the date of our annual goodwill impairment test . based on the results of this analysis , we concluded that the fair value of the wholesaleeurope exceeded the carrying value , and no adjustments to goodwill were required .
| our revenue , cost of goods sold , and operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors , some of which are beyond our control . factors that may affect our operating results include , but are not limited to , those listed in the special note on forward-looking statements in item 1 of this annual report on form 10-k. due to these factors , our operating results in future periods can be expected to fluctuate . accordingly , our historical results of operations may not be indicative of future performance . acquisitions since our inception in 1998 we have pursued a growth strategy of both organic growth and acquisitions . we have pursued acquisitions that we believe will help drive profitability , cash flow and stockholder value . our principal focus for acquisitions is companies that will expand our geographic presence and our ability to provide a wider choice of alternative vehicle replacement products to our customers . effective october 1 , 2011 , we acquired ecp , which marks our entry into the european automotive aftermarket business . ecp operates out of 90 branches , supported by eight regional hubs and a national distribution center from which multiple deliveries are made each day . ecp 's product offerings are primarily focused on automotive aftermarket mechanical products , many of which are sourced from the same suppliers that provide products to the oems . the expansion of our geographic presence beyond north america into the european market offers an opportunity to us as that market has historically had a low penetration of alternative collision parts . in addition to our acquisition of ecp , we made 20 acquisitions in north america in 2011 ( 12 wholesale businesses , five recycled heavy-duty truck products businesses and three self service retail operations ) . our acquisitions included the purchase of two engine remanufacturers , which expanded our presence in the remanufacturing industry that we entered in 2010. additionally , our acquisition of an automotive heating and
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depreciation and amortization includes the amortization of intangibles related to the acquisition of kico , depreciation of the real estate used in kico 's operations , as well as depreciation of capital expenditures for information technology projects , office equipment and furniture . income tax expense . we incur federal income tax expense on our consolidated operations as well as state income tax expense for our non-insurance underwriting subsidiaries . product lines our product lines include the following : personal lines : our largest line of business is personal lines , consisting of homeowners , dwelling fire , 3-4 family dwelling package , cooperative and condominium , renters , equipment breakdown and service line endorsements , and personal umbrella policies . commercial liability : we offer business owners policies , which consist primarily of small business retail , service , and office risks without a residential exposure . we also write artisan 's liability policies for small independent contractors with seven or fewer employees . in addition , we write special multi-peril policies for larger and more specialized business owners ' risks , including those with limited residential exposures . commercial automobile : until recently we provided liability and physical damage coverage for light vehicles owned by small contractors and artisans . however , due to the poor performance of this line , effective october 1 , 2014 , we decided to no longer accept new commercial auto policies . in february 2015 , we decided to no longer offer renewals to our existing commercial auto policies beginning with those that expired on or after may 1 , 2015 . 26 livery physical damage : we write for-hire vehicle physical damage only policies for livery and car service vehicles and taxicabs . these policies insure only the physical damage portion of insurance for such vehicles , with no liability coverage included . other : we write canine legal liability policies and also have a small participation in mandatory state joint underwriting associations . key measures we utilize the following key measures in analyzing the results of our insurance underwriting business : net loss ratio : the net loss ratio is a measure of the underwriting profitability of an insurance company 's business . expressed as a percentage , this is the ratio of net losses and loss adjustment expenses ( “ lae ” ) incurred to net premiums earned . net underwriting expense ratio : the net underwriting expense ratio is a measure of an insurance company 's operational efficiency in administering its business . expressed as a percentage , this is the ratio of the sum of acquisition costs ( the most significant being commissions paid to our producers ) and other underwriting expenses less ceding commission revenue less other income to net premiums earned . net combined ratio : the net combined ratio is a measure of an insurance company 's overall underwriting profit . this is the sum of the net loss and net underwriting expense ratios . if the net combined ratio is at or above 100 percent , an insurance company can not be profitable without investment income , and may not be profitable if investment income is insufficient . underwriting income : underwriting income is net pre-tax income attributable to our insurance underwriting business before investment activity . it excludes net investment income , net realized gains from investments , and depreciation and amortization ( net premiums earned less expenses included in combined ratio ) . underwriting income is a measure of an insurance company 's overall operating profitability before items such as investment income , depreciation and amortization , interest expense and income taxes . critical accounting policies and estimates our consolidated financial statements include the accounts of kingstone companies , inc. and all majority-owned and controlled subsidiaries . the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires our management to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial statements and related notes . in preparing these financial statements , our management has utilized information available including our past history , industry standards and the current economic environment , among other factors , in forming its estimates and judgments of certain amounts included in the consolidated financial statements , giving due consideration to materiality . it is possible that the ultimate outcome as anticipated by our management in formulating its estimates inherent in these financial statements might not materialize . however , application of the critical accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and , as a result , actual results could differ from these estimates . in addition , other companies may utilize different estimates , which may impact comparability of our results of operations to those of companies in similar businesses . 27 we believe that the most critical accounting policies relate to the reporting of reserves for loss and lae , including losses that have occurred but have not been reported prior to the reporting date , amounts recoverable from third party reinsurers , deferred ceding commission revenue , deferred policy acquisition costs , deferred income taxes , the impairment of investment securities , intangible assets and the valuation of stock-based compensation . see note 2 ( accounting policies and basis of presentation ) of the notes to consolidated financial statements following item 15 of this annual report . consolidated results of operations the following table summarizes the changes in the results of our operations for the periods indicated : replace_table_token_7_th 28 ( 1 ) for the years ended december 31 , 2015 and 2014 , includes the effects of severe winter weather ( which we define as a catastrophe ) . story_separator_special_tag the year ended december 31 , 2014 also includes catastrophe reinstatement premiums resulting from superstorm sandy , which occurred on october 29 , 2012. we define a “ catastrophe ” as an event or series of related events that involve multiple first party policyholders , or an event or series of events that produce a number of claims in excess of a preset , per-event threshold of average claims in a specific area , occurring within a certain amount of time constituting the event or series of events . catastrophes are caused by various natural events including high winds , excessive rain , winter storms , severe winter weather , tornadoes , hailstorms , wildfires , tropical storms , and hurricanes . replace_table_token_8_th direct written premiums direct written premiums during the year ended december 31 , 2015 ( “ 2015 ” ) were $ 91,004,000 compared to $ 76,255,000 during the year ended december 31 , 2014 ( “ 2014 ” ) . the increase of $ 14,749,000 , or 19.3 % , was primarily due to an increase in policies in-force during 2015 as compared to 2014. we wrote more new policies as a result of continued demand for our products in the markets that we serve . policies in-force increased by 17.9 % as of december 31 , 2015 compared to december 31 , 2014. our growth rate in direct premiums written was dampened somewhat due to the cessation , effective october 1 , 2014 , of the writing of new policies in our commercial auto line of business due to a history of poor underwriting results . in february 2015 , we made the decision to no longer offer renewals on our existing commercial auto policies beginning with those that expire on or after may 1 , 2015. our direct written premiums in our other lines of business grew by 23.9 % in 2015 compared to 2014. policies-in-force in our other lines of business increased by 19.5 % as of december 31 , 2015 compared to december 31 , 2014. net written premiums and net premiums earned the following table describes the quota share reinsurance ceding rates in effect during 2015 and 2014. for purposes of the discussion herein , the change in quota share ceding rates on july 1 of each year will be referred to as “ the cut-off ” . this table should be referred to in conjunction with the discussions for net written premiums , net premiums earned , ceding commission revenue and net loss and loss adjustment expenses that follow . replace_table_token_9_th 29 net written premiums increased $ 17,091,000 , or 39.5 % , to $ 60,385,000 in 2015 from $ 43,294,000 in 2014. net written premiums include direct and assumed premiums , less the amount of written premiums ceded under our reinsurance treaties ( quota share , excess of loss , and catastrophe ) . our personal lines business is currently subject to a quota share treaty and our commercial lines business was subject to a quota share treaty through june 30 , 2014. a reduction to the quota share percentage or elimination of a quota share treaty will reduce our ceded written premiums , which will result in a corresponding increase to our net written premiums . effective july 1 , 2015 , we decreased the quota share ceding rate in our personal lines quota share treaty from 55 % to 40 % . the cut-off of this treaty on july 1 , 2015 resulted in a $ 5,866,000 return of unearned premiums from our reinsurers that were previously ceded under the expiring personal lines quota share treaty . the new treaty is on a “ net ” of catastrophe reinsurance basis , as opposed to the “ gross ” arrangement that existed in prior years . under a “ net ” arrangement , all catastrophe reinsurance coverage is now purchased directly by us . effective july 1 , 2014 , we terminated our commercial lines quota share treaty . the previous commercial lines quota share treaty effective july 1 , 2013 had a quota share percentage of 25 % . also , effective july 1 , 2014 , we decreased the quota share percentage in our personal lines quota share treaty from 75 % to 55 % . the cut-off of these treaties on july 1 , 2014 resulted in a $ 6,597,000 return of unearned premiums from our reinsurers that were previously ceded under the expiring quota share treaties . most of the premiums written under our personal lines are also subject to our catastrophe treaty . an increase in our personal lines business gives rise to more property exposure , which increases our exposure to catastrophe risk ; therefore , our premiums for catastrophe insurance will increase . this results in an increase in premiums ceded under our catastrophe treaty , which reduces net written premiums . with the inception of our personal lines quota share treaty being on a “ net ” basis effective july 1 , 2015 , our catastrophe premiums are ceded based on substantially all of our personal lines direct written premiums , compared to catastrophe premiums being ceded only on the amount of personal lines written premiums that we retained under the expired “ gross ” basis . as a result of the increase in our personal lines business and the change to a “ net ” basis for our personal lines quota share treaty , ceded catastrophe premiums increased by $ 3,937,000 , or 150.8 % , to $ 6,548,000 in 2015 from $ 3,937,000 in 2014. an increase in written premiums will also increase the premiums ceded under our excess of loss treaties , which will also reduce our net written premiums .
| quoted prices in active markets for identical assets have the highest priority ( “ level 1 ” ) , followed by observable inputs other than quoted prices including prices for similar but not identical assets or liabilities ( “ level 2 ” ) , and unobservable inputs , including the reporting entity 's estimates of the assumption that market participants would use , having the lowest priority ( “ level 3 ” ) . as of december 31 , 2015 and 2014 , 66 % and 63 % , respectively , of the investment portfolio recorded at fair value was priced based upon quoted market prices . as more fully described in note 3 to our consolidated financial statements , “ investments—impairment review , ” we completed a detailed review of all our securities in a continuous loss position as of december 31 , 2015 and 2014 , and concluded that the unrealized losses in these asset classes are temporary in nature and the result of a decrease in value due to technical spread widening and broader market sentiment , rather than fundamental collateral deterioration . the table below summarizes the gross unrealized losses of our fixed-maturity securities available-for-sale and equity securities by length of time the security has continuously been in an unrealized loss position as of december 31 , 2015 and 2014 : 43 replace_table_token_23_th 44 replace_table_token_24_th 45 there were 57 securities at december 31 , 2015 that accounted for the gross unrealized loss , none of which were deemed by us to be other than temporarily impaired . there were 35 securities at december 31 , 2014 that accounted for the gross unrealized loss , none of which were deemed by us to be other than temporarily impaired . significant factors influencing our determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security 's cost , the nature of the investment and management 's intent not to sell these securities and it being not more likely than not that we will be required to sell these investments before anticipated recovery of
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we intend to enter into additional license agreements to continue providing the best content available for our clients . expand the ecosystem . during 2018 , we migrated a sizable portion of our implementation services to our partners . we have also expanded in recent years our relationships with various third-party consulting firms to deliver the successful implementation of our platform and to optimize our clients ' use of our platform during the terms of their engagements . our partner strategy and experience includes certifications and curricula developed to ensure successful delivery by our partners and continued high client satisfaction . we believe we have a significant opportunity to leverage these third-parties interested in building or expanding their businesses to increase our market penetration . 36 increase operating income and free cash flow . in november 2017 , we announced a strategic plan designed to better position us for long-term growth and increase shareholder value . we believe managing our operating costs while making smart investments in scaling our middle and back-office operations to support recurring revenue growth is critical to our long-term success . we intend to focus on operational excellence initiatives that drive increases in operating income and free cash flow . acquisitions . we may acquire or invest in additional businesses , products or technologies that we believe will complement or expand our platform , enhance our technical capabilities or otherwise offer growth opportunities . most recently , in november 2018 , we acquired grovo learning , inc. , a leading provider of microlearning® content , and in september 2018 , we acquired workpop inc. , a web and mobile solution for candidates and hiring managers in service-based industries . we completed these transactions to support our strategic initiatives to enhance the recruiting and content areas of our platform . metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . revenue . we generally recognize subscription revenue over the contract period , and as a result of our revenue recognition policy and the seasonality of when we enter into new client agreements , revenue from client agreements signed in the current period may not be fully reflected in the current period . subscription revenue . revenue from subscriptions to our human capital management platform and related support sold on a recurring basis . annual recurring revenue . in order to assess our business performance with a metric that reflects a subscription-based business model , we track annual recurring revenue , which is another financial metric we define as the annualized recurring value of all active contracts at the end of a reporting period . unlevered free cash flow . we define unlevered free cash flow , a non-gaap financial measure , as cash provided by operating activities minus capital expenditures and capitalized software costs plus cash paid for interest . we present this metric because it is a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities , including investing in our business and strengthening our balance sheet . annual dollar retention rate . we define annual dollar retention rate as the implied monthly recurring revenue under client agreements at the end of a fiscal year , divided by the implied monthly recurring revenue , for that same client base , at the beginning of the fiscal year and includes incremental sales up to but not exceeding the original renewal amount to the existing client base . this ratio does not reflect implied monthly recurring revenue for new clients added between the end of the prior fiscal year and the end of the current fiscal year . we define implied monthly recurring revenue as the total amount of minimum recurring revenue to which we have a contractual right under each of our client agreements over the entire term of the agreement , but excluding non-recurring support , consulting and maintenance fees , divided by the number of months in the term of the agreement . implied monthly recurring revenue is substantially comprised of subscriptions to our enterprise human capital management platform . this ratio excludes the implied monthly recurring revenue from clients of our cornerstone for salesforce , cornerstone piiq , grovo learning , inc. and workpop inc. products . we believe that our annual dollar retention rate is an important metric to measure the long-term value of client agreements and our ability to retain our clients . constant currency results . we present constant currency information , a non-gaap financial measure , to provide a framework for assessing how our underlying business performed excluding the effect of foreign currency fluctuations . due to our legal and operating structure , our international revenues are favorably impacted as the u.s. dollar weakens relative to the british pound and euro , and unfavorably impacted as the u.s. dollar strengthens relative to the british pound and euro . we believe the presentation of results on a constant currency basis in addition to reported results helps improve the ability to understand our performance because they exclude the effects of foreign currency volatility that are not indicative of our core operating results . to present this information , current period results for entities reporting in british pounds and euros are translated into u.s. dollars at the prior period exchange rates as opposed to the actual exchange rates in effect for the current period . these results should be considered in addition to , not as a substitute for , results reported in accordance with gaap . results on a constant currency basis , as we present them , may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with gaap . 37 number of clients . story_separator_special_tag we believe that our ability to expand our client base is an indicator of our market penetration and the growth of our business as we continue to invest in our direct sales teams and distributors . our client count includes contracted clients for our enterprise human capital management platform as of the end of the period and excludes clients of our cornerstone for salesforce , piiq , grovo learning , inc. and workpop inc. products . in 2018 , our number of clients grew 9 % . key components of our results of operations sources of revenue and revenue recognition our platform is designed to enable organizations to meet the challenges they face in maximizing the productivity of their human capital . we generate revenue from the following sources : subscriptions to our products and other offerings on a recurring basis . clients pay subscription fees for access to our enterprise human capital management platform , other products and support on a recurring basis . fees are based on a number of factors , including the number of products purchased , which may include e-learning content , and the number of users having access to a product . we generally recognize revenue from subscriptions ratably over the term of the agreements beginning on the date the subscription service is made available to the client . subscription agreements are typically three years , billed annually in advance , and non-cancelable , with payment due within 30 days of the invoice date . professional services and other . we offer our clients and implementation partners assistance in implementing our products and optimizing their use . professional services include application configuration , system integration , business process re-engineering , change management and training services . services are generally billed upfront on a fixed fee basis and to a lesser degree on a time-and-material basis . these services are generally purchased as part of a subscription arrangement and are typically performed within the first several months of the arrangement . clients may also purchase professional services at any other time . we generally recognize revenue from fixed fee professional services contracts as services are performed based on the proportion performed to date relative to the total expected services to be performed . revenue associated with time-and-material contracts are recorded as such time and materials are incurred . our client agreements generally include both subscriptions to access our products and related professional services . our agreements generally do not contain any cancellation or refund provisions other than in the event of our default . cost of revenue cost of revenue consists primarily of costs related to hosting our products and delivery of professional services , and includes the following : personnel and related expenses , including stock-based compensation ; expenses for network-related infrastructure and it support ; delivery of contracted professional services and on-going client support ; payments to external service providers contracted to perform implementation services ; depreciation of data centers and amortization of capitalized software costs and developed technology software license rights ; and content and licensing fees and referral fees . in addition , we allocate a portion of overhead , such as rent , it costs , depreciation and amortization and employee benefits costs , to cost of revenue based on headcount . the costs associated with providing professional services are significantly higher , as a percentage of revenue , than the costs associated with providing access to our products due to the labor costs to provide the consulting services . we expect gross margin to increase over time as we optimize the efficiency of our operations , continue to scale our business and deemphasize the sale of professional services . 38 operating expenses our operating expenses are as follows : sales and marketing . sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff , including salaries , benefits , bonuses , stock-based compensation and commissions ; costs of marketing and promotional events , corporate communications , online marketing , product marketing and other brand-building activities ; and allocated overhead . during the third quarter of 2018 , we completed certain aspects of our strategic transformation plan to position us for long-term growth . the completion of this transformation phase resulted in the reallocation of certain resources . the primary reallocation resulted in some sales and marketing headcount that were moved to research and development activities to better align the organization with their job functions . on a go-forward basis , this will have the impact of reducing sales and marketing and increasing research and development , as a percentage of revenue , by approximately 4 % . the same impact would be approximately 3 % excluding stock-based compensation expense . we intend to continue to invest in sales and marketing strategically to expand our business both domestically and internationally . we expect over time sales and marketing expenses , as a percentage of revenue , to decrease . research and development . research and development expenses consist primarily of personnel and related expenses for our research and development staff , including salaries , benefits , bonuses and stock-based compensation ; the cost of certain third-party service providers ; and allocated overhead . research and development costs , other than software development costs qualifying for capitalization , are expensed as incurred . as described above , during the third quarter of 2018 , we reallocated certain resources from sales and marketing to research and development . we have focused our research and development efforts on continuously improving our products . we believe that our research and development activities are efficient because we benefit from maintaining a single software code base for each of our products . we expect research and development expenses to increase proportionately with our business . general and administrative .
| our growth rate can depend on a variety of factors , such as new clients , the size , volume and complexity of our agreements with our customers , foreign currency movements , our ability to work with our customers to implement and deliver our products , our ability to upsell and renew our existing customers , the success of our alliance and partnership arrangements and the expansion of our business through emerging markets . the decline in the growth rate of total revenue was driven by our strategic plan to transition away from one-time professional services and recommit our efforts to grow recurring revenue and unlevered free cash flows . 41 the following table sets forth our sources of revenue for each of the periods indicated ( dollars in thousands ) : replace_table_token_10_th * see note 2 for summary of adjustments in relation to the adoption of asc 606. subscription revenue increased by $ 76.3 million , or 19 % , in 2018 when compared to 2017 . subscription revenue growth on a constant currency basis increased 20 % in 2018 when compared to 2017 . the increase was attributable to new business , which includes new clients , upsells , cross-sells and renewals from existing clients . professional services revenue decreased by $ 20.4 million , or 24 % , in 2018 when compared to 2017 . the decrease of professional services revenue is attributable to the continued execution of our strategic initiative announced in the fourth quarter of 2017 , to sharpen our focus on recurring revenue growth and migrate much of our implementation services to our global partners . subscription revenue increased by $ 57.0 million , or 17 % , in 2017 when compared to 2016. the increase was attributable to new business , which included new clients , upsells and renewals from existing clients . professional services revenue increased by $ 1.9 million , or 2 % , in 2017 when compared to 2016. revenue by geography is generally based on the address of the customer as defined in our master subscription agreement with each customer . the following table sets forth our revenue by geographic area for each of the
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the company has implemented and adheres to an internal loan review system and loss allowance methodology designed to provide for the detection of problem loans and maintenance of an adequate allowance to cover loan losses . management 's determination of the adequacy of alll is based on an evaluation of the composition of the portfolio , actual loss experience , industry charge-off experience on loans , current economic conditions , and other relevant factors in the areas in which the company 's lending and real estate activities are based . these factors may affect the borrowers ' ability to pay and the value of the underlying collateral . the allowance is calculated by applying loss factors to loans held for investment according to loan type and loan credit classification . the loss factors are evaluated on a quarterly basis and established based primarily upon the bank 's historical loss experience and , to a lesser extent , the industry charge-off experience . various regulatory agencies , as an integral part of their examination process , periodically review the company 's alll . such agencies may require the bank to recognize additions to the allowance based on judgments different from those of management . in the opinion of management , and in accordance with the credit loss allowance methodology , the present allowance is considered adequate to absorb estimable and probable credit losses . additions and reductions to the allowance are reflected in current operations . charge-offs to the allowance are made when specific loans ( or portions thereof ) are considered uncollectible or are transferred to oreo and the fair value of the property is less than the loan 's recorded investment . recoveries are credited to the allowance . although management uses the best information available to make these estimates , future adjustments to the allowance may be necessary due to economic , operating , regulatory and other conditions that may be beyond the company 's control . for further information on the alll , see notes 1 and 5 to the consolidated financial statements in item 8 hereof . business combinations we account for acquisitions under the acquisition method . all identifiable assets acquired and liabilities assumed are recorded at fair value . any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill . identifiable intangible assets include core deposit intangibles , which have a definite life . core deposit intangibles ( “ cdi ” ) are subsequently amortized over the estimated life up to 10 years and are tested for impairment annually . goodwill generated from business combinations is deemed to have an indefinite life and is not subject to amortization , and instead is tested for impairment at least annually . 44 index as part of the estimation of fair value , we review each loan or loan pool acquired to determine whether there is evidence of deterioration in credit quality since inception and if it is probable that the company will be unable to collect all amounts due under the contractual loan agreements . we consider expected prepayments and estimated cash flows including principal and interest payments at the date of acquisition . if a loan is determined to be a purchased credit impaired ( “ pci ” ) loan , the amount in excess of the estimated future cash flows is not accreted into earnings ( non-accretable difference ) . the amount in excess of the estimated future cash flows over the book value of the loan is accreted into interest income over the remaining life of the loan ( accretable yield ) . the company records these loans on the acquisition date at their net realizable value . thus , an allowance for estimated future losses is not established on the acquisition date . losses or a reduction in cash flow , which arise subsequent to the date of acquisition are reflected as a charge through the provision for loan losses . an increase in the expected cash flows adjusts the level of the accretable yield recognized on a prospective basis over the remaining life of the loan . income taxes deferred tax assets and liabilities are recorded for the expected future tax consequences of events that have been recognized in the company 's financial statements or tax returns using the asset liability method . in estimating future tax consequences , all expected future events other than enactments of changes in the tax laws or rates are considered . the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date . deferred tax assets are to be recognized for temporary differences that will result in deductible amounts in future years and for tax carryforwards if , in the opinion of management , it is more likely than not that the deferred tax assets will be realized . see also note 14 of the consolidated financial statements in item 8 hereof . fair value of financial instruments we use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures . investment securities available-for-sale are financial instruments recorded at fair value on a recurring basis . additionally , from time to time , we may be required to record at fair value other financial assets on a non-recurring basis , such as impaired loans and oreo . these non-recurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets . during the first quarter of 2018 , the company adopted asu 2016-01 and measures the fair value of financial instruments reported at amortized cost on the consolidated statement of financial condition using the exit price notion . further , we include in note 18 to the consolidated financial statements information about the extent to which fair value is used to measure assets and liabilities , the valuation methodologies used and its impact to earnings . story_separator_special_tag additionally , for financial instruments not recorded at fair value we disclose the estimate of their fair value . story_separator_special_tag # 000000 ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > average balance interest average yield/cost ( dollars in thousands ) assets interest-earning assets : cash and cash equivalents $ 221,236 $ 2,123 0.96 % $ 140,402 $ 842 0.60 % $ 180,185 $ 762 0.42 % investment securities 1,087,835 30,890 2.84 718,564 18,136 2.52 334,283 7,908 2.37 loans receivable , net ( 1 ) 7,527,004 415,410 5.52 4,724,808 251,027 5.31 2,900,379 157,935 5.45 total interest-earning assets 8,836,075 448,423 5.07 % 5,583,774 270,005 4.84 % 3,414,847 166,605 4.88 % noninterest-earning assets 958,842 511,109 186,564 total assets $ 9,794,917 $ 6,094,883 $ 3,601,411 liabilities and equity interest-bearing deposits : interest checking $ 438,698 $ 1,167 0.27 % $ 293,450 $ 365 0.12 % $ 176,508 $ 203 0.11 % money market 2,624,106 19,567 0.75 1,701,209 6,720 0.40 1,003,861 3,638 0.36 savings 241,686 357 0.15 189,408 251 0.13 98,224 151 0.15 retail certificates of deposit 897,033 10,937 1.22 556,121 3,390 0.61 416,232 3,084 0.74 wholesale/brokered certificates of deposit 334,728 5,625 1.68 227,822 2,645 1.16 180,209 1,315 0.73 total interest-bearing deposits 4,536,251 37,653 0.83 % 2,968,010 13,371 0.45 % 1,875,034 8,391 0.45 % fhlb advances and other borrowings 558,518 11,343 2.03 341,782 4,411 1.29 107,519 1,295 1.20 subordinated debentures 107,732 6,716 6.23 81,466 4,721 5.80 69,346 3,844 5.54 total borrowings 666,250 18,059 2.71 % 423,248 9,132 2.16 % 176,865 5,139 2.91 % total interest-bearing liabilities 5,202,501 55,712 1.07 % 3,391,258 22,503 0.66 % 2,051,899 13,530 0.66 % noninterest-bearing deposits 2,909,588 1,758,730 1,086,814 other liabilities 82,942 54,039 31,682 total liabilities 8,195,031 5,204,027 3,170,395 stockholders ' equity 1,599,886 890,856 431,016 total liabilities and equity $ 9,794,917 $ 6,094,883 $ 3,601,411 net interest income $ 392,711 $ 247,502 $ 153,075 net interest rate spread 4.00 % 4.18 % 4.22 % net interest margin 4.44 % 4.43 % 4.48 % ratio of interest-earning assets to interest-bearing liabilities 169.84 % 164.65 % 166.42 % ( 1 ) average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums . 47 index changes in our net interest income are a function of changes in both volumes and mix as well as rates of interest-earning assets and interest-bearing liabilities . the following table presents the impact the volume and rate changes have had on our net interest income for the years indicated . for each category of interest-earning assets and interest-bearing liabilities , we have provided information on changes to our net interest income with respect to : changes in volume ( changes in volume multiplied by the prior period rate ) ; changes in interest rates ( changes in interest rates multiplied by the prior period volume ) ; and the change or the combined impact of volume and rate changes allocated proportionately to changes in volume and changes in interest rates . replace_table_token_3_th provision for credit losses . for 2018 , we recorded an $ 8.3 million provision for credit losses compared to $ 8.4 million recorded in 2017 . the provision included a $ 96,000 provision primarily for unfunded commitments compared to a provision reversal of $ 207,000 in 2017. net loan charge-offs for 2018 amounted to $ 1.0 million , virtually unchanged from $ 1.0 million in 2017 . for 2017 , we recorded an $ 8.4 million provision for credit losses compared to $ 9.3 million recorded in 2016 . the $ 864,000 decrease in the provision for loan losses was primarily attributable to a lower level of net charge-offs for the year , partially offset by the growth in our loan portfolio . net loan charge-offs for 2017 amounted to $ 1.0 million , which decreased from $ 4.8 million in 2016 . noninterest income . for 2018 , noninterest income totaled $ 31.0 million , a decrease of $ 87,000 or 0.3 % from 2017 . the decrease was primarily due to a decrease in other income of $ 2.0 million , which is primarily attributable to lower recoveries of $ 3.1 million from pre-acquisition charge-offs , and a decrease in other service fee income of $ 945,000 . also , the bank had a $ 1.7 million decrease on the gain on sale of loans , from $ 12.5 million in 2017 to $ 10.8 million in 2018 . during 2018 , we sold $ 307.5 million of loans with an average price of 103.5 % , compared to 2017 in which we sold $ 223.6 million of loans with an average price of 105.6 % . lastly , gain on sale of investments decreased $ 1.3 million as the bank sold $ 393.1 million of securities during 2018 compared to $ 260.8 million in 2017 . these decreases were offset by an increases of $ 2.3 million , $ 1.9 million and $ 658,000 in debit card interchange fee income , service charges on deposit accounts and loan servicing fees income , respectively , reflecting growth in core transaction deposit and loan accounts from both organic growth and the grandpoint acquisition . in addition , earnings on banked-owned-life-insurance ( “ boli ” ) increased $ 1.1 million , which was primarily the result of a death benefit of $ 471,000 in 2018 as compared to $ 63,000 in 2017 and , to a lesser extent , additional boli acquired with the grandpoint and plzz acquisitions . 48 index for 2017 , noninterest income totaled $ 31.1 million , an increase of $ 11.5 million or 58.7 % from 2016 .
| the increase reflected an increase in average interest-earning assets of $ 3.25 billion , primarily due to the acquisition of grandpoint on july 1 , 2018 and plzz on november 1 , 2017 , which at acquisition added $ 2.40 billion and $ 1.06 billion of loans , respectively , and organic loan growth from new loan originations of $ 1.62 billion in 2018 , partially offset by an increase in interest-bearing liabilities of $ 1.81 billion and loan paydowns of $ 1.28 billion . net interest margin increased 1 basis point to 4.44 % from 2017 , primarily due to the yield on interest-earning assets ' increasing 23 basis points and a higher level of increases in the balances of interest-earning assets relative to interest-bearing liabilities , offset by a 41 basis point increase in the cost of interest-bearing liabilities . for 2017 , net interest income totaled $ 247.5 million , an increase of $ 94.4 million or 62 % from 2016 . the increase reflected an increase in average interest-earning assets of $ 2.17 billion , primarily due to the acquisitions of heop and plzz in the second and fourth quarter of 2017 , respectively . net interest margin decreased 5 basis points to 4.43 % from 2016 , primarily due to yield on interest-earning assets decreasing 4 basis points and a slight increase in cost of funds . 46 index the following table presents for the periods indicated the average dollar amounts from selected balance sheet categories calculated from daily average balances and the total dollar amount , including adjustments to yields and costs , of : interest income earned from average interest-earning assets and the resultant yields ; and interest expense incurred from average interest-bearing liabilities and resultant costs , expressed as rates . the table also sets forth our net interest income , net interest rate spread and net interest rate margin for the periods indicated . the net interest rate spread represents the difference between the yield on interest-earning assets and the cost of
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employee benefits costs are comprised primarily of health insurance premiums and claims costs ( including dental and pharmacy costs ) , but also include costs of other employee benefits such as life insurance , vision care , disability insurance , education assistance , adoption assistance , a flexible spending account and a work-life program . workers ' compensation costs include administrative and risk charges paid to the insurance carrier , and claims costs , which are driven primarily by the frequency and severity of claims . gross profit our gross profit per worksite employee is primarily determined by our ability to accurately estimate and control direct costs and our ability to incorporate changes in these costs into the gross billings charged to workforce optimization clients , which are subject to contractual arrangements that are typically renewed annually . we use gross profit per worksite employee per month as our principal measurement of relative performance at the gross profit level . operating expenses salaries , wages and payroll taxes – salaries , wages and payroll taxes are primarily a function of the number of corporate employees and their associated average pay and any additional incentive compensation . our corporate employees include client services , sales and marketing , benefits , legal , finance , information technology , administrative support personnel and those associated with our abus . stock-based compensation – our stock-based compensation relates to the recognition of non-cash compensation expense over the vesting period of restricted stock awards . commissions – commission expense consists primarily of amounts paid to sales managers and bpas . commissions are based on the number of new accounts sold and a percentage of revenue generated by such personnel . advertising – advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets , including the insperity invitational presented by unitedhealthcare ® sponsorship . in 2011 , certain costs were incurred as a result of our rebranding initiative and are also included in advertising . general and administrative expenses – our general and administrative expenses primarily include : rent expenses related to our service centers and sales offices outside professional service fees related to legal , consulting and accounting services , and acquisition transaction expenses administrative costs , such as postage , printing and supplies employee travel expenses technology and facility repairs and maintenance costs - 28 - rebranding initiative costs in 2011 depreciation and amortization – depreciation and amortization expense is primarily a function of our capital investments in corporate facilities , service centers , sales offices , technology infrastructure and that associated with our acquisitions . impairment charge – non-cash expense associated with the decline in fair value of intangible assets , including goodwill . please read note 5 to the consolidated financial statements , “ goodwill and other intangible assets , ” for additional information . income taxes our provision for income taxes typically differs from the u.s. statutory rate of 35 % , due primarily to state income taxes and non-deductible expenses . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes . significant items resulting in deferred income taxes include prepaid assets , accruals for workers ' compensation expenses , stock-based compensation and depreciation . changes in these items are reflected in our financial statements through a deferred income tax provision . critical accounting policies and estimates the 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 ( “ gaap ” ) . the preparation of these financial statements requires our management 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 these estimates , including those related to health and workers ' compensation insurance claims experience , client bad debts , income taxes , property and equipment , goodwill and other intangibles , and contingent liabilities . we base these estimates on historical experience and on various other assumptions that management believes 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 . we believe the following accounting policies are critical and or require significant judgments and estimates used in the preparation of our consolidated financial statements : benefits costs – we provide group health insurance coverage to our worksite employees through a national network of carriers including unitedhealthcare ( “ united ” ) , unitedhealthcare of california , kaiser permanente , blue shield of california , hmsa bluecross blueshield of hawaii , unity health plan and tufts , all of which provide fully insured policies or service contracts . the health insurance contract with united provides the majority of our health insurance coverage . as a result of certain contractual terms , we have accounted for this plan since its inception using a partially self-funded insurance accounting model . accordingly , we record the costs of the united plan , including an estimate of the incurred claims , taxes and administrative fees ( collectively the “ plan costs ” ) , as benefits expense in the consolidated statements of operations . the estimated incurred claims are based upon : ( i ) the level of claims processed during the quarter ; ( ii ) estimated completion rates based upon recent claim development patterns under the plan ; and ( iii ) the number of participants in the plan , including both active and cobra enrollees . each reporting period , changes in the estimated ultimate costs resulting from claim trends , plan design and migration , participant demographics and other factors are incorporated into the benefits costs . story_separator_special_tag additionally , since the plan 's inception , under the terms of the contract , united establishes cash funding rates 90 days in advance of the beginning of a reporting quarter . if the plan costs for a reporting quarter are greater than the premiums paid and owed to united , a deficit in the plan would be incurred and we would accrue a liability for the excess costs on our consolidated balance sheets . on the other hand , if the plan costs for the reporting quarter are less than the premiums paid and owed to united , a surplus in the plan would be incurred and we would record an asset for the excess premiums on our consolidated balance sheets . the terms of the arrangement with united require us to maintain an accumulated cash surplus in the plan of $ 9.0 million , which is reported as long-term prepaid insurance . as of december 31 , 2013 , plan costs were less than the premiums paid and owed to united by $ 13.5 million . as this amount is in excess of the agreed-upon $ 9.0 million surplus maintenance level , the $ 4.5 million balance is included in prepaid insurance , a current asset , on our consolidated balance sheets . the premiums owed to united at december 31 , 2013 , were $ 2.1 million , which is included in accrued health insurance costs , a current liability , on our consolidated balance sheets . - 29 - we believe that recent claims activity is representative of incurred and paid trends during the reporting period . the estimated completion rate and annual trend used to compute incurred but not reported claims involves a significant level of judgment . accordingly , an increase ( or decrease ) in the completion rate or annual trend used to estimate the incurred claims would result in an increase ( or decrease ) in benefits costs and net income would decrease ( or increase ) accordingly . the following table illustrates the sensitivity of changes in the completion rate and annual trend on our estimate of total benefit costs of $ 997.6 million in 2013 : replace_table_token_8_th workers ' compensation costs – since october 1 , 2007 , our workers ' compensation coverage has been provided through our arrangement with the ace group of companies ( “ ace ” ) . under our arrangement with ace ( the “ ace program ” ) , we bear the economic burden for the first $ 1 million layer of claims per occurrence , and effective october 1 , 2010 , we also bear the economic burden for a maximum aggregate amount of $ 5 million per policy year for claim amounts that exceed the first $ 1 million . ace bears the economic burden for all claims in excess of these levels . the ace program is a fully insured policy whereby ace has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy our responsibilities . our coverage from september 1 , 2003 through september 30 , 2007 was provided through selected member insurance companies of american international group , inc. because we bear the economic burden for claims up to the levels noted above , such claims , which are the primary component of our workers ' compensation costs , are recorded in the period incurred . workers ' compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury . accordingly , the accrual of related incurred costs in each reporting period includes estimates , which take into account the ongoing development of claims and therefore requires a significant level of judgment . we employ a third party actuary to estimate our loss development rate , which is primarily based upon the nature of worksite employees ' job responsibilities , the location of worksite employees , the historical frequency and severity of workers ' compensation claims , and an estimate of future cost trends . each reporting period , changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers ' compensation claims cost estimates . during the years ended december 31 , 2013 and 2012 , insperity reduced accrued workers ' compensation costs by $ 9.3 million and $ 13.1 million , respectively , for changes in estimated losses related to prior reporting periods . workers ' compensation cost estimates are discounted to present value at a rate based upon the u.s. treasury rates that correspond with the weighted average estimated claim payout period ( the average discount rate utilized in 2013 and 2012 was 0.8 % and 0.6 % , respectively ) and are accreted over the estimated claim payment period and included as a component of direct costs in our consolidated statements of operations . our claim trends could be greater than or less than our prior estimates , in which case we would revise our claims estimates and record an adjustment to workers ' compensation costs in the period such determination is made . if we were to experience any significant changes in actuarial assumptions , our loss development rates could increase ( or decrease ) , which would result in an increase ( or decrease ) in workers ' compensation costs and a resulting decrease ( or increase ) in net income reported in our consolidated statements of operations . - 30 - the following table illustrates the sensitivity of changes in the loss development rate on our estimate of workers ' compensation costs totaling $ 54.9 million in 2013 : replace_table_token_9_th at the beginning of each policy period , the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims ( “ claim funds ” ) . the level of claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers ' compensation loss rates , as determined by the carrier .
| - 33 - by region , our workforce optimization revenue change from 2012 and distribution for the years ended december 31 , 2013 and 2012 were as follows : replace_table_token_11_th ( 1 ) comprised primarily of revenues generated by adjacent businesses . our growth in the number of worksite employees paid is affected by three primary sources – new client sales , client retention and the net change in existing clients through worksite employee new hires and layoffs . during 2013 , new client sales and the net change in existing clients remained flat , while client retention declined slightly compared to 2012 . as a result , our year-over-year growth in worksite employees paid per month during 2013 was 1.5 % compared to 7.5 % during 2012 . gross profit gross profit was $ 393.3 million in 2013 , a 2.9 % increase over 2012 . the average gross profit per worksite employee increased 1.6 % to $ 257 per month in 2013 versus $ 253 in 2012 . our pricing objectives attempt to maintain or improve the gross profit per worksite employee by increasing revenue per worksite employee to match or exceed changes in primary direct costs and operating expenses . included in gross profit in 2013 is a $ 14 per worksite employee per month contribution from our adjacent businesses compared to $ 11 per worksite employee per month in the 2012 period . while our revenues per worksite employee per month increased 2.9 % to $ 1,474 in 2013 versus 2012 , our direct costs , which primarily include payroll taxes , benefits and workers ' compensation expenses , increased 3.2 % to $ 1,217 per worksite employee per month . the primary direct cost components changed as follows : benefits costs – the cost of group health insurance and related employee benefits increased $ 29 per worksite employee per month , or 4.7 % , on a per covered employee basis compared to 2012 . the percentage of worksite employees covered under our health insurance plan was 72.1 % in both 2013
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the consolidated balance sheet at december 31 , 2015 and the consolidated statements of operations , comprehensive loss and cash flows for the year ended december 31 , 2015 include our accounts and those of our wholly owned subsidiaries , neonode technologies ab ( sweden ) , neonode americas inc. ( u.s. ) , neonode japan inc. ( japan ) , neon technology inc. ( u.s. ) , neno user interface solutions ab ( sweden ) , neonode korea ltd. ( south korea ) and neonode taiwan ltd. ( taiwan ) , as well as pronode technologies ab ( sweden ) , a 51 % majority owned subsidiary of neonode technologies ab . the accounting policies affecting our financial condition and results of operations are more fully described in note 2 to our consolidated financial statements . certain of our accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial estimates , which inherently contain some degree of uncertainty . management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . the historical experience and assumptions form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenue and expenses that may not be readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following are critical accounting policies and related judgments and estimates used in the preparation of our consolidated financial statements . 23 estimates the preparation of consolidated financial statements in conformity with u.s. gaap requires making estimates and assumptions that affect , at the date of the consolidated financial statements , the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses . actual results could differ from these estimates . significant estimates include , but are not limited to , collectability of accounts receivable , the achievement of substantive milestones and vendor-specific objective evidence ( “ vsoe ” ) of fair value for purposes of revenue recognition ( or deferral of revenue ) , recoverability of capitalized project costs and long-lived assets , the valuation allowance related to our deferred tax assets and the fair value of options and warrants issued for stock-based compensation . revenue recognition licensing revenues : we derive revenue from the licensing of internally developed intellectual property ( “ ip ” ) . we enter into ip licensing agreements that generally provide licensees the right to incorporate our ip components in their products with terms and conditions that vary by licensee . fees under these agreements may include license fees relating to our ip and royalties payable following the distribution by our licensees of products incorporating the licensed technology . the license for our ip has standalone value and can be used by the licensee without maintenance and support . we follow u.s. gaap for revenue recognition as per unit royalty products are distributed or licensed by our customers . for technology license arrangements that do not require significant modification or customization of the underlying technology , we recognize technology license revenue when : ( 1 ) we enter into a legally binding arrangement with a customer for the license of technology ; ( 2 ) the customer distributes or licenses the products ; ( 3 ) the customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties ; and ( 4 ) collection is reasonably assured . our customers report to us the quantities of products distributed or licensed by them after the end of the reporting period stipulated in the contract , generally 30 to 45 days after the end of the month or quarter . effective october 16 , 2013 , we determined it was appropriate to recognize licensing revenue in the period in which royalty reports are received , rather than the period in which the products are distributed or to which the license relates . explicit return rights are not offered to customers . there were no returns through december 31 , 2015. engineering services : we may sell engineering consulting services to our customers on a flat rate or hourly rate basis . we recognize revenue from these services when all of the following conditions are met : ( 1 ) evidence existed of an arrangement with the customer , typically consisting of a purchase order or contract ; ( 2 ) our services were performed and risk of loss passed to the customer ; ( 3 ) we completed all of the necessary terms of the contract ; ( 4 ) the amount of revenue to which we were entitled was fixed or determinable ; and ( 5 ) we believed it was probable that we would be able to collect the amount due from the customer . to the extent that one or more of these conditions has not been satisfied , we defer recognition of revenue . generally , we recognize revenue as the engineering services stipulated under the contract are completed and accepted by our customers . engineering services are performed under a signed statement of work ( “ sow ” ) with a customer . the deliverables and payment terms stipulated under the sow provide guidance on the project revenue recognition . revenues from contracts that are short-term in nature and related costs that are difficult to estimate are accounted for under the completed contract method . revenues from contracts with substantive defined milestones that we have determined are reasonable , relevant to all the deliverables and payment terms in the sow that are commensurate with the efforts required to achieve the milestones are recognized under the milestone recognition method . estimated losses on all sow projects are recognized in full as soon as they become evident . in the year ended december 31 , 2015 , $ 165,000 was recorded as cost of sales due to expected losses related to two sow projects . story_separator_special_tag in the years ended december 31 , 2014 and 2013 no losses related to sow projects were recorded . accounts receivable and allowance for doubtful accounts our accounts receivable are stated at net realizable value . our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments . credit limits are established through a process of reviewing the financial history and stability of each customer . where appropriate , we obtain credit rating reports and financial statements of the customer when determining or modifying its credit limits . we regularly evaluate the collectability of our trade receivable balances based on a combination of factors . when a customer 's account balance becomes past due , we initiate dialogue with the customer to determine the cause . if it is determined that the customer will be unable to meet its financial obligation , such as in the case of a bankruptcy filing , deterioration in the customer 's operating results or financial position or other material events impacting its business , we record a specific allowance to reduce the related receivable to the amount we expect to recover . should all efforts fail to recover the related receivable , we will write off the account . we also record an allowance for all customers based on certain other factors including the length of time the receivables are past due and historical collection experience with customers . 24 projects in process projects in process consist of costs incurred toward the completion of various projects for certain customers . these costs are primarily comprised of direct engineering labor costs and project-specific equipment costs . these costs are capitalized on our balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy . costs capitalized in projects in process were $ 158,000 , $ 200,000 and $ 736,000 as of december 31 , 2015 , 2014 and 2013 , respectively . property and equipment property and equipment are stated at cost , net of accumulated depreciation and amortization . depreciation and amortization are computed using the straight-line method based upon estimated useful lives of the assets as follows : estimated useful lives computer equipment 3 years furniture and fixtures 5 years equipment 7 years equipment purchased under a capital lease is recognized over the term of the lease , if that lease term is shorter than the estimated useful life . upon retirement or sale of property and equipment , cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the consolidated statement of operations . maintenance and repairs are charged to expense as incurred . long-lived assets we assess any impairment by estimating the future cash flow from the associated asset in accordance with relevant accounting guidance . if the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated , we may incur charges for impairment of these assets . as of december 31 , 2015 , we believe there was no impairment of our long-lived assets . there can be no assurance , however , that market conditions will not change or sufficient demand for our products and services will continue , which could result in impairment of long-lived assets in the future . research and development research and development ( “ r & d ” ) costs are expensed as incurred . r & d costs consist mainly of personnel related costs in addition to some external consultancy costs such as testing , certifying and measurements . stock-based compensation expense we measure the cost of employee services received in exchange for an award of equity instruments , including share options , based on the estimated fair value of the award on the grant date , and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the award , usually the vesting period , net of estimated forfeitures . we account for equity instruments issued to non-employees at their estimated fair value . the measurement date for the fair estimated value for the equity instruments issued is determined at the earlier of ( 1 ) the date at which a commitment for performance by the consultant or vendor is reached , or ( 2 ) the date at which the consultant or vendor 's performance is complete . in the case of equity instruments issued to consultants , the estimated fair value of the equity instruments is primarily recognized over the term of the consulting agreement . the estimated fair value of the stock-based compensation is periodically re-measured and income or expense is recognized during the vesting term . 25 when determining stock-based compensation expense involving options and warrants , we determine the estimated fair value of options and warrants using the black-scholes option pricing model . noncontrolling interests the company recognizes noncontrolling interests as equity in the consolidated financial statements separate from the parent company 's equity . noncontrolling interests ' partners have less than 50 % share of voting rights at any one of the subsidiary level companies . the amount of net income ( loss ) attributable to noncontrolling interests is included in consolidated net income ( loss ) on the face of the consolidated statements of operations . changes in a parent entity 's ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest . the company recognizes a gain or loss in net income ( loss ) when a subsidiary is deconsolidated . such gain or loss is measured using the fair value of the noncontrolling equity investment on the deconsolidation date . additionally , operating losses are allocated to noncontrolling interests even when such allocation creates a deficit balance for the noncontrolling interest partner .
| for the years ended december 31 , 2015 , 2014 and 2013 , $ 1,188,000 , $ 596,000 and $ 253,000 in license fees related to units licensed or distributed were recognized as revenue , respectively , and as of december 31 , 2015 , $ 1.1 million remained in deferred revenues from customers ' license fee prepayments . as of december 31 , 2015 , we had forty technology license agreements with global oems . this compares with thirty-five and thirty-three technology license agreements with global oems as of december 31 , 2014 and 2013 , respectively . sixteen of our customers are currently shipping products and we anticipate others will initiate product shipments as they complete their final product development and manufacturing cycle throughout 2016 and onwards . gross margin gross margin was $ 7.3 million for the year ended december 31 , 2015 compared to $ 3.2 million and $ 2.1 million for the years ended december 31 , 2014 and 2013 , respectively . our cost of revenues includes the direct cost of production of certain customer prototypes , costs of engineering personnel and engineering consultants to complete the engineering design contract . our cost of revenues for 2015 also includes a one-time write-off of $ 1.2 million related to cost to develop our zforce core platform as we now will use zforce plus and air in current and future developments . our gross margin increased in 2015 compared to 2014 due to the increase in our total revenues . the gross margin related to our license fees is 100 % . as license fees as a percentage of our total revenue increase , our gross margin will increase . research and development product research and development ( “ r & d ” ) expenses for the year ended december 31 , 2015 were $ 6.3 million , compared to $ 7.4 million and $ 7.2 million for the same periods in 2014 and 2013 , respectively . the decrease was mainly related to lower costs for personnel due to a favorable currency exchange rate of the sek compared to the u.s. dollar . since may 2014 , we have manufactured the majority of prototypes needed in house at our own prototype lab . previously , we outsourced all the prototype manufacturing process at a higher cost .
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million in net proceeds from our public offering of 6.9 million shares of our common stock , and approximately $ 589.0 million in net proceeds from our private debt offering of $ 600.0 million of 5.125 % senior unsecured notes due 2021 . safety-kleen , headquartered in richardson , texas , is the largest re-refiner and recycler of used oil in north america and a leading provider of parts cleaning and environmental services to commercial , industrial and automotive customers . in conjunction with the transaction , safety-kleen , inc. and its subsidiaries became wholly-owned subsidiaries of clean harbors . we acquired safety-kleen because we believe safety-kleen is a good strategic fit , enabling us to ( i ) penetrate the small quantity waste generator market , ( ii ) broaden our waste treatment capabilities to include re-refining waste oil and expanded recycling capabilities , ( iii ) drive a substantial increase in waste volumes into our existing waste disposal treatment network , ( iv ) capitalize on the growing demand for recycled products including re-refined oil , ( v ) enhance our commitment to sustainability , ( vi ) leverage the combined sales forces to maximize cross-selling opportunities , ( vii ) add an immediately accretive ( exclusive of transaction costs ) business to accelerate growth , ( viii ) leverage operating efficiencies through the combined company and ( ix ) add to our cash flow . public offering of 6.9 million common shares on december 3 , 2012 , we issued 6.9 million shares of our common stock , including 900,000 shares of common stock issued upon exercise of the underwriters ' option , at a public offering price of $ 56.00 per share . after deducting the underwriter discount and offering expenses , we received net proceeds of $ 369.5 million from the issuance which we used to pay a portion of the purchase price to acquire safety-kleen on december 28 , 2012 . $ 600.0 million private debt offering on december 7 , 2012 , we issued through a private placement $ 600.0 million aggregate principal amount of 5.125 % senior unsecured notes due 2021 ( `` 2021 notes '' ) . the 2021 notes bear interest at a rate of 5.125 % per annum and mature on june 1 , 2021. interest is payable semi-annually on june 1 and december 1 of each year , commencing on june 1 , 2013. we may redeem some or all of the 2021 notes before maturity at stated redemption prices . see note 11 , `` financing arrangements , '' to our consolidated financial statements included in item 8 , `` financial statements and supplementary data , '' for a more detailed description of the 2021 notes . after deducting the initial purchasers ' discount and offering expenses , we received net proceeds of approximately $ 589.0 million from the issuance which we used to pay a portion of the purchase price to acquire safety-kleen on december 28 , 2012 . $ 800.0 million private debt offering on july 30 , 2012 , we issued $ 800.0 million aggregate principal amount of 5.25 % senior unsecured notes due 2020 ( “ 2020 notes ” ) . the 2020 notes bear interest at a rate of 5.25 % per annum and mature on august 1 , 2020. interest is payable semi-annually on august 1 and february 1 of each year , commencing on february 1 , 2013. we may redeem some or all of the 2020 notes before maturity at stated redemption prices . see note 11 , “ financing arrangements , ” to our consolidated financial statements included in item 8 , `` financial statements and supplementary data , '' for a more detailed description of the 2020 notes . after deducting the initial purchaser 's discount and offering expenses , we received net proceeds of $ 752.8 million from the issuance , of which we used $ 490.0 million to finance the purchase and redemption of all of the then outstanding $ 490.0 million aggregate principal amount of our 7.625 % senior secured notes , with the remaining net proceeds used to finance our 2012 acquisitions and for general corporate purposes . revolving credit facility on january 17 , 2013 , we increased our previous $ 250.0 million revolving credit facility to a $ 400.0 million revolving credit facility as described further in note 11 , `` financing arrangements , '' to our consolidated financial statements included in item 8 , `` financial statements and supplementary data . '' other 2012 acquisitions we acquired ( i ) during the second quarter of 2012 , all of the outstanding stock of a privately owned canadian company which provides workforce accommodations , camp catering and fresh food services ; ( ii ) during the third quarter of 2012 , certain 33 assets of a privately owned u.s. company that is engaged in the business of materials handling services that includes a variety of support equipment to provide customers with a sole source for any dredging and dewatering project ; and ( iii ) during the fourth quarter of 2012 , the shares and assets of certain subsidiaries of a privately owned company that is engaged in the business of providing catalyst loading and unloading services in the united states and canada . the combined purchase price for these acquisitions was approximately $ 107.5 million , including the assumption and payment of debt of $ 7.7 million and post-closing adjustments of $ 0.7 million based upon the assumed target amounts of working capital . summary of operations during the year ended december 31 , 2012 , our revenues increased 10 % to $ 2.19 billion compared with $ 1.98 billion during the year ended december 31 , 2011 . revenues for the year ended december 31 , 2012 included our emergency response efforts related to hurricane sandy of approximately $ 11.7 million . revenues for the prior year included revenue from our emergency response efforts related to the yellowstone river oil spill in montana of $ 43.6 million . story_separator_special_tag our field services revenues accounted for 11 % of our total revenues for the year ended december 31 , 2012 . exclusive of our emergency response efforts during the years ended december 31 , 2012 and 2011 , the year-over-year increase in field services revenues of approximately 5 % resulted primarily from large-scale project work and ongoing maintenance work . our technical services revenues accounted for 43 % of our total revenues for the year ended december 31 , 2012 . in our technical services segment , we achieved year-over-year revenue growth of 6 % . incinerator utilization was 90 % for the year ended december 31 , 2012 , compared to 89 % in 2011 , and landfill volumes increased 58 % year-over-year . our industrial services revenues accounted for 26 % of our total revenues for the year ended december 31 , 2012 . the year-over-year increase in revenue of 24 % was primarily due to continued investment in the oil sands region of canada , incremental revenues from refinery turnaround work , revenues associated with our acquisitions , and high utilization rates at the camps in our lodging business . our oil and gas field services revenues accounted for 20 % of our total revenues for the year ended december 31 , 2012 . the year-over-year increase of 16 % was primarily due to contributions from our acquisitions . our costs of revenues increased from $ 1.38 billion for the year ended december 31 , 2011 to $ 1.54 billion for the year ended december 31 , 2012 primarily due to costs associated with our acquisitions in 2012 and 2011 and because of our increased revenues . our gross profit margin was 29.6 % for the year ended december 31 , 2012 , which is down slightly from 30.4 % in the same period last year . environmental liabilities the net reductions in our estimated environmental liabilities during each of 2012 , 2011 and 2010 were due primarily to changes in estimates . the benefits over the past few years were primarily due to the successful introduction of new technology for remedial activities , favorable results from environmental studies of the on-going remediation , including favorable regulatory approvals , and lower project costs realized by utilizing internal labor and equipment . the principal changes in estimates were from the following items : in 2012 , the net reduction of $ 8.5 million primarily related to five sites . updates to the scope of future work at two sites led to a reduction in the related remedial liabilities ; and installation of new technology at a third site and favorable environmental studies at a fourth site also led to a reduction in remedial liabilities . the estimated savings from these four sites were partially offset by an increase in non-landfill retirement liabilities of $ 1.1 million primarily related to one site where the timing of the closure was accelerated . in 2011 , the net reduction of $ 2.8 million primarily related to four sites . installation of a solar array system led to lower estimated future utility costs at one site ; favorable environmental studies and regulatory approvals were achieved at a second and third site ; and utilization of internal labor rather than external contractors at the fourth site enabled us to reduce our estimate of remediation costs . the estimated savings from the four sites were partially offset by an increase in remedial liabilities recorded at a fifth site due to a change in estimated costs following finalization of the corrective action plan . in 2010 , the net reduction of $ 8.3 million primarily related to three sites . favorable environmental studies at one site led to favorable regulatory approvals and a reduction in the remediation period ; and implementation of solar sippers at a second site and installation of additional equipment at a third site resulted in reductions to the estimated future utility costs due to increased efficiencies . 34 critical accounting policies and estimates the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of our assets , liabilities , revenues and expenses , and related disclosures of contingent liabilities . the following are the areas that we believe require the greatest amount of judgments or estimates in the preparation of the financial statements : revenue allowance , allowance for doubtful accounts , accounting for landfills , non-landfill closure and post-closure liabilities , remedial liabilities , goodwill , permits and other intangible assets , insurance accruals , legal matters , and provision for income taxes . our management reviews critical accounting estimates with the audit committee of our board of directors on an ongoing basis and as needed prior to the release of our annual financial statements . see also note 2 , `` significant accounting policies , '' in item 8 , `` financial statements and supplementary data , '' of this report , which discusses the significant assumptions used in applying our accounting policies . revenue allowance . due to the nature of our business and the complex invoices that result from the services we provide , customers may withhold payments and attempt to renegotiate amounts invoiced . in addition , for some of the services we provide , our invoices are based on quotes that can either generate credits or debits when the actual revenue amount is known . based on our industry knowledge and historical trends , we record a revenue allowance accordingly . increases in overall sales volumes and the expansion of our customer base in recent years have also increased the volume of additions and deductions to the allowance during the year , as well as increased the amount of the allowance at the end of the year . our revenue allowance is intended to cover the net amount of revenue adjustments that may need to be credited to customers ' accounts in future periods .
| these tables and subsequent discussions should be read in conjunction with item 8 , “ financial statements and supplementary data , ” of this report and in particular note 18 , “ segment reporting , ” to such financial statements . 40 year ended december 31 , 2012 versus year ended december 31 , 2011 replace_table_token_13_th _ ( 1 ) items shown separately on the statements of income consist of ( i ) accretion of environmental liabilities and ( ii ) depreciation and amortization . ( 2 ) see footnote 4 under item 6 , `` selected financial data , '' for a discussion of adjusted ebitda . revenues technical services revenues increased 5.9 % , or $ 52.4 million , in the year ended december 31 , 2012 from the comparable period in 2011 primarily due to an increase in volumes being processed through our incinerators and landfills . field services revenues decreased 7.8 % , or $ 20.3 million , in the year ended december 31 , 2012 from the comparable period in 2011 . field services performed $ 43.6 million of emergency response work related to the yellowstone river oil spill in montana during the year ended december 31 , 2011 and performed approximately $ 11.7 million of emergency response work associated with hurricane sandy during the year ended december 31 , 2012. industrial services revenues increased 23.8 % , or $ 111.7 million , in the year ended december 31 , 2012 from the comparable period in 2011 primarily due to an increase in our lodging business ( $ 78.6 million ) , growth in the oil sands region of canada , and an increase in a broad array of our specialty services . these increases resulted partially from revenues associated with our acquisitions in 2012 and 2011 , including peak in june 2011 . 41 oil and gas field services revenues increased 16.2 % , or $ 59.7 million , in the year ended december 31 , 2012 from the comparable period in 2011 primarily due to fluids handling and surface rentals activity related to our acquisition of peak in june 2011 ( $ 38.4 million ) and increased exploration activities partially from revenues associated with an acquisition
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gross margin as a percentage of sales in 2019 was comparable to 2018. operating income as a percentage of net sales increased in 2019 compared to 2018 principally due to improved coverage on operating costs and expenses facilitated by higher production volumes . outlook . in the second half of 2020 , our sales began to recover from the historically low levels we experienced during the second quarter , with sales steadily improving for the remainder of the year . the covid-19 pandemic continues to impact our operations and demand for our products particularly in the transportation , office furniture and distribution markets served by our security products segment . in the second half of the year , our manufacturing operations returned to more normal production rates as demand from our customers began to return , although for our security products segment , below pre-pandemic levels . our global and domestic supply chains remain intact , and we have experienced minimal supply chain disruptions . the markets we sell to have recovered to varying degrees , and we continue to work closely with all our customers and monitor their progress as they continue to adjust their operations . even with the severe downturn during the second quarter , marine component segment sales outpaced prior year as demand for recreational boats increased as people sought socially distanced , outdoor activities . we expect these trends to continue for at least the first part of 2021. considerable effort continues at all our locations to manage covid-19 conditions including enhanced health and safety protocols and cleaning and disinfecting efforts . throughout the course of the covid-19 pandemic , we have focused our efforts on maintaining efficient operations while closely managing our expenses and capital projects . in this regard , we are constantly evaluating our staffing levels and we believe our current staffing levels are aligned with our sales and production forecasts for the first part of 2021. the advance of the covid-19 pandemic and the global efforts to mitigate its spread have resulted in sharp contractions of vast areas of the global economy and are expected to continue to challenge workers , businesses and governments for the foreseeable future . government actions in various regions have generally permitted the gradual resumption of commercial activities following various regional shutdowns , but further government action restricting economic activity is possible in an effort to mitigate increases in covid-19 cases in certain regions . the success and timing of these mitigating actions will depend in part on continued deployment of effective tools to fight covid-19 , including availability of testing , effective treatments and vaccine distribution , before economic growth is likely to return to pre-pandemic levels . even as these measures are implemented and become effective , they will not directly address the business and employment losses already experienced . as a result , we expect u.s. and worldwide gross domestic product to be significantly impacted for an indeterminate period . - 16 - based on current conditions , we expect to report increased revenue and operating income in 2021 compared to 2020 but we do not expect security products to return to pre-pandemic levels experienced in 2019. as noted above , our security products production volumes remain below 2019 levels . as a result , we expect to continue to experience the negative impact of higher fixed costs per unit of production during 2021 which will continue to challenge gross margins in the segment . the severity of the impact of covid-19 on 2021 will depend on customer demand for our products , including the timing and extent to which our customers ' operations continue to be impacted , on our customers ' perception as to when consumer demand for their products will return to pre-pandemic levels and on any future disruptions in our operations or our suppliers ' operations , all of which are difficult to predict . our operations teams meet frequently to ensure we are taking appropriate actions to maintain a safe working environment for all our employees , minimize operational disruptions , manage inventory levels and improve operating margins . it is possible we may temporarily close one or more of our facilities for the health and safety of our employees before the covid-19 pandemic is over . critical accounting policies and estimates our significant accounting policies are more fully described in note 1 to our consolidated financial statements . our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states of america ( gaap ) which requires us to make estimates , judgments , and assumptions we believe are reasonable based on our historical experience , contract terms , observations of known trends in our company and the industry as a whole and information available from other outside sources . our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expense during the reporting period . actual results may differ from initial estimates . we believe the most critical accounting policies and estimates involving significant judgments and estimates primarily relate to the considerations in the impairment assessments for goodwill and certain long-lived assets . we have discussed the development , selection and disclosure of our critical accounting estimates with the audit committee of our board of directors . goodwill – our goodwill totaled $ 23.7 million at december 31 , 2020 , all relating to our security products reporting unit , which corresponds to our security products operating segment . story_separator_special_tag goodwill is required to be tested annually or at other times whenever an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value . we perform our annual goodwill impairment test in the third quarter of each year , or at other times whenever an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value . such events or circumstances may include : adverse industry or economic trends , lower projections of profitability , or a sustained decline in our market capitalization . these events or circumstances , among other items , may be indications of potential impairment issues which are triggering events requiring the testing of an asset 's carrying value for recoverability . an entity may first assess qualitative factors to determine whether it is necessary to complete the two-step quantitative impairment test using a more-likely-than-not criteria . if an entity believes it is more-likely-than-not the fair value of a reporting unit is greater than its carrying value , including goodwill , the two-step quantitative impairment test can be bypassed . alternatively , an entity has an unconditional option to bypass the qualitative assessment and proceed directly to performing the two-step quantitative impairment test . when performing a qualitative assessment , considerable management judgment is necessary to evaluate the qualitative impact of events and circumstances on the fair value of a reporting unit . events and circumstances considered in our impairment evaluations , such as historical profits and stability of the markets served , are consistent with factors utilized with our internal projections and operating plan . however , future events and circumstances could result in materially different findings which could result in the recognition of a material goodwill impairment . evaluations of possible impairment utilizing the two-step quantitative impairment test require us to estimate , among other factors : forecasts of future operating results , revenue growth , operating margin , tax rates , capital expenditures , depreciation , working capital , weighted average cost of capital , long-term growth rates , risk premiums , terminal values , and fair values of our reporting units and assets . the - 17 - goodwill impairment test is subject to uncertainties arising from such events as changes in competitive conditions , the current general economic environment , material changes in growth rate assumptions that could positively or negatively impact anticipated future operating conditions and cash flows , changes in the discount rate , and the impact of strategic decisions . if any of these factors were to materially change , such change may require revaluation of our goodwill . changes in estimates or the application of alternative assumptions could produce significantly different results . in 2020 , we used the qualitative assessment for our annual impairment test and determined it was not necessary to perform the quantitative goodwill impairment test , as we concluded it is more-likely- than-not the fair value of the security products reporting unit exceeded its carrying amount . see notes 1 and 5 to our consolidated financial statements . long-lived assets – the net book value of our property and equipment totaled $ 28.9 million at december 31 , 2020. we assess property and equipment for impairment only when circumstances indicate an impairment may exist . our determination is based upon , among other things , our estimates of the amount of future net cash flows to be generated by the long-lived asset ( level 3 inputs ) and our estimates of the current fair value of the asset . significant judgment is required in estimating such cash flows . adverse changes in such estimates of future net cash flows or estimates of fair value could result in an inability to recover the carrying value of the long-lived asset , thereby possibly requiring an impairment charge to be recognized in the future . we do not assess our property and equipment for impairment unless certain impairment indicators are present . we did not evaluate any long-lived assets for impairment during 2020 because no such impairment indicators were present . liquidity and capital resources story_separator_special_tag style= '' font-style : normal ; '' > our board of directo rs declared a first quarter 202 1 dividend of $ . 20 p er share , to be paid on march 23 , 202 1 to compx stock holders of record as of march 15 , 202 1 . the declaration and payment of future dividends and the amount thereof , if any , is discretionary and is dependent upon our results of operations , financial condition , cash requirements for our businesses , contractual requirements and restrictions and other factors deemed relevant by our board of directors . the amount and timing of past dividends is not necessarily indicative of the amount or timing of any future dividends which we might pay . future cash requirements we believe cash generated from operations together with cash on hand will be sufficient to meet our liquidity needs for working capital , capital expenditures , debt service and dividends ( if declared ) for the next twelve months and our long term obligations for the next five years . to the extent that actual operating results or other developments differ materially from our expectations , our liquidity could be adversely affected . all of our $ 70.6 million aggregate cash and cash equivalents at december 31 , 2020 were held in the u.s. we periodically evaluate our liquidity requirements , alternative uses of capital , capital needs and available resources in view of , among other things , our capital expenditure requirements , dividend policy and estimated future operating cash flows . as a result of this process , we have in the past and may in the future seek to raise additional capital , refinance or restructure indebtedness , issue additional securities , repurchase shares of our common stock ,
| cash provided by operating activities was $ 15.5 million in 2020 compared to $ 18.5 million in 2019. the $ 3.0 million decrease in cash provided by operating activities was primarily the net result of : a $ 5.8 million decrease in operating income in 2020 , a $ 1.0 million decrease in interest received in 2020 due to and lower average interest rates and to a lesser extent lower average loan balances on our loan to an affiliate , partially offset by the relative timing of interest received , - 18 - a $ 1.8 million de crease in cash paid for taxes in 20 20 due to lower operating income , and a higher amount of net cash provided by relative changes in inventories , receivables , payables and non-tax accruals of $ 2.2 million . cash provided by operating activities was $ 18.5 million in 2019 compared to $ 17.2 million in 2018. the $ 1.3 million increase in cash provided by operating activities was primarily the net result of : a $ 1.1 million increase in interest received in 2019 , a $ 0.7 million increase in cash paid for taxes in 2019 due to the relative timing of payments , and a lower amount of net cash used by relative changes in inventories , receivables , payables and non-tax accruals of $ 0.6 million . relative changes in working capital can have a significant effect on cash flows from operating activities . as shown below , our total average days sales outstanding decreased from december 31 , 2019 to december 31 , 2020 primarily as a result of the timing of sales and collections in the last month of 2020 as compared to 2019. for comparative purposes , we have provided 2018 numbers below . replace_table_token_5_th as shown below , our average number of days in inventory decreased from december 31 , 2019 to december 31 , 2020 , particularly for marine components . the average number of days in inventory for marine components decreased primarily as a result of rapid sales growth in the fourth quarter of 2020. for comparative purposes , we have provided 2018 numbers below . replace_table_token_6_th investing activities . capital expenditures have primarily emphasized improving our manufacturing facilities and investing in manufacturing equipment , utilizing new technologies and increased automation of the manufacturing process , to provide for increased productivity and efficiency in order to meet expected customer demand and properly
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the following charts reflect key operating and financial metrics for our business : background market environment the economic environment and markets have generally improved over the last three years ; however , the markets continue to experience volatility due to a host of factors including , among others , underlying concerns regarding unemployment and the rate of economic recovery in the united states , the stability of european economies and their banks , rising inflation , sustainability of growth in the emerging market countries and geopolitical unrest . the following charts reflect the annual returns of the broad based equity indexes over the last three years : source : bloomberg . 31 as the charts reflect , broad based international developed and emerging markets declined in 2014 while the u.s. markets had positive returns in 2014. the u.s. etf industry had record inflows levels in 2014 as the chart below reflects : source : investment company institute , wisdomtree . competitive environment the etf industry is becoming significantly more competitive as existing players compete on price and broaden their suite of products to different strategies that are , in some cases , similar to ours . we do not know what effect , if any , the launch of these etfs may have on our business . within the etf industry , being a first mover , or one of the first providers of etfs in a particular asset class , can be a significant advantage as the first etf in a category to attract scale in aum and trading liquidity is generally viewed as the most attractive etf . we believe that our early launch of etfs in a number of asset classes or strategies , including fundamental weighting and currency hedging , positions us well to maintain our position as one of the leaders of the etf industry . in addition , in december 2014 , the sec granted eaton vance and related parties an exemption from certain provisions of the investment company act to permit the offering of a form of non-transparent exchange traded managed funds . other firms have also filed for forms of non-transparent exchange traded actively managed products . industry observers believe that non-transparent exchange traded products may allow traditional actively managed mutual fund sponsors to compete more effectively against etfs . we believe one of the benefits of the etf structure is its daily full transparency , which these proposed non-transparent products will not provide . we offer fully transparent actively managed etfs as well as passive etfs . we do not know what effect , if any , these non-transparent products may have on our business . wisdomtree europe and goodwill in april 2014 , in a move that expands our footprint to europe , we acquired boost , a u.k. and jersey based etp sponsor now known as wisdomtree europe . at the time of the acquisition , boost had aum of $ 96.8 million . with their management team , we commenced a build-out of a local european platform to offer a select range of etfs under the wisdomtree brand and continue to manage and grow boost 's lineup of short and leveraged fully collateralized etps under the boost brand through a capital investment of $ 20 million into the business . in the fourth quarter of 2014 , we launched six wisdomtree branded ucits etfs in europe . under terms of the acquisition agreement , we own 75 % of wisdomtree europe and the former boost shareholders own 25 % . we will acquire the remaining 25 % ownership interest at the end of four years using a predefined formula based on european aum at the end of the four year period and will be tied to our enterprise value over global aum at the time of payout , and affected by profitability of the european business . no consideration was transferred on the acquisition date . the ultimate payout will be made in cash over two years . because we are required to redeem the shares from the former boost shareholders at the end of four years under a predefined formula , under u.s. gaap , we do not reflect the 25 % interest held by the former boost shareholders in wisdomtree europe as a non-controlling interest . we recorded goodwill of $ 1,676 related to this acquisition . this amount represents the excess value of the purchase price over the fair value of the net assets acquired . while we paid no consideration up front to the former boost shareholders , under the terms of our acquisition agreement , $ 1,757 was deemed to represent the purchase price . the vast majority of our operating and financial results are driven by our u.s. listed etf business as wisdomtree europe is in the early stages of its development . 32 components of revenue advisory fees the majority of our revenues are comprised of advisory fees we earn from our u.s. listed etfs . we earn this revenue based on a percentage of the average daily value of aum . our average daily value of aum is the average of the daily aggregate aum of our etfs as determined by the then current net asset value ( as defined under investment company act rule 2a-4 ) of such etfs as of the close of business each day . our fee percentages for individual etfs range from 0.28 % to 0.95 % . we determine the appropriate advisory fee to charge for our etfs based on the cost of operating each particular etf taking into account the types of securities the etfs will hold , fees third party service providers will charge us for operating the etfs and our competitors ' fees for similar etfs . generally , our actively managed etfs , such as our alternative strategy and currency etfs , along with our emerging markets etfs , are priced higher than our other index based etfs as the former are more costly to operate . each of our etfs has a fixed advisory fee . story_separator_special_tag in order to increase the advisory fee , we would need to obtain the approval from a majority of the etf shareholders which may be difficult or not possible to achieve . there may also be a significant cost in obtaining such etf shareholder approval . we do not need etf shareholder approval to lower our advisory fee . until the end of 2012 , the advisory fee charged for our currency etfs and one fixed income etf was subject to a joint venture with mellon capital and dreyfus as discussed below . we had determined that we were the principal participant for transactions under this collaborative arrangement and as such , the advisory fee above reflects the gross fee under this arrangementsee notes to the consolidated financial statements included in this report . our etf advisory fee revenue may fluctuate based on general stock market trends which include market value appreciation or depreciation , currency fluctuations against the u.s. dollar and level of inflows or outflows from our etfs . in addition , these revenues may fluctuate due to increased competition or a determination by the independent trustees of the wisdomtree etfs to terminate or significantly alter the funds ' investment management agreements with us . other income other income includes fees from licensing our indexes to third parties and interest income from investing our corporate cash . these revenues are immaterial to our financial results and we do not expect them to be material in the near term . components of expenses our operating expenses consist primarily of costs related to selling , operating and marketing our etfs as well as the infrastructure needed to run our business . compensation and benefits employee compensation and benefits expenses are expensed when incurred and include salaries , incentive compensation , and related benefit costs . virtually all our employees receive incentive compensation which is based on our operating results as well as their individual performance . therefore , a portion of this expense will fluctuate with our business results . in order to attract and retain qualified personnel , we must maintain competitive employee compensation and benefit plans . in normal circumstances , we expect to experience a general rise in employee compensation and benefit expenses over the long term as we grow ; however , the rate of increase should be less than the rate of increase in our revenues . also included in compensation and benefits are costs related to equity awards granted to our employees . our executive management and board of directors strongly believe that equity awards are an important part of our employees ' overall compensation package and that incentivizing our employees with equity in the company aligns the interest of our employees with that of our stockholders . we use the fair value method in recording compensation expense for restricted stock and options grants . we ceased granting options in favor of restricted stock beginning in 2012 and do not anticipate issuing options in the future unless industry pay practices change . under the fair value method , compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized as an expense over the vesting period . we intend to significantly increase our headcount in 2015 to support our growth and expect our total compensation and benefits expense will be between 21 % to 25 % of our revenues in 2015 . 33 fund management and administration fund management and administration expenses are expensed when incurred and are comprised of costs we pay third party service providers to operate our etfs . under our advisory agreement with the wisdomtree trust , the trustees have approved us and other third parties to provide essential management and administrative services to the trust and each etf in exchange for an advisory fee . the costs include : portfolio management of our etfs ( sub-advisory ) ; fund accounting and administration ; custodial services ; accounting and tax services ; printing and mailing of stockholder materials ; index calculation ; distribution fees ; legal and compliance services ; exchange listing fees ; trustee fees and expenses ; preparation of regulatory reports and filings ; insurance ; certain local income taxes ; and other administrative services . we are not responsible for extraordinary expenses , taxes and certain other expenses . bny mellon acts as sub-adviser for the majority our etfs and prior to april 2014 , also provided fund administration , custody and accounting related services for all the wisdomtree etfs . in april 2014 , we transferred our fund administration , custody and accounting related services to state street from bny mellon . the fees we pay bny mellon , our other sub-advisers and state street have minimums per fund which range from $ 25,000 to $ 50,000 per year with additional fees ranging between 0.015 % and 0.18 % of average daily aum at various breakpoint levels depending on the nature of the etf . in addition , we pay certain costs based on transactions in our etfs or based on inflow levels . the fees we pay for accounting , tax , index calculation and exchange listing are based on the number of etfs we have . the remaining fees are based on a combination of both aum and number of funds , or as incurred . marketing and advertising marketing and advertising expenses are recorded when incurred and include the following : advertising and product promotion campaigns that are initiated to promote our existing and new etfs as well as brand awareness ; development and maintenance of our website ; and creation and preparation of marketing materials . our discretionary advertising comprises the largest portion of this expense and we expect these costs to increase in the future as we continue to execute our growth strategy and compete against other etf sponsors and new market entrants .
| our liabilities consist primarily of payments owed to vendors and third parties in the normal course of business , accrued year end incentive compensation for employees as well as consideration owed in connection with our acquisition of boost in april 2014. cash and cash equivalents increased $ 61.0 million in 2014 primarily due to $ 82.6 million of cash flows generated by our operating activities as a result of higher revenues from higher average aum . we received $ 1.5 million from the exercise of stock options , acquired $ 1.3 million in cash from our acquisition of boost and received $ 0.9 million from the redemption of investments we held during the year . we used $ 10.8 million to pay a dividend on our common stock and $ 6.5 million to repurchase our common stock . we used $ 4.9 million for leasehold and other capital expenditures for our new office space and $ 3.2 million to purchase investments . cash and cash equivalents increased $ 63.1 million in 2013 primarily due to $ 70.1 million of cash flows generated by our operating activities as a result of higher revenues from higher average aum , $ 1.6 million received from the exercise of stock options and $ 2.8 million from the redemption of investments we held during the year . partly offsetting these increases was $ 6.2 million used for purchase of fixed assets and leasehold improvements for our new office space and $ 3.6 million used to purchase new investments . cash and cash equivalents increased $ 15.6 million in 2012 primarily due to $ 11.2 million of cash flows generated by our operating activities as a result of higher revenues from higher average aum , $ 4.7 million received from the exercise of stock options and $ 4.3 million from the sale of our common stock . we also received $ 7.8 million from the redemption of investments we held during the year . partly offsetting these increases was $ 10.0 million used to purchase new investments . capital resources currently , our principal source of financing is our operating cash flow . we believe that
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in some countries , this issue has led to government restrictions and bans on the use of specific antibacterials in some food-producing animals , regardless of the route of administration ( in feed or injectable ) . these restrictions are more prevalent in countries where animal protein is plentiful and governments are willing to take action even when there is scientific uncertainty . our total revenue attributable to antibacterials for livestock was approximately $ 1.3 billion for the year ended december 31 , 2018 . we can not predict whether antibacterial resistance concerns will result in additional restrictions or bans , expanded regulations , public pressure to discontinue or reduce use of antibacterials in food-producing animals or increased consumer preference for antibiotic-free protein . the overall economic environment in addition to industry-specific factors , we , like other businesses , face challenges related to global economic conditions . growth in both the livestock and companion animal sectors is driven by overall economic development and related growth , particularly in many emerging markets . in the past , certain of our customers and suppliers have been affected directly by economic downturns , which decreased the demand for our products and , in some cases , hindered our ability to collect amounts due from customers . the cost of medicines and vaccines to our livestock producer customers is small relative to other production costs , including feed , and the use of these products is intended to improve livestock producers ' economic outcomes . as a result , demand for our products has historically been more stable than demand for other production inputs . similarly , industry sources have reported that pet owners indicated a preference for reducing spending on other aspects of their lifestyle , including entertainment , clothing and household goods , before reducing spending on pet care . while these factors have mitigated the impact of prior downturns in the global economy , future economic challenges could increase cost sensitivity among our customers , which may result in reduced demand for our products , which could have a material adverse effect on our operating results and financial condition . competition the animal health industry is competitive . although our business is the largest by revenue in the animal health medicines , vaccines and diagnostics industry , we face competition in the regions in which we operate . principal methods of competition vary depending on the particular region , species , product category or individual product . some of these methods include new product development , quality , price , service and promotion to veterinary professionals , pet owners and livestock producers . our competitors include standalone animal health businesses and the animal health businesses of large pharmaceutical companies . in recent years , there has been an increase in consolidation in the animal health industry . there are also several new start-up companies working in the animal health area . in addition to competition from established market participants , there could be new entrants to the animal health medicines , vaccines and diagnostics industry in the future . in certain markets , we also compete with companies that produce generic products , but the level of competition from generic products varies from market to market . for example , the level of generic competition is higher in europe and certain emerging markets than in the united states . weather conditions and the availability of natural resources the animal health industry and demand for many of our animal health products in a particular region are affected by weather conditions , as usage of our products follows varying weather patterns and weather-related pressures from pests , such as ticks . as a result , we may experience regional and seasonal fluctuations in our results of operations . in addition , veterinary hospitals and practitioners depend on visits from and access to the animals under their care . veterinarians ' patient volume and ability to operate could be adversely affected if they experience prolonged snow , ice or other severe weather conditions , particularly in regions not accustomed to sustained inclement weather . furthermore , livestock producers depend on the availability of natural resources , including large supplies of fresh water . their animals ' health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods , droughts or other weather conditions . in the event of adverse weather conditions or a shortage of fresh water , veterinarians and livestock producers may purchase less of our products . for example , drought conditions could negatively impact , among other things , the supply of corn and the availability of grazing pastures . a decrease in harvested corn results in higher corn prices , which could negatively impact the profitability of livestock producers of cattle , pork and poultry . higher corn prices and reduced availability of grazing pastures contribute to reductions in herd or flock sizes that in turn result in less spending on animal health products . as such , a prolonged drought could have a material adverse impact on our operating results and financial condition . factors influencing the magnitude and timing of effects of a drought on our performance include , but may not be limited to , weather patterns and herd management decisions . 33 | adverse weather conditions may also impact the aquaculture business . changes in water temperatures could affect the timing of reproduction and growth of various fish species , as well as trigger the outbreak of certain water borne diseases . disease outbreaks sales of our livestock products could be adversely affected by the outbreak of disease carried by animals . outbreaks of disease may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products , either due to heightened export restrictions or import prohibitions , which may reduce demand for our products . story_separator_special_tag also , the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere . alternatively , sales of products that treat specific disease outbreaks may increase . manufacturing and supply in order to sell our products , we must be able to produce and ship our products in sufficient quantities . many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites . minor deviations in our manufacturing or logistical processes , such as temperature excursions or improper package sealing , could result in delays , inventory shortages , unanticipated costs , product recalls , product liability and or regulatory action . in addition , a number of factors could cause production interruptions that could result in launch delays , inventory shortages , recalls , unanticipated costs or issues with our agreements under which we supply third parties . our manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes . the unpredictability of a product 's regulatory or commercial success or failure , the lead time necessary to construct highly technical and complex manufacturing sites , and shifting customer demand increase the potential for capacity imbalances . foreign exchange rates significant portions of our revenue and costs are exposed to changes in foreign exchange rates . our products are sold in more than 100 countries and , as a result , our revenue is influenced by changes in foreign exchange rates . for the year ended december 31 , 2018 , approximately 47 % of our revenue was denominated in foreign currencies . we seek to manage our foreign exchange risk , in part , through operational means , including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities . as we operate in multiple foreign currencies , including the euro , brazilian real , chinese renminbi , canadian dollar , australian dollar , u.k. pound and other currencies , changes in those currencies relative to the u.s. dollar will impact our revenue , cost of goods and expenses , and consequently , net income . exchange rate fluctuations may also have an impact beyond our reported financial results and directly impact operations . these fluctuations may affect the ability to buy and sell our goods and services between markets impacted by significant exchange rate variances . for the year ended december 31 , 2018 , approximately 53 % of our total revenue was in u.s. dollars . our year-over-year total revenue growth did not have a net impact from changes in foreign currency values relative to the u.s. dollar . our growth strategies we seek to enhance the health of animals and to bring solutions to our customers who raise and care for them . we have a global presence in both developed and emerging markets and we intend to grow our business by pursuing the following core strategies : bring innovative new products and services to market — we seek to deliver more innovations across core areas of vaccines , pharmaceuticals , diagnostics and the complementary spaces we have been adding over time such as genetics , biodevices , digital and data analytics ; maintain a diversified , market-leading portfolio — we believe our diversity across species , geographies and therapeutic areas balances economic cycles and regulatory changes , while minimizing dependency in any one area ; maximize opportunities in fast-growing international markets — we seek to maximize our presence where economic development is driving increased demand for animal protein and increased demand for and spending on companion animals . we intend to capitalize on investments we have made in high-growth markets such as china and brazil ; develop more data analytics and digital solutions — we believe that healthcare insights enabled by data and digital technology and complemented with our portfolio of vaccines , therapeutics , and diagnostics will be critical in enhancing care for animals and improving livestock productivity ; support our customers ' direct engagement with pet owners and consumers — we believe that we have an important role to play in supporting our veterinary customers ' engagement with pet owners , who are increasingly influencing care decisions for their animals , and consumers , who are demanding more transparency about where their food comes from and how it is produced ; and enhance our capabilities across the continuum of care — we are focused on providing greater value to our customers through the integration of our portfolio that spans from disease prediction and prevention to detection and treatment . components of revenue and costs and expenses our revenue , costs and expenses are reported for the year ended december 31 for each year presented , except for operations outside the united states , for which the financial information is included in our consolidated financial statements for the fiscal year ended november 30 for each year presented . 34 | revenue our revenue is primarily derived from our diversified product portfolio of medicines , vaccines and diagnostic products used to treat and protect livestock and companion animals . generally , our products are promoted to veterinarians and livestock producers by our sales organization which includes sales representatives and technical and veterinary operations specialists , and then sold directly by us or through distributors . the depth of our product portfolio enables us to address the varying needs of customers in different species and geographies . in 2018 , our top two selling products , apoquel and draxxin , contributed approximately 8 % and 6 % , respectively , of our revenue , and combined with our next two top selling products , the ceftiofur line and revolution/stronghold , these four contributed approximately 25 % of our revenue . our top ten product lines contributed 40 % of our revenue .
| fish growth was due to increased sales in the vaccines portfolio . international segment earnings increased by $ 159 million , or 13 % , in 2018 compared with 2017 . operational earnings growth was $ 165 million , or 13 % , primarily due to higher revenue and improved gross margin . 2017 vs. 2016 u.s. operating segment u.s. segment revenue increased by $ 173 million , or 7 % , in 2017 compared with 2016 , of which approximately $ 17 million resulted from growth in livestock products and approximately $ 156 million resulted from growth in companion animal products . livestock revenue increased primarily due to cattle and poultry products , partly offset by swine products . cattle experienced growth across our portfolio , while poultry growth was due to increased sales of medicated feed additives . certain medicated feed additive products for both cattle and swine were negatively impacted by livestock producers ' implementation of the veterinary feed directive . in addition , swine declined due to vaccine competition . companion animal revenue growth was driven primarily by our dermatology portfolio , in addition to new products , particularly simparica ® . growth was tempered by the prior year 's initial sales of certain products into expanded distribution relationships , as well as lower sales due to competition for our pain and anti-infective products . u.s. segment earnings increased by $ 129 million , or 9 % , in 2017 compared with 2016 , primarily due to revenue growth and improved gross margin , partially offset by higher operating expenses related to promotional activity for new products and apoquel ® . international operating segment international segment revenue increased by $ 253 million , or 11 % , in 2017 compared with 2016 . operational revenue increased $ 240 million , or 10 % , reflecting growth of approximately $ 125 million in livestock products and growth of approximately $ 115 million in companion animal products . livestock
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we plan to continue to incur significant research and development expenses for the foreseeable future as we continue to seek regulatory approval and exclusivity for indoximod , further advance our earlier-stage research and development projects and strengthen our pipeline of immune stimulatory product candidates through our clinical and business development programs . for the years ended december 31 , 2017 , 2016 and 2015 we incurred $ 69.9 million , $ 93.3 million , and $ 71.4 million , respectively , in research and development expenses . the following table summarizes our research and development expenses by category of costs for the periods indicated : replace_table_token_5_th at this time , we can not accurately estimate or know the nature , specific timing or costs necessary to complete clinical development activities for our product candidates . we are subject to the numerous risks and uncertainties associated with developing biopharmaceutical products including the uncertain cost and outcome of ongoing and planned clinical trials , the possibility that the fda or another regulatory authority may require us to conduct clinical or non-clinical testing in addition to trials that we have planned , rapid and significant technological changes , frequent new product and service introductions and enhancements , evolving industry standards in the life sciences industry and our future need for additional capital . in addition , we currently have limited clinical data concerning the safety and efficacy of our product candidates . a change in the outcome of any of these variables with respect to the development of any of our product candidates could result in a significant change in the costs and timing of our research and development expenses . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , finance , business development , information technology , legal and human resources functions . other general and administrative expenses include facility costs not otherwise associated with research and development expenses , intellectual property prosecution and defense costs and professional fees for legal , consulting , auditing and tax services . 54 interest income and interest expense interest income consists of interest earned on our cash and cash equivalents and certificates of deposit . the primary objective of our investment policy is capital preservation . we expect our interest income to increase as we invest the net proceeds from our offerings pending their use in our operations . interest expense consists primarily of interest , amortization of debt discount and amortization of deferred financing costs associated with our notes payable and obligations under capital leases . restructuring charges in july 2017 , we undertook an organizational realignment to refocus our clinical development efforts and align our resources to focus on our highest value opportunities . the restructuring activities included a reduction of our workforce by approximately 50 % , which consisted primarily of clinical and research and development staff , as well as stopping additional research on the zika virus . in may 2016 , we announced that our phase 3 clinical trial impress , for algenpantucel-l , which utilizes our hyperacute cellular immunotherapy technology , failed to achieve its primary endpoint . as a result , we adopted a restructuring plan designed to better align our workforce and operating costs to our revised pipeline development plans and operating needs . the restructuring plan included a reduction in our workforce ; the exit of or reduction of certain leased facilities ; and the renegotiation or termination of contracts with certain third parties . in connection with the restructuring plan , we also discontinued the development of our commercial manufacturing capabilities for algenpantucel-l , discontinued programs supporting the future commercialization of algenpantucel-l and recorded an impairment charge to fixed assets . we have retained some internal manufacturing ability to support the development of clinical supplies for our ongoing clinical trials of the other hyperacute cellular immunotherapy product candidates . refer to note 13 for more information . income tax benefit and expense for the years ended december 31 , 2017 and 2016 , we had an income tax benefit of $ 559,000 and $ 5.4 million , respectively . income tax expense was $ 6.7 million for the year ended december 31 , 2015 . income tax differs from the amount that would be expected after applying the statutory u.s. federal income tax rate primarily due to the loss incurred for our foreign subsidiary and the ability to carry back current year losses to prior years . in addition , for the year ended december 31 , 2017 the tax differs from the statutory u.s. federal tax rate due to our limited potential to carry back losses for 2017 to 2015. the valuation allowance for deferred tax assets as of december 31 , 2017 and 2016 was $ 50.2 million and $ 35.1 million , respectively . the net change in the total valuation allowance for the years ended december 31 , 2017 and 2016 was an increase of $ 15.1 million . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities , projected taxable income , and tax planning strategies in making this assessment . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the `` tax act '' ) . story_separator_special_tag the tax act repealed the corporate amt for years beginning january 1 , 2018 , and provides that existing amt credit carryovers are partially refundable beginning in 2018 as an offset to a taxable liability , with full refunds beginning in 2021. we have approximately $ 140,000 of amt credit carryovers that are expected to be fully refunded by 2021. we released the valuation allowance previously recorded against this deferred tax asset and reclassified the amount as a noncurrent income tax receivable . the tax act had no other material impacts to the consolidated financial statements upon enactment . for all other net deferred tax assets as of december 31 , 2017 and 2016 , a full valuation allowance has been established due to the uncertainty of future recoverability . as of december 31 , 2017 and december 31 , 2016 , we had federal net operating loss carryforwards of $ 38.8 million and $ 1.4 million and federal research credit carryforwards of $ 26.2 million and $ 20.8 million , respectively . sections 382 and 383 of the internal revenue code limit a corporation 's ability to utilize its net operating loss carryforwards and certain other tax attributes ( including research credits ) to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50 % over any rolling three year period . state net operating loss carryforwards ( and certain other tax attributes ) may be similarly limited . an ownership change can therefore result in significantly greater tax liabilities than a corporation would incur in the absence of such a change and any increased liabilities could adversely affect the corporation 's business , results of operations , financial condition and cash flow . 55 based on analysis , we believe that , from our inception through december 31 , 2016 , we experienced section 382 ownership changes in september 2001 and march 2003 and one of our subsidiaries experienced section 382 ownership changes in january 2006 and january 2011. these ownership changes limited our ability to utilize federal net operating loss carryforwards ( and certain other tax attributes ) that accrued prior to the respective ownership changes of us and one of our subsidiaries . even if another ownership change has not occurred , additional ownership changes may occur in the future as a result of events over which we will have little or no control , including purchases and sales of our equity by our 5 % stockholders , the emergence of new 5 % stockholders , additional equity offerings or certain changes in the ownership of any of our 5 % stockholders . critical accounting policies and significant judgments and estimates we have prepared our audited consolidated financial statements in accordance with united states generally accepted accounting principles , or u.s. gaap . our preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , expenses and related disclosures at the date of the financial statements , as well as revenues and expenses during the reporting periods . we evaluate our estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results could therefore differ materially from these estimates under different assumptions or conditions . we have reviewed our critical accounting policies and estimates with the audit committee of our board of directors . while our significant accounting policies are described in more detail in note 2 to our audited consolidated financial statements included later in this annual report , we believe the following accounting policies to be critical in the preparation of our financial statements . expenses accrued under contractual arrangements with third parties ; accrued clinical expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing expenses , we estimate the time period over which services will be performed and the level of effort to be expended in each period , which is based on an established protocol specific to each clinical trial . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period .
| income tax for the year ended december 31 , 2017 was a benefit of $ 559,000 compared to an income tax benefit of $ 5.4 million for the same period in 2016 . the change is primarily due to the limited ability to carry 2017 losses back to 2015 compared to the larger benefit of $ 6.0 million generated by the ability to carry 2016 losses back to 2014. our income tax benefit for the year ended december 31 , 2017 was increased by the release of the valuation allowance previously recorded against the deferred income tax position for $ 140,000 due to amt as a result of the tax act . our 2016 income tax benefit was reduced by amounts recorded in 2016 for uncertain tax positions . net loss . net loss for the year ended december 31 , 2017 was $ 72.0 million , a decrease from the net loss of $ 85.2 million for the same period in 2016 primarily due to the decrease in operating expenses offset by the decrease in revenues and the decrease in the income tax benefit . the diluted average shares outstanding for 2017 were 31.3 million , resulting in diluted loss per share of $ 2.30 , as compared to 29.0 million diluted average shares outstanding and $ 2.94 a diluted loss per share for 2016 . comparison of the years ended december 31 , 2016 and 2015 revenues . revenues for the year ended december 31 , 2016 were $ 35.8 million , as compared to $ 68.5 million in 2015 , a decrease of $ 32.7 million . licensing and collaboration revenues decreased by $ 32.6 million in 2016. in 2015 , we received a merck milestone payment of $ 20.0 million and revenues of $ 16.1 million were recognized in 2015 that were previously deferred as of december 31 , 2014. research and development expenses . research
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the analysis considers whether the corporation has the intent to sell its debt securities prior to market recovery or maturity and whether it is more likely than not that the corporation will be required to sell its debt securities prior to market recovery or maturity . often , information available to conduct these assessments is limited and rapidly changing , making estimates of fair value subject to judgment . if actual information or conditions are different than estimated , the extent of the impairment of the debt security may be different than previously estimated , which could have a material effect on the corporation 's results of operations and financial condition . management discussed the development and selection of critical accounting estimates and related management discussion and analysis disclosures with the audit committee . there were no material changes made to the critical accounting estimates during the periods presented within this report . additional information is contained in management 's discussion and analysis regarding critical accounting estimates , including the provision and allowance for loan losses located on pages 39 and 54 of this report . 32 story_separator_special_tag roman , times , serif '' > 33 the corporation 's capital level remained sound as evidenced by capital ratios that exceed current regulatory requirements for well capitalized institutions . the closing price for the corporation 's common stock ( nasdaq : cvly ) was $ 23.03 per share on december 31 , 2019 , compared to $ 20.24 per share on december 31 , 2018 , as adjusted . cash dividends paid on common shares for the year 2019 totaled $ 0.608 per share , as adjusted for stock dividends , representing an increase of $ 0.044 or 8 percent above the cash dividends of $ 0.564 , as adjusted , paid for the year 2018. also , the corporation distributed a 5 percent common stock dividend on december 10 , 2019. the selected financial data schedule , located on page 29 of this report , provides a summary of operations and performance metrics for the past five years in a comparative format . year ended december 31 , 2019 vs. year ended december 31 , 2018 the full year 2019 net income available to shareholders of $ 18,647,000 represents a decrease of $ 895,000 compared to the full year 2018 earnings of $ 19,542,000. earnings per share were $ 1.89 basic and $ 1.88 diluted for 2019 compared to $ 1.98 basic and $ 1.96 diluted for 2018. the decrease in net income and earnings per share for the year was primarily the result of higher noninterest expense in 2019 as compared to 2018. personnel costs increased in 2019 due to executive level positions being vacant in the first half of 2018. in addition , a write down on foreclosed real estate during the fourth quarter 2019 resulted in increased noninterest expense for the year 2019. net interest income , which totaled $ 63,939,000 for the year ended december 31 , 2019 , represented an increase of $ 19,000 or less than 1 percent above net interest income of $ 63,920,000 for 2018. the slight change in net interest income was primarily due to an increase in the volume and rate on commercial loans , offset by a corresponding increase in the rate on interest bearing deposits . the loan loss provision for 2019 was $ 2,450,000 , a decrease of $ 250,000 compared to a provision of $ 2,700,000 for 2018. the decreased loan loss provision was the result of a decrease of $ 718,000 in the unallocated portion of the loan loss provision , offset by modest net loan growth and a minimal increase in total nonperforming assets compared to 2018. the allowance for loan losses as a percentage of total period-end loans was 1.40 percent and 1.29 percent as of december 31 , 2019 and 2018 , respectively . the provision for loan losses for both periods supported adequate allowance for loan loss coverage considering several factors , including the size , composition , and risks to the loan portfolio , the level of specific reserves , and realized net charge-offs . noninterest income , excluding gains on sales of investment securities , for the year ended december 31 , 2019 , totaled $ 13,921,000 representing an increase of $ 607,000 or 5 percent compared to noninterest income of $ 13,314,000 for 2018. specific noninterest income increases included trust and investment services fees , income from mutual fund , annuity and insurance sales , service charges on deposits , income from bank owned life insurance and other income . loss on sales of investment securities totaled $ 9,000 for 2019 compared to no gain or less on sales of investment securities for 2018. noninterest expense for the year ended december 31 , 2019 , totaled $ 51,729,000 representing an increase of $ 1,919,000 or 4 percent compared to $ 49,810,000 for 2018. higher costs associated with personnel , occupancy , furniture and equipment , marketing , external data processing , other expense and foreclosed real estate , accounted for the majority of the increase . the primary driver of the aforementioned increase in noninterest expense was higher personnel costs due to lower executive level vacancy rates and a write down on foreclosed real estate during the fourth quarter 2019 . 34 the provision for income taxes for 2019 totaled $ 5,025,000 which was $ 157,000 or 3 percent below the provision for income taxes for 2018 of $ 5,182,000. the decrease was due to lower income before taxes for 2019 compared to 2018. on december 31 , 2019 , total assets were $ 1.89 billion , representing a 4 percent increase compared to total assets of $ 1.81 billion as of december 31 , 2018. asset growth for 2019 occurred primarily in the commercial loan portfolio and cash and cash equivalents which was funded primarily by an increase in deposits and offset by a reduction in long-term debt . story_separator_special_tag the growth in core deposits included a $ 9,302,000 increase in the average balance of noninterest bearing deposits for 2019 compared to 2018. growing core deposits remains a particular focus of the corporation because the rates paid for such deposits are low , transactional activity on these deposits are a source of fee income , and a core deposit relationship provides the opportunity to cross-sell other financial products and services . the corporation excludes time deposits in its definition of core deposits . cash dividends paid on common shares for the year 2019 totaled $ 0.608 per share , as adjusted for stock dividends , representing an increase of $ 0.044 or 8 percent above the cash dividends of $ 0.564 , as adjusted , paid for the year 2018. the corporation distributed a 5 percent common stock dividend on december 10 , 2019 , the same common stock dividend percentage that was distributed in december 2018. the corporation 's capital level remained sound as evidenced by capital ratios that exceed current regulatory requirements for well capitalized institutions . table 9 - capital ratios , following , shows that both the corporation and peoplesbank were well capitalized for all periods presented . year ended december 31 , 2018 vs. year ended december 31 , 2017 the full year 2018 net income available to common shareholders of $ 19,542,000 represents an increase of $ 7,538,000 compared to the full year 2017 earnings of $ 12,004,000. earnings per share were $ 1.98 basic and $ 1.96 diluted for 2018 compared to $ 1.22 basic and $ 1.21 diluted for 2017. the increase in net income and earnings per share for the year was partially the result of a $ 2,755,000 reduction in the net deferred tax asset value at december 31 , 2017 due to the new corporate tax rate of 21 percent enacted on december 22 , 2017 as part of the tax cuts and jobs act that became effective january 1 , 2018. net interest income , which totaled $ 63,920,000 for the year ended december 31 , 2018 , represented an increase of $ 4,373,000 or 7 percent above net interest income of $ 59,547,000 for 2017. the growth in net interest income reflects the increased volume of interest-earning assets , primarily commercial loans ; however , the additional interest income from this new loan volume was partially offset by increased costs associated with the growth in core deposits and an increase in volume and rates paid for time deposits and an increase in rates paid for long-term borrowings . the loan loss provision for 2018 totaled $ 2,700,000 , a decrease of $ 1,475,000 compared to the loan loss provision of $ 4,175,000 for 2017. the change in provision for 2018 was primarily due to specific loan loss reserves assigned during 2018 compared to a larger amount of aggregate net charge-offs and specific loan loss reserves in the prior year . the allowance for loan losses as a percentage of total period-end loans was 1.29 percent and 1.19 percent as of december 31 , 2018 and 2017 , respectively . the provision for loan losses for both period supported adequate allowance for loan loss coverage considering several factors , including the size , composition and risks to the loan portfolio , the level of specific reserves , and realized net charge-offs . noninterest income , excluding gains on sales of investment securities , for the year ended december 31 , 2018 , totaled $ 13,314,000 representing an increase of $ 1,871,000 or 16 percent compared to noninterest income of $ 11,443,000 for 2017. specific noninterest income increases included trust and investment service fees , income from mutual fund , annuity and insurance sales , service charges on deposits , gains on sales of loans held for sale and other income . there were no gains on sales of investment securities for 2018 compared to $ 79,000 in 2017 . 35 noninterest expense for the year ended december 31 , 2018 , totaled $ 49,810,000 representing an increase of $ 4,824,000 or 11 percent compared to $ 44,986,000 for 2017. higher costs associated with personnel , professional and legal , debit card processing , external data processing , charitable contributions and foreclosed real estate , accounted for the majority of the increase . the primary driver of the aforementioned increase in noninterest expense was the expansion of our business and consumer banking in and support services for our maryland and pennsylvania markets . the increase was partially offset by a decrease in telecommunications expense . the provision for income taxes for 2018 totaled $ 5,182,000 which was $ 4,772,000 or 48 percent below the provision for income taxes for 2017 of $ 9,904,000. the decrease was due to a $ 2,755,000 reduction in the net deferred tax asset value at december 31 , 2017 due to the new corporate tax rate of 21 percent enacted on december 22 , 2017 as part of the tax cuts and jobs act that became effective january 1 , 2018 and an overall higher tax rate in 2017 , offset by a $ 2,816,000 increase in pre-tax net income . on december 31 , 2018 , total assets were $ 1.81 billion , representing a 6 percent increase compared to total assets of $ 1.71 billion as december 31 , 2017. asset growth for 2018 occurred primarily in the commercial loan portfolio and was funded primarily by an increase in deposits . the growth in core deposits included a $ 31,419,000 increase in the average balance of noninterest bearing deposits for 2018 as compared to 2017. growing core deposits remains a particular focus of the corporation because the rates paid for such deposits are low , transactional activity on these deposits are a source of fee income , and a core deposit relationship provides the opportunity to cross-sell other financial products and services . the corporation excludes time deposits in its definition of core deposits .
| the allowance as a percentage of total loans was 1.40 percent at december 31 , 2019 , and 1.29 percent at december 31 , 2018 . ● noninterest income , excluding gains on sales of investment securities , for the year ended december 31 , 2019 , totaled $ 13,921,000 representing an increase of $ 607,000 or 5 percent compared to noninterest income of $ 13,314,000 for 2018. specific noninterest income increases included trust and investment services fees , income from mutual fund , annuity and insurance sales , service charges on deposits , income from bank owned life insurance and other income . loss on sales of investment securities totaled $ 9,000 for 2019 compared to no gain or loss on sales of investment securities in 2018 . ● noninterest expense for the year ended 2019 , totaled $ 51,729,000 representing an increase of $ 1,919,000 or 4 percent compared to $ 49,810,000 for 2018. higher costs associated with personnel , occupancy , furniture and equipment , marketing , external data processing , other expense and foreclosed real estate , including provision for losses , accounted for the majority of the increase . personnel costs increased in 2019 due to executive level positions being vacant in the first half of 2018. in addition , a write down on foreclosed real estate during the fourth quarter 2019 resulted in increased noninterest expense for the year 2019 . ● the provision for income taxes for 2019 totaled $ 5,025,000 which was $ 157,000 or 3 percent below the provision for income taxes for 2018 of $ 5,182,000. the decrease was due to lower income before taxes for 2019 compared to 2018 . ● earnings per share were $ 1.89 basic and $ 1.88 diluted for 2019 compared to $ 1.98 basic and $ 1.96 diluted for 2018. the decrease in earnings per share for the year was primarily the result of the aforementioned lower net income in 2019. on
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income recognized on finance receivables , net , is shown net of changes in valuation allowances which are recorded for significant decreases in expected cash flows or a change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts . for the year ended december 31 , 2015 , we recorded net allowance charges of $ 29.4 million . on our domestic core portfolios , we recorded net allowance charges of $ 23.3 million on portfolios purchased between 2010 and 2013 , offset by net allowance reversals of $ 1.4 million on portfolios primarily purchased between 2005 and 2008. we also recorded a net allowance charge of $ 7.5 million on our portfolios in the united kingdom and $ 0.1 million on our denmark portfolios . on our insolvency portfolios , we recorded net allowance reversals of $ 0.2 million on our domestic portfolios . for the year ended december 31 , 2014 , we recorded net allowance reversals of $ 4.9 million . on our domestic core portfolios , we recorded net allowance reversals of $ 10.9 million on portfolios purchased between 2005 and 2008 , offset by allowance charges of $ 6.0 million on portfolios primarily purchased in 2010 and 2011. on our insolvency portfolios , we recorded net allowance reversals of $ 1.7 million on our domestic portfolios primarily purchased in 2007 and 2008 , offset by net allowance charges of $ 1.1 million on canadian portfolios purchased in 2014. we also recorded a net allowance charge of $ 0.5 million on our portfolios in the united kingdom . fee income fee income was $ 64.4 million for the year ended december 31 , 2015 , a decrease of $ 1.3 million or 2.0 % compared to fee income of $ 65.7 million for the year ended december 31 , 2014 . fee income decreased primarily due to a decrease in revenues generated by ccb and pra europe . the decrease in revenue from ccb is due primarily to smaller distributions of class action settlements . the decline in fee income from pra europe is due primarily to a decline in the amount of contingent fee work provided to us by debt owners , which was partially offset by higher fee income generated by pls , pgs and our operations in brazil . other revenue other revenue was $ 12.5 million for the year ended december 31 , 2015 , an increase of $ 4.7 million or 60.3 % compared to $ 7.8 million for the year ended december 31 , 2014 . the increase is due primarily to an increase in revenue generated from our poland investments . operating expenses total operating expenses were $ 631.7 million for the year ended december 31 , 2015 , an increase of $ 92.8 million or 17.2 % compared to total operating expenses of $ 538.9 million for the year ended december 31 , 2014 . total operating expenses were 39.4 % of cash receipts for the year ended december 31 , 2015 compared with 37.3 % for the year ended december 31 , 2014 . compensation and employee services compensation and employee service expenses were $ 268.3 million for the year ended december 31 , 2015 , an increase of $ 33.8 million or 14.4 % compared to compensation and employee service expenses of $ 234.5 million for the year ended december 31 , 2014 . compensation expense increased primarily as a result of larger average staff sizes , mainly attributable to the acquisition of aktiv , in addition to increases in incentive compensation and normal pay increases . total employees decreased 2.1 % to 3,799 as of december 31 , 2015 from 3,880 as of december 31 , 2014 . compensation and employee service expenses as a percentage of cash receipts increased to 16.7 % for the year ended december 31 , 2015 from 16.2 % of cash receipts for the year ended december 31 , 2014 . legal collection fees legal collection fees represent contingent fees incurred for the cash collections generated by our independent third-party attorney network . legal collection fees were $ 53.4 million for the year ended december 31 , 2015 , an increase of $ 2.3 million , or 4.5 % , compared to legal collection fees of $ 51.1 million for the year ended december 31 , 2014 . legal collection fees for the year ended december 31 , 2015 were 3.3 % of cash receipts , compared to 3.5 % for the year ended december 31 , 2014 . 39 legal collection costs legal collection costs consist of costs paid to courts where a lawsuit is filed and the cost of documents paid to sellers of nonperforming loans . legal collection costs were $ 76.1 million for the year ended december 31 , 2015 , a decrease of $ 12.0 million , or 13.6 % , compared to legal collection costs of $ 88.1 million for the year ended december 31 , 2014 . during 2012 and 2013 , we expanded the number of accounts brought into the legal collection process resulting in increased legal collections costs . this expansion has subsided over the last several quarters which led to the decrease in the current year . legal collection costs represent 4.7 % and 6.1 % of cash receipts for the years ended december 31 , 2015 and 2014 , respectively . agency fees agency fees primarily represent third-party collection fees and also include costs paid to repossession agents to repossess vehicles . agency fees were $ 32.2 million for the year ended december 31 , 2015 , compared to $ 16.4 million for the year ended and december 31 , 2014 , an increase of 15.8 million or 96.3 % . this increase was mainly attributable to third-party collection fees incurred by pra europe due to our utilization of outsourcing in our blended operational collection model there . story_separator_special_tag outside fees and services outside fees and services expenses were $ 65.2 million for the year ended december 31 , 2015 , an increase of $ 9.4 million or 16.8 % compared to outside fees and services expenses of $ 55.8 million for the year ended december 31 , 2014 . the increase was mainly attributable to an incremental increase of $ 13.3 million in corporate legal expenses incurred in 2015 as a result of outstanding litigation and regulatory matters . see note 15 for a description of our litigation and regulatory matters . this was offset by a decrease of $ 12.3 million in transaction costs incurred during 2015 compared to 2014. the remaining increase is a result of the outside fees and services incurred by our european operations for the full year in 2015 as compared to the prior year period from july 16 , 2014 to december 31 , 2014. communication communication expenses were $ 33.1 million for both the years ended december 31 , 2015 and 2014. rent and occupancy rent and occupancy expenses were $ 14.7 million for the year ended december 31 , 2015 , an increase of $ 3.2 million or 27.8 % compared to rent and occupancy expenses of $ 11.5 million for the year ended december 31 , 2014 . the increase was primarily due to the rent and occupancy expense incurred by our european operations for the full year in 2015 as compared to the prior year period from july 16 , 2014 to december 31 , 2014. depreciation and amortization depreciation and amortization expense was $ 19.9 million for the year ended december 31 , 2015 , an increase of $ 1.5 million or 8.2 % compared to depreciation and amortization expenses of $ 18.4 million for the year ended december 31 , 2014 . the increase was primarily due to the depreciation and amortization expenses incurred by our european operations for the full year in 2015 as compared to the prior year period from july 16 , 2014 to december 31 , 2014. other operating expenses other operating expenses were $ 68.8 million for the year ended december 31 , 2015 , an increase of $ 38.8 million or 129.3 % compared to other operating expenses of $ 30.0 million for the year ended december 31 , 2014 . the increase was primarily due to the $ 28.8 million in expenses incurred during 2015 relating to the consent order entered into with the cfpb , as well as other operating expenses incurred by our european operations for the full year in 2015 as compared to the prior year period from july 16 , 2014 to december 31 , 2014. interest expense interest expense was $ 60.3 million for the year ended december 31 , 2015 , an increase of $ 25.1 million or 71.3 % compared to interest expense of $ 35.2 million for the year ended december 31 , 2014 . the increase was primarily due to additional borrowings for the aktiv and rcb acquisitions and the additional interest incurred on the aktiv assumed debt and interest rate swap contracts . net foreign currency transaction gain/ ( loss ) net foreign currency transaction gains were $ 7.5 million for the year ended december 31 , 2015 compared to a net foreign currency transaction loss of $ 5.8 million for the year ended december 31 , 2014 . in any given period , we are exposed to foreign currency transactions gains or losses from transactions in currencies other than our functional currency . 40 provision for income taxes income tax expense was $ 89.4 million for the year ended december 31 , 2015 , a decrease of $ 35.1 million or 28.2 % compared to income tax expense of $ 124.5 million for the year ended december 31 , 2014 . the decrease was due to a decrease of 14.4 % in income before taxes , in addition to a decrease in the effective tax rate to 34.7 % for the year ended december 31 , 2015 compared to 41.4 % for the year ended december 31 , 2014 . the decrease in the effective tax rate was due primarily to having proportionately more income during 2015 in foreign jurisdictions with lower tax rates than the u.s. and changes in amounts and mix of taxable foreign currency translation gains and non-deductible foreign exchange losses , partially offset by the non-tax deductible payments made pursuant to the consent order entered into with the cfpb . we intend for predominantly all foreign earnings to be permanently reinvested in our foreign operations . if foreign earnings were repatriated , we would need to accrue and pay taxes . the amount of cash on hand related to foreign operations with permanently reinvested earnings was $ 51.5 million as of december 31 , 2015 . year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues total revenues were $ 881.0 million for the year ended december 31 , 2014 , an increase of $ 145.9 million or 19.8 % compared to total revenues of $ 735.1 million for the year ended december 31 , 2013. income recognized on finance receivables , net income recognized on finance receivables , net , was $ 807.5 million for the year ended december 31 , 2014 , an increase of $ 144.0 million or 21.7 % compared to income recognized on finance receivables , net , of $ 663.5 million for the year ended december 31 , 2013. the increase was primarily due to an increase in cash collections on our owned finance receivables to approximately $ 1.4 billion for the year ended december 31 , 2014 compared to approximately $ 1.1 billion for the year ended december 31 , 2013 , an increase of $ 236.4 million or 20.7 % .
| fee income decreased from $ 65.7 million for the year ended december 31 , 2014 to $ 64.4 million in 2015 , primarily due to a decrease in revenues generated by ccb and pra europe . the decrease in revenue from ccb is due primarily to smaller distributions of class action settlements . the decline in fee income from pra europe is due primarily to a decline in the amount of contingent fee work provided to us by debt owners . this was partially offset by higher fee income generated by pls , pgs and our operations in brazil . 36 a summary of how our revenue was generated during the years ended december 31 , 2015 , 2014 and 2013 is as follows ( amounts in thousands ) : replace_table_token_8_th operating expenses were $ 631.7 million for the year ended december 31 , 2015 , an increase of $ 92.8 million or 17.2 % from the year ended december 31 , 2014 , primarily due to the inclusion of aktiv 's expenses for the full year in 2015 compared to the period from july 16 through december 31 in 2014 , as well as an increase in outside fees and services and other operating expenses . outside fees and services expenses were $ 65.2 million for the year ended december 31 , 2015 , an increase of $ 9.4 million or 16.8 % compared to outside fees and services expenses of $ 55.8 million for the year ended december 31 , 2014 . the increase was mainly attributable to an incremental increase of $ 13.3 million in corporate legal expenses incurred in 2015 as a result of outstanding litigation and regulatory matters . see note 15 for a description of our litigation and regulatory matters . this increase was offset by a decrease of $ 12.3 million in transaction costs incurred during 2015 compared to 2014. the remaining increase is a result of the outside fees and services incurred by our european operations for the full year in 2015 as compared to the prior year period from
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approximately $ 12.6 million of the 2010 loss is a non-cash expense attributable to the write off of unamortized debt issuance fees related to the tender offer to repurchase lamar media 's 7 1/4 % senior subordinated notes due 2013 ( the 7 1/4 % senior subordinated notes ) and refinancing of its senior credit facility . the remaining $ 4.8 million represented the net cash loss related to the tender offer and extinguishment of the 7 1/4 % senior subordinated notes . the increase in operating income and decrease in interest expense and loss on extinguishment of debt resulted in a $ 78.7 million increase in net income before income taxes . the increase in net income for the period resulted in an increase in income tax expense as compared to the same period during 2010. the effective tax rate for the year ended december 31 , 2011 was 43.6 % , which is higher than the statutory rate due to permanent differences resulting from non-deductible compensation expense related to stock options in accordance with asc 718 and other non-deductible expenses and amortization . as a result of the above factors , the company recognized net income for the year ended december 31 , 2011 of $ 8.6 million , as compared to a net loss of $ 40.1 million for the same period in 2010. reconciliations : because acquisitions occurring after december 31 , 2009 ( the acquired assets ) have contributed to our net revenue results for the periods presented , we provide 2010 acquisition-adjusted net revenue , which adjusts our 2010 net revenue by adding to it the net revenue generated by the acquired assets prior to our acquisition of these assets for the same time frame that those assets were owned in 2011. we provide this information as a supplement to net revenues to enable investors to compare periods in 2011 and 2010 on a more consistent basis without the effects of acquisitions . management uses this comparison to assess how well our core assets are performing . acquisition-adjusted net revenue is not determined in accordance with generally accepted accounting principles ( gaap ) . for this adjustment , we measure the amount of pre-acquisition revenue generated by the acquired assets during the period in 2010 that corresponds with the actual period we have owned the acquired assets in 2011 ( to the extent within the period to which this report relates ) . we refer to this adjustment as acquisition net revenue. reconciliations of 2010 reported net revenue to 2010 acquisition-adjusted net revenue as well as a comparison of 2010 acquisition-adjusted net revenue to 2011 net revenue are provided below : comparison of 2011 net revenue to 2010 acquisition-adjusted net revenue replace_table_token_7_th 20 liquidity and capital resources overview the company has historically satisfied its working capital requirements with cash from operations and borrowings under its senior credit facility . the company 's wholly owned subsidiary , lamar media corp. , is the principal borrower under the senior credit facility and maintains all corporate cash balances . any cash requirements of the company , therefore , must be funded by distributions from lamar media . sources of cash total liquidity at december 31 , 2012. as of december 31 , 2012 we had approximately $ 301.2 million of total liquidity , which is comprised of approximately $ 58.9 million in cash and cash equivalents and approximately $ 242.3 million of availability under the revolving portion of our senior credit facility . we are currently in compliance with all applicable restrictive covenants under the senior credit facility and we would remain in compliance after giving effect to borrowing the full amount available to us under the revolving portion of the senior credit facility . cash generated by operations . for the years ended december 31 , 2012 , 2011 , and 2010 our cash provided by operating activities was $ 375.9 million , $ 318.8 million and $ 322.8 million , respectively . while our net income was approximately $ 9.8 million for the year ended december 31 , 2012 , the company generated cash from operating activities of $ 375.9 million during 2012 primarily due to adjustments needed to reconcile net income to cash provided by operating activities , which includes depreciation and amortization of $ 296.1 million . we generated cash flows from operations during 2012 in excess of our cash needs for operations and capital expenditures as described herein . we used the excess cash generated principally to reduce our outstanding indebtedness and fund our acquisitions . see cash flows for more information . during 2013 , the company intends to use excess cash on hand primarily to reduce outstanding indebtedness . credit facilities . on february 9 , 2012 , lamar media entered into a restatement agreement with respect to its existing senior credit facility in order to fund a new $ 100 million term loan a facility and to make certain covenant changes to the senior credit facility , which was entered into on april 28 , 2010 , as amended on june 11 , 2010 , november 18 , 2010 and february 9 , 2012 ( the senior credit facility ) , for which jpmorgan chase bank , n.a . serves as administrative agent . the senior credit facility consists of a $ 250 million revolving credit facility , a $ 270 million term loan a-1 facility , a $ 30 million term loan a-2 facility , a $ 100 million term loan a-3 facility , a $ 575 million term loan b facility and a $ 300 million incremental facility , which may be increased by up to an additional $ 200 million , based upon our satisfaction of a senior debt ratio test ( as described below ) , of less than or equal to 3.25 to 1. lamar media is the borrower under the senior credit facility , except with respect to the $ 30 million term loan a-2 facility for which lamar media 's wholly-owned subsidiary , lamar advertising of puerto rico , inc. is the borrower story_separator_special_tag . we may also from time to time designate additional wholly-owned subsidiaries as subsidiary borrowers under the incremental loan facility that can borrow up to $ 110 million of the incremental facility . incremental loans may be in the form of additional term loan tranches or increases in the revolving credit facility . our lenders have no obligation to make additional loans to us , or any designated subsidiary borrower , under the incremental facility , but may enter into such commitments in their sole discretion . as of december 31 , 2012 , lamar media had approximately $ 242.3 million of unused capacity under the revolving credit facility included in the senior credit facility and the aggregate balance outstanding under the senior credit facility was $ 384.7 million . note offerings . on october 30 , 2012 , lamar media completed an institutional private placement of $ 535 million aggregate principal amount of 5 % senior subordinated notes due 2023 ( the 5 % senior subordinated notes ) . the institutional private placement resulted in net proceeds to lamar media , after the payment fees and expenses , of approximately $ 527.1 million . lamar media used the proceeds of this offering to ( i ) repurchase in full its remaining 6 5/8 % senior subordinated notes due 2015series b and remaining 6 5/8 % senior subordinated notes due 2015series c , ( ii ) to fund the acquisition of nextmedia outdoor , inc. , which closed on october 31 , 2012 and ( iii ) to repay $ 295 million of the term b loan outstanding under our senior credit facility . on february 9 , 2012 , lamar media completed an institutional private placement of $ 500 million aggregate principal amount of 5 7/8 % senior subordinated notes , due 2022 ( the 5 7/8 % senior subordinated notes ) . the institutional private placement resulted in net proceeds to lamar media of approximately $ 489 million . the company used the proceeds of this offering , after the payment of fees and expenses together with approximately $ 99 million of net proceeds from its term loan a-3 facility to repurchase $ 583.1 million of its outstanding 6 5/8 % senior subordinated notes , as described below under the heading uses of cash tender offers and debt repayment . 21 on april 22 , 2010 , lamar media completed an institutional private placement of $ 400 million aggregate principal amount of 7 7/8 % senior subordinated notes due 2018 the ( 7 7/8 % senior subordinated notes ) . the institutional private placement resulted in net proceeds to lamar media of approximately $ 392 million . the company used the proceeds of the offering , after the payment of fees and expenses , to repurchase all of its outstanding 7 1/4 % senior subordinated notes , as described below under the heading uses of cash tender offers and debt repayment . factors affecting sources of liquidity internally generated funds . the key factors affecting internally generated cash flow are general economic conditions , specific economic conditions in the markets where the company conducts its business and overall spending on advertising by advertisers . credit facilities and other debt securities . lamar must comply with certain covenants and restrictions related to the senior credit facility and its outstanding debt securities . restrictions under debt securities . lamar must comply with certain covenants and restrictions related to its outstanding debt securities . currently lamar media has outstanding approximately $ 350 million 9 3/4 % senior notes due 2014 issued in march 2009 ( the 9 3/4 % senior notes ) , $ 400 million 7 7/8 % senior subordinated notes issued in april 2010 , $ 500 million 5 7/8 % senior subordinated notes issued in february 2012 and $ 535 million 5 % senior subordinated notes issued in october 2012. the indentures relating to lamar media 's outstanding notes restrict its ability to incur additional indebtedness but permit the incurrence of indebtedness ( including indebtedness under the senior credit facility ) , ( i ) if no default or event of default would result from such incurrence and ( ii ) if after giving effect to any such incurrence , the leverage ratio ( defined as total consolidated debt to trailing four fiscal quarter ebitda ( as defined in the indentures ) ) would be less than ( a ) 6.5 to 1 , pursuant to the 9 3/4 % senior notes indenture , and ( b ) 7.0 to 1 , pursuant to the 7 7/8 % senior subordinated notes , 5 7/8 % senior subordinated notes and 5 % senior subordinated notes indentures . currently , lamar media is not in default under the indentures of any of its outstanding notes and , therefore , would be permitted to incur additional indebtedness subject to the foregoing provisions . in addition to debt incurred under the provisions described in the preceding paragraph , the indentures relating to lamar media 's outstanding notes permit lamar media to incur indebtedness pursuant to the following baskets : up to $ 1.4 billion of indebtedness under the senior credit facility allowable under the 9 3/4 % senior notes indenture ( up to $ 1.5 billion of indebtedness under the senior credit facility allowable under the 7 7/8 % senior subordinated notes , 5 7/8 % senior subordinated notes and 5 % senior subordinated notes indentures ) ; currently outstanding indebtedness or debt incurred to refinance outstanding debt ; inter-company debt between lamar media and its subsidiaries or between subsidiaries ; certain purchase money indebtedness and capitalized lease obligations to acquire or lease property in the ordinary course of business that can not exceed the greater of $ 50 million or 5 % of lamar media 's net tangible assets ; and additional debt not to exceed $ 50 million ( $ 75 million under the 7 7/8 % senior subordinated notes , 5 7/8 % senior subordinated notes and 5 % senior subordinated notes indentures ) .
| depreciation and amortization expense decreased $ 3.6 million for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 , primarily due to a reduction in the number of non-performing structures that were dismantled during the period as compared to the year ended december 31 , 2012. the company recorded a gain on disposition of assets of $ 13.8 million for the year ended december 31 , 2012 , which includes a gain of $ 9.8 million related to two asset swap transactions during the year . due to the above factors , operating income increased $ 31.3 million to $ 217.7 million for the year ended december 31 , 2012 compared to $ 186.4 million for the same period in 2011. during the year ended december 31 , 2012 , the company recognized a $ 41.6 million loss on debt extinguishment related to the early extinguishment of lamar media 's 6 5/8 % senior subordinated notes due 2015 , 6 5/8 % senior subordinated notes due 2015series b and 6 5/8 % senior subordinated notes due 2015series c ( collectively , the 6 5/8 % senior subordinated notes ) and the prepayment of $ 295 million of the term b loan under lamar media 's senior credit facility . approximately $ 23.2 million of the loss is a non-cash expense attributable to the write off of unamortized debt issuance fees and unamortized discounts associated with the retired debt . see uses of cash tender offers and debt repayment for more information . interest expense decreased approximately $ 14.0 million from $ 171.1 million for the year ended december 31 , 2011 to $ 157.1 million for the year ended december 31 , 2012 , due to the reduction in total debt outstanding as well as a decrease in interest rates resulting from the company 's recent refinancing transactions . see uses of cash tender offers and debt repayment for more information .
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we refer to accounting estimates and judgments of this type as critical accounting policies and estimates , which we discuss further below . this section should be read in conjunction with note 2 , `` summary of significant accounting policies , '' of our audited consolidated financial statements included elsewhere in this report . revenue recognition . we generate revenue primarily from the sale and shipping of customized manufactured products , as well as providing digital services , website design and hosting , email marketing services , and order referral fees . we recognize revenue arising from sales of products and services , net of discounts and applicable indirect taxes , when it is realized or realizable and earned . we consider revenue realized or realizable and earned when there is persuasive evidence of an arrangement , a product has been shipped or service rendered with no significant post-delivery obligation on our part , the net sales price is fixed or determinable and collection is reasonably assured . for arrangements with multiple deliverables , we allocate revenue to each deliverable based on the relative selling price for each deliverable . we determine the relative selling price using a hierarchy of ( 1 ) company specific objective and reliable evidence , then ( 2 ) third-party evidence , then ( 3 ) best estimate of selling price . shipping , handling and processing charges billed to customers are included in revenue at the time of shipment or rendering of service . revenues from sales of prepaid orders on our websites are deferred until shipment of fulfilled orders or until the prepaid service has been rendered . for promotions through discount voucher websites , we recognize revenue on a gross basis , as we are the primary obligor , when redeemed items are shipped . the revenue for a significant portion of our unredeemed vouchers remains deferred as of june 30 , 2014 , as we establish sufficient historical redemption information with our customer base . a reserve for estimated sales returns and allowances is recorded as a reduction of revenue , based on historical experience or specific identification of an event necessitating a reserve . this reserve is dependent upon customer return practices and will vary during the year due to volume or specific reserve requirements . sales returns have not historically been significant to our net revenue and have been within our estimates . advertising expense . we rely heavily on our advertising and marketing efforts in order to promote our products and services to generate revenue growth . advertising costs , including production related items , are expensed when the costs are incurred . at each balance sheet date , we make estimates of advertising spend that has not yet been invoiced . the accuracy of those estimates depends on sufficient data from our global marketing partners and generally involves a high volume of transactions . we perform extensive analysis on our historical estimates relative to actual performance ; however , based on the volume and significance of our marketing spend in any period , these estimates require judgment to recognize the appropriate expense during the period . as of june 30 , 2014 , we had $ 19.3 million recorded as an accrued liability for advertising costs . share-based compensation . we measure share-based compensation costs at fair value , including estimated forfeitures , and recognize the expense over the period that the recipient is required to provide service in exchange for the award , which generally is the vesting period . we use the black-scholes option pricing model to measure the fair value of most of our share options and use a lattice model to measure the fair value of share options with a market condition , as well as the subsidiary share option liability award granted in conjunction with the pixartprinting acquisition . the black-scholes model requires significant estimates related to the award 's expected life and future share price volatility of the underlying equity security . the lattice model considers market condition attributes in its valuation assessment where relevant and simulates various sources of uncertainty in order to determine an average value based on the range of resultant outcomes . the lattice model requires estimation of inputs such as future share price volatility , future operating performance , and a forfeiture rate assessment . the fair value of restricted share units and restricted share awards is determined based on the number of shares granted and the quoted price of our ordinary shares on the date of the grant . in determining the amount of expense to be recorded , we also estimate forfeiture rates for all awards based on historical experience to reflect the probability that employees will complete the required service period . employee retention patterns could vary in the future and result in a change to our estimated forfeiture rate which would directly impact share-based compensation expense . as a measure of sensitivity , a 100 basis point change in our forfeiture rate estimate would have resulted in an immaterial impact on our consolidated statement of operations for all periods . for awards with a performance condition vesting feature , when achievement of the performance condition is deemed probable , we recognize compensation cost on a graded-vesting basis over the awards ' expected vesting 32 periods . management continually monitors the probability of vesting that is impacted by the achievement of certain business targets and milestones . independent factors such as market acceptance , technological feasibility or economic market volatility could impact the achievement of such awards and contribute to variability in management 's estimate and the recognition of the underlying share-based compensation expense . as the recognition of the compensation expense is reliant upon management 's estimate of the likelihood of achievement of the award , if the probability increases during any given period , the compensation cost associated with that award would be accelerated in order to match the estimated outcome . these changes in estimate could result in expense volatility . income taxes . story_separator_special_tag as part of the process of preparing our consolidated financial statements , we estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our current tax expense , including assessing the risks associated with tax positions , together with assessing temporary and permanent differences resulting from differing treatment of items for tax and financial reporting purposes . we recognize deferred tax assets and liabilities for the temporary differences using the enacted tax rates and laws that will be in effect when we expect temporary differences to reverse . we assess the ability to realize our deferred tax assets based upon the weight of available evidence both positive and negative . to the extent we believe that it is more likely than not that some portion or all of the deferred tax assets will not be realized , we establish a valuation allowance . our estimates can vary due to the profitability mix of jurisdictions , foreign exchange movements , changes in tax law , regulations or accounting principles , as well as certain discrete items . in the event that actual results differ from our estimates or we adjust our estimates in the future , we may need to increase or decrease income tax expense , which could have a material impact on our financial position and results of operations . we establish reserves for tax-related uncertainties based on estimates of whether , and the extent to which , additional taxes will be due . these reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit , new tax legislation , or the change of an estimate based on new information . to the extent that the final outcome of these matters is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made . interest and , if applicable , penalties related to unrecognized tax benefits are recorded in the provision for income taxes . software and website development costs . we capitalize eligible salaries and payroll-related costs of employees who devote time to the development of our websites and internal-use computer software . capitalization begins when the preliminary project stage is complete , management with the relevant authority authorizes and commits to the funding of the software project , and it is probable that the project will be completed and the software will be used to perform the function intended . these costs are amortized on a straight-line basis over the estimated useful life of the software , which we revised in fiscal 2013 from two years to three years . this change in estimated useful life increased our pre-tax income for fiscal year ended june 30 , 2013 by approximately $ 2.7 million when compared to the historical estimated useful life . our judgment is required in determining whether a project provides new or additional functionality , the point at which various projects enter the stages at which costs may be capitalized , assessing the ongoing value and impairment of the capitalized costs , and determining the estimated useful lives over which the costs are amortized . historically we have not had any significant impairments of our capitalized software and website development costs . business combinations . we recognize the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition . the fair value of identifiable intangible assets is based on detailed cash flow valuations that use information and assumptions provided by management . the valuations are dependent upon a myriad of factors including historical financial results , estimated customer renewal rates , projected operating costs and discount rates . we estimate the fair value of contingent consideration at the time of the acquisition using all pertinent information known to us at the time to assess the probability of payment of contingent amounts . we allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill . the assumptions used in our valuations for the acquisition of people & print group and pixartprinting during fiscal 2014 may differ materially from actual results depending on performance of the acquired businesses and other factors . while we believe the assumptions used were appropriate , different assumptions in the valuation of assets acquired and liabilities assumed could have a material impact on the timing and extent of impact on our statements of operations . 33 goodwill is assigned to reporting units as of the date of the related acquisition . if goodwill is assigned to more than one reporting unit , we utilize a method that is consistent with the manner in which the amount of goodwill in a business combination is determined . costs related to the acquisition of a business are expensed as incurred . goodwill , indefinite-lived intangible assets , and other definite lived long-lived assets . we evaluate goodwill and indefinite-lived intangible assets for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable . we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . for our annual impairment test as of january 1 , 2014 , we considered the timing of the most recent fair value assessment ( january 1 , 2013 ) , the operating results of the reporting units as compared to the cash flow forecast used in the fiscal 2013 quantitative analysis , an assessment of our overall market capitalization as compared to our consolidated net assets , and the consideration of market or economic events that could be indicative of impairment .
| for example , if a single customer makes two distinct purchases within a twelve-month period or is a distinct customer purchasing from vistaprint and albumprinter , that customer is tallied only once in the unique active customer count . we determine the uniqueness of a customer by looking at certain customer data , specifically a customer 's unique email address . unique active customers are driven by both the number of new customers we acquire , as well as our ability to retain customers after their first purchase . during our early growth phase , we focused more resources on the acquisition of new customers through the value of our offering and our broad-based marketing efforts targeted at the mass market for micro business customers . as we have grown larger , our acquisition focus has been supplemented with expanded retention efforts , such as email offers , customer service , and expanding our product offering . our unique active 35 customer count has grown significantly over the years , and we expect it will continue to grow as we see additional opportunity to drive both new customer acquisitions as well as increased retention rates . a retained customer is any unique customer in a specific period who has also purchased in any prior period . average bookings per unique active customer . average bookings per unique active customer are total bookings , which represents the value of total customer orders received on our websites , for a given period of time divided by the total number of unique active customers , regardless of brand , who purchased during that same period of time . we seek to increase average bookings per unique active customer as a means of increasing revenue . average bookings per unique active customer are influenced by the frequency that a customer purchases from us , the number of products and feature upgrades a customer purchases in a given period , as well as the mix of tenured customers versus new customers within the unique active customer count , as tenured customers tend to purchase more than new customers . average bookings per unique active customer have grown
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the platform is an expansion of the existing license agreement with gbt tokenize corp. , which provided gbt tokenize corp. with an exclusive territory of california to develop certain of the company 's technology . as the nature of the platform can not be restricted only to california , the company 's joint venture gbt tokenize corp. will be compensated with additional two hundred million shares of the company to strengthen its funding , subject to board approval . a provisional patent application for the qterm medical device was filed on march 30 , 2020 with the uspto . the application has been assigned serial number 63001564. the joint venture completed successfully the first prototype . there is no guarantee that the company will be successful in researching , developing or implementing this product into the market . in order to successfully implement this concept , the company will need to raise adequate capital to support its research and , if successfully researched , developed and granted regulatory approval , the company would need to enter into a strategic relationship with a third party that has experience in manufacturing , selling and distributing this product . there is no guarantee that the company will be successful in any or all of these critical steps . 22 covid-19 pandemic the company operates in a high-tech marketplace and relies on professionals and partnerships all over the world , which is impacted by the global pandemic , causing the company 's resources to be affected . our business operations have been and may continue to be materially and adversely affected by the coronavirus disease covid-19 . an outbreak of respiratory illness caused by covid-19 emerged in wuhan city , hubei province , prc , in late 2019 and has been expanding globally . covid-19 is considered to be highly contagious and poses a serious public health threat . on march 19 , 2020 , california governor gavin newsom issued a stay at home order to protect the health and well-being of all californians and to establish consistency across the state in order to slow the spread of covid-19 . california was therefore under strict quarantine control and travel has been severely restricted , resulting in disruptions to work , communications , and access to files ( due to limited access to facilities ) . since then , other measures have been imposed in other countries and major cities in the usa , including los angeles , and throughout the world in an effort to contain the covid-19 outbreak . the world health organization ( the who ) is closely monitoring and evaluating the situation . on march 11 , 2020 , the who declared the outbreak of covid-19 a pandemic , expanding its assessment of the threat beyond the global health emergency it had announced in january . any outbreak of such epidemic illness or other adverse public health developments in the usa or elsewhere in the world may materially and adversely affect the global economy , our markets and our business . the stay at home order was lifted in california only on january 25 , 2021. in the first quarter of 2020 , the covid-19 outbreak has caused disruptions in our development operations , which have resulted in delays on exiting projects . a prolonged disruption or any further unforeseen delay in our operations of the development , delivery and assembly process within any of our activities could continue to result in , increased costs and reduced revenue . we can not foresee whether the outbreak of covid-19 will be effectively contained , nor can we predict the severity and duration of its impact . if the outbreak of covid-19 is not effectively and timely controlled , our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook for sales , the slowdown in regional and national economic growth , weakened liquidity and financial condition of our customers and vendors or other factors that we can not foresee . any of these factors and other factors beyond our control could have an adverse effect on the overall business environment , cause uncertainties , cause our business to suffer in ways that we can not predict and materially and adversely impact our business , financial condition and results of operations . story_separator_special_tag 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > in accordance with the acquisition of gbt-cr the company issued a convertible note in the principal amount of $ 10,000,000. the convertible note bears interest of 6 % per annum and is payable at maturity on december 31 , 2021. at the election of the holder , the convertible note can be converted into a maximum of 20,000 shares of series h preferred stock . each share of series h preferred stock is convertible , at the option of the holder but subject to the company increasing its authorized shares of common stock , into such number of shares of common stock of the company as determined by dividing the stated value ( $ 500 per share ) by the conversion price ( $ 10.00 per share ) . the convertible note is convertible into common stock at a fixed price that was higher than the company 's common stock on the date of grant , therefore , this convertible note does not contain a beneficial conversion feature . due to stock split ( see note 1 ) the conversion feature is substantially not in the money . the parties along with stanley hills , llv as potential funder are in negotiations to address the issue per the note holder demands to mitigate its damages . there is no guarantee that the company will be successful in resolving this issue . story_separator_special_tag glen eagles acquisition lp on july 8 , 2019 , the company entered a consulting agreement with glen eagles acquisition lp ( glen ) as consultant to provide services in connection with the company 's acquisition of 25 % of gbt technologies , s.a. , a costa rican corporation ( gbt-cr ) . consultant will provide analysis , interaction with related professional and other services as requested by the company to integrate and expand capabilities between gbt-cr and the company . the company shall pay glen $ 1,000,000 through the issuance of a 6 % convertible note . at the election of glen , the convertible note can be converted into a maximum of 2,000 shares of series h preferred stock . each share of series h preferred stock is convertible , at the option of the holder but subject to the company increasing its authorized shares of common stock , into such number of shares of common stock of the company as determined by dividing the stated value ( $ 500 per share ) by the conversion price ( $ 10.00 per share ) . the series h preferred stock has no liquidation preference , does not pay dividends and the holder of series h preferred stock shall be entitled to one vote for each share of common stock that the series h preferred stock may be convertible into . in addition , the company entered into an amendment of a common stock purchase warrant held by glen to acquire nine million shares of common stock that had been assigned to glen by guardian patch llc . pursuant to the amendment , the company agreed to provide that the common stock purchase warrant may be exercised on a cashless basis and provided a beneficial ownership limitation of 4.99 % . on or about june 23 , 2020 , the company and altcorp entered into agreements with surg and glen eagles acquisition lp ( glen ) into series of agreements regarding the $ 4,000,000 surg note . glen converted in full its $ 1,000,000 convertible note that was issued by the company on july 8 , 2019 plus $ 50,000 of accrued interest , into $ 1,050,000 of a surg note via an assignment of a portion ( $ 1,050,000 of a $ 4,000,000 face value ) of the $ 4,000,000 surg note . in addition , the company entered into a consulting agreement with glen for which the company shall pay to glen $ 200,000 via an assignment of a portion ( $ 200,000 of a $ 4,000,000 face value ) of the $ 4,000,000 surg note . glen in turn converted all its $ 1,250,000 considerations received into 2,500,000 surg shares . the open aged credit balance derived from the above with glen as off the date of this report is $ 45,000 . 25 rwj acquisition note in connection with the acquisition of rwj in september 2017 , the company issued a note payable . the note accrues interest at 3.5 % per annum , was due on december 31 , 2019 and is secured by the assets purchased in the acquisition . the company contests the validity of the note , as such the note has not been repaid as of december 31 , 2020 . ( see item 3 – legal proceedings ) . the balance of the note at december 31 , 2020 is $ 2,600,000 plus accrued interest of $ 307,631. discover growth fund on december 3 , 2018 , the company entered into a securities purchase agreement ( the spa ) with discover growth fund , llc ( the investor ) pursuant to which the company issued a senior secured redeemable convertible debenture ( the debenture ) in the aggregate face value of $ 8,340,000. in connection with the issuance of the debenture and pursuant to the terms of the spa , the company issued a common stock purchase warrant to acquire up to 225,000 shares of common stock for a term of three years ( the warrant ) on a cash-only basis at an exercise price of $ 100.00 per share with respect to 50,000 warrant shares , $ 75.00 with respect to 75,000 warrant shares and $ 50.00 with respect to 100,000 warrant shares . the holder may not exercise any portion of the warrants to the extent that the holder would own more than 4.99 % of the company 's outstanding common stock immediately after exercise . the outstanding principal amount may be converted at any time into shares of the company 's common stock at a conversion price equal to 95 % of the market price less $ 5.00 ( the conversion price is lowered by 10 % upon the occurrence of each triggering event – the current conversion price is 75 % of the market price less $ 5.00 ) . the market price is the average of the 5 lowest individual daily volume weighted average prices during the period the debenture is outstanding . on may 28 , 2019 , the investor delivered to the company a notice of default and notice of sale of collateral ( the notice ) . on december 23 , 2019 , in arbitration between the company and the investor , an interim award was entered in favor of the investor . on january 31 , 2020 , the company was informed that a final award was entered ( the final award ) . the final award affirms that certain sections of the debenture constitute unenforceable liquidated damages penalties and were stricken . further , it was determined that the investor was entitled to recovery of their attorney 's fees . consequently , the arbitrator awarded investor an award of $ 4,034,444 plus interest of 7.25 % accrued from may 15 , 2019 and costs in the amount of $ 55,613. on february 18 , 2020 , the company filed a motion with the united states district court district of nevada ( the nevada court ) to confirm the final award and a motion to consolidate investor 's application to confirm the final award filed in the u.s.
| net loss for the year ended december 31 , 2020 was $ 17,994,888 compared to $ 186,505,119 for the same period in 2019 due to the factors described above . liquidity and capital resources our cash was $ 113,034 and $ 59,634 at december 31 , 2020 and 2019 , respectively . cash used in operating activities during the year ended december 31 , 2020 was $ 994,426 , compared to $ 6,623,463 during the same period in 2019. significant differences exist between the periods , including warrants issued for services , change in fair value of derivative liability , financing costs , impairment of assets and unrealized gain ( loss ) on marketable equity securities . our working capital position worsened going from a working capital deficit of $ 11,712,886 at december 31 , 2019 to a working capital deficit of $ 27,710,040 at december 31 , 2020 , principally as a result of an increase in accounts payable and accrued expenses ; an increase in derivative liability ; an increase in convertible notes payable ; offset by a decrease in note payable . cash flows used in investing activities were $ 231,771 during the year ended december 31 , 2020 , compared to $ 1,152,418 for the same period in 2019. the decrease is due to the amount paid for an investment during the year ended december 31 , 2020. cash from financing activities for the year ended december 31 , 2020 was $ 1,279,597 , compared to $ 5,972,005 for the same period in 2019. the decrease is due to the issuance of convertible notes and notes payable in 2019. we sustained net losses of $ 17,994,888 for the year ended december 31 , 2020. in addition , we had a working capital deficit of $ 27,710,040 and accumulated deficit of $ 270,651,339 at december 31 , 2020 . 24 in september of 2017 we purchased the assets of rwj advanced marketing , llc , and then after ecs prepaid llc , electronic check services , inc. and central states legal services , inc .
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on june 3 , 2019 , we entered into a sales agreement or , the june 2019 sales agreement , with cowen and company , llc , or cowen , to sell shares of our common stock , from time to time , with aggregate gross sales proceeds of up to $ 75.0 million through an at-the-market equity offering program under which cowen acts as sales agent , or the atm offering program . during the year ended december 31 , 2020 , we issued and sold 5,002,257 shares of our common stock through our atm offering program and received net proceeds of approximately $ 37.3 million , after deducting commissions and other offering expenses of $ 1.3 million . on july 31 , 2020 , we entered into a second sales agreement , or the july 2020 sales agreement , with cowen to sell an additional $ 50.0 million of our shares of common stock through an additional at-the-market equity offering program , or the additional atm offering program in which cowen will act as sales agent . as of december 31 , 2020 , there had been no shares sold under the additional atm offering program . we do not expect to generate revenue from any drug candidates that we develop until we obtain regulatory approval for one or more of such drug candidates and commercialize our products or enter into collaborative agreements with third parties . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . as a result , we will need to raise additional capital . adequate funding may not be available to us on acceptable terms , or at all , particularly in light of the current covid-19 pandemic and associated economic uncertainty and potential for local and or global economic recession . if sufficient funds on acceptable terms are not available when needed , we could be required to significantly reduce our operating expenses and delay , reduce the scope of , or eliminate one or more of our development programs . we rely on third parties in the conduct of our preclinical studies and clinical trials and for manufacturing and supply of our drug candidates . we have no internal manufacturing capabilities , and we will continue to rely on third parties , many of whom are single-source suppliers , for our preclinical and clinical trial materials , as well as the commercial supply of our products . in addition , we do not yet have a marketing or sales organization or commercial infrastructure . accordingly , we will incur significant expenses to develop a marketing and sales organization and commercial infrastructure in advance of generating any product sales . covid-19 update the covid-19 pandemic has placed strains on the providers of healthcare services , including the healthcare institutions , clinical research organizations , or cros , and institutional review boards under whose auspices we conduct our clinical trials . these strains have resulted in limits on the initiation of new clinical trials , slowing or halting enrollment in existing trials and restrictions placed upon on-site monitoring activities of clinical trials . prior to the completion of our phase 2 and phase 1b ubx0101 clinical studies , we amended the clinical study protocols to enable remote data collection for clinical sites that were limited in their ability to conduct study visits in person , for either site or patient safety reasons . we also instituted remote data source verification procedures to limit the extent that on-site monitoring was required . although one of the manufacturers in our supply chain for ubx0101 experienced a two-week shutdown in april 2020 due to a covid-19 related incident and there have been some delays in shipments due to a reduction in overall flights , neither of these factors impacted our supply of ubx0101 prior to our shutting down development of such program . there have been no other disruptions in our supply chain of drug manufacturers necessary to conduct our clinical trials and we believe we have sufficient supply of drug inventories to complete our phase 1 study of ubx1325 in ophthalmologic disease . several of the cros that provide preclinical services to us are based in china and india and experienced temporary shutdowns in february and march due to government mandates . in each case we were able to reassign the balance of activities to other cros and the shutdowns did not impact our preclinical timelines . cros based in the united states that provide preclinical services are experiencing heavy demand which may impact their ability to 90 start new studies and could lead to delays in the commencement of our preclinical studies . several of our u.s.-based academic research partners have also experienced shutdowns which has slowed progress on several early stage p rojects , none of which impacted preclinical timelines . in late february 2020 , we created an internal , cross-functional covid-19 response team to closely monitor the evolving situation and manage our response . in alignment with public health guidance designed to slow the spread of covid-19 , beginning in mid-march 2020 , we implemented a reduced onsite staffing model and transitioned to a remote work plan for all employees other than those providing essential services . for our onsite employees , we have implemented heightened health and safety measures designed to comply with applicable federal , state and local guidelines in response to the covid-19 pandemic . we are further supporting all of our employees by leveraging virtual meeting technology and encouraging employees to follow local health authority guidance . we may need to undertake additional actions that could impact our operations if required by applicable laws or regulations or if we determine to be in the best interests of our employees . story_separator_special_tag components of our results of operations research and development expenses research and development expenses consist primarily of costs incurred for the development of our drug candidates , which include : personnel-related expenses , including salaries , benefits , severance and stock-based compensation for personnel contributing to research and development activities ; laboratory expenses including supplies and services ; clinical trial expenses ; expenses incurred under agreements with third-party contract manufacturing organizations , contract research organizations , research and development service providers , academic research institutions , and consultants ; expenses related to license and sponsored research agreements ; and facilities and other allocated expenses , including expenses for rent and facilities maintenance , and depreciation and amortization . we expect our research and development expenses to increase as we advance our drug candidates into and through preclinical and clinical trials and pursue regulatory approval of our drug candidates . the process of conducting the clinical trials required to obtain regulatory approval is costly and time-consuming . clinical trials generally become larger and more costly to conduct as they advance into later stages and we are required to make estimates for expense accruals related to clinical trial expenses . the actual probability of success for our drug candidates may be affected by a variety of factors including : the safety and efficacy of our drug candidates , early clinical data , investment in our clinical program , the ability of collaborators , if any , to successfully develop any drug candidates we license to them , competition , manufacturing capability and commercial viability . we may never succeed in achieving regulatory approval for any of our drug candidates . program costs that are direct external expenses are tracked on a program-by-program basis once they enter clinical studies . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our drug candidates . general and administrative expenses our general and administrative expenses consist primarily of personnel costs , allocated facilities costs and other expenses for outside professional services , including legal , audit and accounting services , and depreciation and amortization expense related to property and equipment . personnel costs consist of salaries , benefits , severance and stock-based compensation . we expect to continue to incur additional expenses associated with operating as a public 91 company , including expenses related to compliance with the rules and regulations of the securities and exchange commission and standards applicable to companies listed on a national securities exchange , additional insurance expenses , investor relations activities and other administrative and professional services . change fair value of contingent consideration certain of our license agreements include contingent consideration in the form of additional issuances of our common stock based on the achievement of certain milestones . for asset acquisitions , we assess whether such contingent consideration obligation meets the definition of a derivative and or can be equity classified , until such time that the contingency or equity classification criteria is met or expires . we have recorded a liability related to contingent consideration as the net settlement criteria of the definition of a derivative had been met and equity classification criteria had not been met . the derivative related to this contingent consideration was measured at fair value as of each balance sheet date with the related change in fair value being reflected in operating results . gains or losses on contingent consideration expense is driven by changes in the estimated fair value of the liability , which is determined using a probability-weighted valuation approach model that reflects the probability and timing of future issuances of our common shares . interest income interest income is primarily related to interest earned on our marketable securities for the years ended december 31 , 2020 , 2019 and 2018. interest expense interest expense relates to interest on the loan agreement entered into during the year ended december 31 , 2020. other income ( expense ) , net we held an equity investment in an entity called ascentage pharma group international , or ascentage international , an affiliate of a hong kong-based clinical-stage biopharmaceutical company called ascentage pharma group corp. limited . in october 2019 , ascentage international completed an initial public offering of shares of its common stock on the hong kong stock exchange . following the initial public offering , the underlying nature of our investment in ascentage international changed and met the definition of an investment in an equity security with a readily determinable fair value to be measured at fair value on a recurring basis , based on quoted stock prices available on the hong kong stock exchange . during the year ended december 31 , 2020 , we sold our entire equity investment in ascentage international . other income ( expense ) , net , includes the recognized gains and losses resulting from the sale of the investment in this equity security and the previous changes in fair value . 92 story_separator_special_tag style= '' text-align : justify ; margin-bottom:0pt ; margin-top:0pt ; font-weight : bold ; font-style : italic ; font-family : times new roman ; font-size:10pt ; text-transform : none ; font-variant : normal ; text-indent:7.69 % ; '' > general and administrative expenses increased by $ 4.0 million , to $ 20.0 million for the year ended december 31 , 2019 from $ 16.0 million for the year ended december 31 , 2018. the increase was primarily due to increases of $ 3.4 million for personnel-related expenses , of which $ 2.5 million was related to non-cash stock compensation expense , and $ 0.6 million in insurance-related expense partially offset by $ 0.5 million decrease in professional fees .
| the change in the fair value of contingent consideration was primarily due to changes in assumptions , including probabilities , and our stock price used to calculate the fair value of the liability . additionally , during the third quarter of 2020 , we made changes to the related contracts , which resulted in there being no contingent consideration liability at december 31 , 2020. impairment of long-lived assets impairment charges consisted of impairment of long-lived assets . we evaluated the right-of-use asset and related leasehold improvements upon exit of our former headquarters located in brisbane , california , and recorded an impairment charge of $ 2.6 million during the year . 93 interest income our interest income was $ 1.2 million for the year ended december 31 , 2020 , as compared to $ 3.3 million for the year ended december 31 , 2019. the decrease is primarily attributable to lower market yields and cash balances on the company 's cash equivalents and marketable securities . interest expense our interest expense of $ 1.3 million for the year ended december 31 , 2020 is related to the loan agreement . other income ( expense ) , net other income was $ 0.2 million for the year ended december 31 , 2020 , as compared to $ 4.2 million for the year ended december 31 , 2019. the decrease was primarily due to a change in the fair value of our investment in the common stock of ascentage international . comparison of the years ended december 31 , 2019 and 2018 the following table sets forth the significant components of our results of operations ( in thousands ) : replace_table_token_4_th research and development research and development expenses increased by $ 12.1 million , to $ 71.0 million for the year ended december 31 , 2019 from $ 58.9 million for the year ended december 31 , 2018. the increase was primarily due to increases of $ 2.3 million for personnel-related expenses , which was partially offset by a decrease of $ 1.1 million related
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we derive this retention rate by calculating the total annually recurring subscription revenue from customers currently using our saas platform and dividing it by the total annually recurring subscription revenue from both these current customers as well as all business lost through non-renewal . we market and sell our solutions worldwide both directly through our sales teams and indirectly through a hybrid model where our sales organization actively assists our network of distributors and resellers . we also derive a lesser portion of our total revenue from the license of our solutions to strategic partners who offer our solutions in conjunction with one or more of their own products or services . our solutions are designed to be implemented , configured and operated without the need for any training or professional services . we offer various trainings and professional services for those customers that seek to develop deeper expertise in the use of our solutions or would like assistance with complex configurations or the importing of data . in some cases , we provide a hardware appliance to those customers that elect to host elements of our solution behind their firewall . increasing adoption of virtualization in the data center has led to a decline in the sales of our hardware appliances and a shift towards our software-based virtual appliances , which are delivered as a download via the internet . our hardware and services offerings carry lower margins and are provided as a courtesy to our customers . we expect the overall proportion of revenue derived from the hardware and services offerings to generally remain below 5 % of our total revenue . 36 historically , the majority of our revenue was derived from our customers in the united states . we believe the markets outside of the united states offer an opportunity for growth and we intend to make additional investments in sales and marketing to expand in these markets . revenue from customers outside of the united states grew 38 % for the year ended december 31 , 2017 as compared to prior year . in terms of customer concentration , there was one partner who accounted for 12 % of our total revenue in 2017 , though that partner sold to a number of end-users , none of which accounted for more than 10 % of our total revenue in 2017 . no individual customers or partners accounted for more than 10 % of our total revenue in 2016 or 2015 . we have not been profitable to date and will need to grow revenue at a rate faster than our investments in cost of revenue and operating expenses in order to achieve profitability , as discussed in more detail below . key opportunities and challenges the total costs associated with the teams tasked with closing business with new customers and additional business with our existing customers have represented more than 90 % of our total sales and marketing costs since 2008. although we expect customers to be profitable over the duration of the customer relationship , the upfront costs typically exceed related revenue during the earlier periods of a contract . as a result , while our practice of invoicing our customers for the entire amount of the contract at the start of the term provides us with a relatively immediate contribution to cash flow , the revenue is recognized ratably over the term of the contract , and hence contributions toward operating income are limited in the period where the sales and marketing costs are incurred . accordingly , an increase in the mix of new customers as a percentage of total customers would likely negatively impact our near-term operating results . on the other hand , we expect that an increase in the mix of existing customers as a percentage of total customers would positively impact our operating results over time . as we accumulate customers that continue to renew their contracts , we anticipate that our mix of existing customers will increase , contributing to a decrease in our sales and marketing costs as a percentage of total revenue and a commensurate improvement in our operating income . as part of our saas platform maintenance , we provide ongoing updates and enhancements to the platform services both in terms of the software as well as the underlying hardware and data center infrastructure . these updates and enhancements are provided to our customers at no additional charge as part of the subscription fees paid for the use of our platform . while more traditional products eventually become obsolete and require replacement , we are constantly updating and maintaining our cloud-based services and as such they operate with a continuous product life cycle . much of this work is designed to both maintain and enhance the customers ' experience over time while also lowering our costs to deliver the service . our saas platform is a shared infrastructure that is used by all of our customers . accordingly , the costs of the platform are spread in a relatively uniform manner across the entire customer base and no specific infrastructure elements are directly attached to any particular customer . as such , in the event that a customer chooses not to renew its subscription , the underlying resources are reallocated either to new customers or to accommodate the expanding needs of our existing customers and , as a result , we do not believe that the loss of any particular customer has a meaningful impact on our gross profit as long as we continue to grow our customer base . to date , our customers have primarily used our solutions in conjunction with email messaging content . we have developed solutions to address new and evolving messaging solutions such as social media and file sharing applications , but these solutions are relatively nascent . if customers increase their use of these new messaging solutions in the future , we anticipate that our growth in revenue associated with older email messaging solutions may slow over time . story_separator_special_tag although revenue associated with our social media and file sharing applications has not been material to date , we believe that our ability to provide security , archiving , governance and discovery for these new solutions will be viewed as valuable by our existing customers , enabling us to derive revenue from these new forms of messaging and communication . while the majority of our current and prospective customers run their email systems on premise , we believe that there is a trend for large and mid-sized enterprises to migrate these systems to the cloud . while our current revenue derived from customers using cloud-based email systems continues to grow as a percentage of our total revenue , many of these cloud-based email solutions offer some form of threat protection and governance services , potentially mitigating the need for customers to buy these capabilities from third parties such as our company . we believe that we can continue to provide security , archiving , governance , and discovery solutions that are differentiated from the services offered by cloud-based email providers , and as such our platform will continue to be viewed as valuable to enterprises once they have migrated their email services to the cloud , enabling us to continue to derive revenue from this new trend toward cloud-based email deployment models . with the majority of our business , we invoice our customers for the entire contract amount at the start of the term and these amounts are recorded as deferred revenue on our balance sheet , with the dollar weighted average duration of these 37 contracts for any given period over the past three years typically ranging from 14 to 20 months . as a result , while our practice of invoicing customers for the entire amount of the contract at the start of the term provides us with a relatively immediate contribution to cash flow , the revenue is recognized ratably over the term of the contract , and hence contributions toward operating income are realized over an extended period . as such , our efforts to improve our profitability require us to invest far less in operating expenses than the cash flow generated by our business might otherwise allow . as we strive to invest in an effort to continue to increase the size and scale of our business , we expect that the level of investment afforded by our growth in revenue should be sufficient to fund the investments needed to drive revenue growth and broaden our product line . considering all of these factors , we do not expect to be profitable on a gaap basis in the near term and in order to achieve profitability we will need to grow revenue at a rate faster than our investments in operating expenses and cost of revenue . we intend to grow our revenue through acquiring new customers by investing in our sales and marketing activities . we believe that an increase in new customers in the near term will result in a larger base of renewal customers , which , over time , we expect to be more profitable for us . sales and marketing is our largest expense and hence a significant contributing factor to our operating losses . we believe that our opportunity to improve our return on investment on sales and marketing costs relies primarily on our ongoing ability to cost-effectively renew our business with existing customers , thereby lowering our overall sales and marketing costs as a percentage of revenue , as the mix of revenue derived from this more profitable renewal activity increases over time . therefore , we anticipate that our initial significant investments in sales and marketing activities will , over time , generate a larger base of more profitable customers . cost of subscription revenue is also a significant expense for us , and we expect to continue to build on the improvements over the past years , such as in replacing third-party technology with our proprietary technology and improving the utilization of our fixed investments in equipment and infrastructure , in order to provide the opportunity for improved subscription gross margins over time . although we plan to continue enhancing our solutions , we intend to lower our rate of investment in research and development as a percentage of revenue over time by deriving additional revenue from our existing platform of solutions rather than by adding entirely new categories of solutions . in addition , as personnel costs are one of the primary drivers of the increases in our operating expenses , we plan to reduce our historical rate of headcount growth over time . key metrics we regularly review a number of metrics , including the following key metrics presented in the table below , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . many of these key metrics , such as non-gaap gross margin , billings , and free cash flows , are non-gaap measures . this non-gaap information is not necessarily comparable to non-gaap information of other companies . users of this financial information should consider the types of events and transactions for which adjustments have been made . replace_table_token_6_th non-gaap gross margin we define non-gaap gross margin as non-gaap gross profit divided by gaap revenue . we define non-gaap gross profit as gaap gross profit , adjusted to exclude stock-based compensation expense and the amortization of intangible assets associated with acquisitions . we consider this non-gaap financial measure to be a useful metric for management and investors because it excludes the effect of stock-based compensation expense and the amortization of intangible assets associated with acquisitions so that our management and investors can compare our business operating results over multiple 38 periods , and compare our financial results with other companies in its industry , many of which present similar non-gaap financial measure .
| cost of revenue replace_table_token_14_th cost of subscription revenue increased $ 31.1 million , or 33 % , in 2017 as compared to 2016 , and $ 23.0 million , or 32 % , in 2016 as compared to 2015 . the increases were primarily due to increases in operations-related expense of $ 21.1 million and $ 13.6 million , respectively , due to increased headcount , depreciation expense as a result of higher capital expenditures to support our growth , and amortization of intangible assets expense of developed technology from the acquisitions . additionally , support-related expenses increased $ 8.4 million and $ 6.5 million , respectively , primarily due to higher headcount and consulting costs . data center costs increased $ 1.8 million and $ 2.9 million , respectively , primarily due to subscription revenue growth in our cloud-based solutions . cost of hardware and services revenue for 2017 and 2016 increased $ 3.7 million and $ 1.6 million , or 26 % and 13 % , respectively , as compared to the year before , primarily due to an increase in professional service costs as our headcount increased . the change in hardware and services cost was not material in either period . 45 operating expenses replace_table_token_15_th research and development expenses increased $ 31.3 million and $ 24.0 million , or 32 % and 32 % , for 2017 and 2016 , respectively . the increases were primarily due to increases in personnel-related costs of $ 25.3 million and $ 18.7 million for 2017 and 2016 , respectively , from higher headcount , including those from the integration of the acquisitions in 2017 and 2016 . additionally , corporate expense increased $ 5.8 million and $ 2.7 million for 2017 and 2016 , respectively , primarily due to higher costs from expanded operations , higher allocated costs from facilities , human resources and it-related expense as we grew year-over-year , and increased consulting costs of $ 2.8 million in 2016 as compared to 2015 , as we grew rapidly in
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the company intends to continue to make the required investments to support the technological demands of its customers and position itself for future growth , and expects capital expenditure payments to be between $ 100 million and $ 110 million in fiscal 2015. the manufacture of photomasks for use in fabricating ics and other related products built using comparable photomask-based process technologies has been , and continues to be , capital intensive . the company 's integrated global manufacturing network , which consists of nine manufacturing sites , and its employees represent a significant portion of its fixed operating cost base . should sales volumes decrease as a result of a decrease in design releases from the company 's customers , the company may have excess or underutilized production capacity that could significantly impact operating margins , or result in write-offs from asset impairments . in the second quarter of fiscal 2014 the company acquired dptt in a non-cash transaction that resulted in the company owning 50.01 % and dnp owning 49.99 % of pdmc , whose financial results are included in the company 's consolidated financial statements . pdmc is expected to generate sufficient cash flows to fund its operating and capital requirements . see note 2 of the consolidated financial statements for more information . 18 in the fourth quarter of fiscal 2014 the company amended its credit facility . the credit facility , which expires in december 2018 , has a $ 50 million limit with an expansion capacity to $ 75 million , and is secured by substantially all of the company 's assets located in the united states and common stock the company owns in certain of its foreign subsidiaries . the credit facility is subject to a minimum interest coverage ratio , total leverage ratio and minimum unrestricted cash balance financial covenants , all of which the company was in compliance with at november 2 , 2014. the company had no outstanding borrowings against the credit facility at november 2 , 2014 , and $ 50 million was available for borrowing . the interest rate on the credit facility ( 1.67 % at november 2 , 2014 ) is based on the company 's total leverage ratio at libor plus a spread , as defined in the credit facility . in the fourth quarter of fiscal 2013 a $ 26.4 million principal amount , five year capital lease commenced to fund the purchase of a high-end lithography tool . payments under the lease , which bears interest at 2.77 % are $ 0.5 million per month through july 2018. under the terms of the lease agreement , the company must maintain the equipment in good working order , and is subject to a cross default with a cross acceleration provision related to certain nonfinancial covenants incorporated in its credit facility . as of november 2 , 2014 , the total amount payable through the end of the lease term was $ 21.6 million , of which $ 20.5 million represents principal and $ 1.1 million represents interest . in the third quarter of fiscal 2013 the company completed a tender offer for shares of psmc . a total of 50.3 million shares were tendered at the offering price of 16.30 ntd ( equivalent to a total of $ 27.4 million ) , which increased the company 's ownership interest in psmc from 75.11 % to 98.13 % . in the fourth quarter of fiscal 2013 the company further increased its ownership interest in psmc to 98.63 % with the purchase of an additional 1.1 million shares of psmc for $ 0.7 million , and in the first quarter of fiscal 2014 the company acquired all of the 3.0 million shares that were then held by noncontrolling interests at a cost of $ 1.7 million . in april 2014 psmc merged with dptt to form pdmc . in the first quarter of fiscal 2013 psmc completed a stock repurchase plan that had been authorized by its board of directors in fiscal 2012. the completion of this repurchase plan resulted in the company acquiring an additional 9.2 million shares at a cost $ 4.2 million , and increasing its ownership percentage in psmc from 72.09 % at october 28 , 2012 to 75.11 % as of january 27 , 2013. in the second quarter of fiscal 2012 the company paid $ 35 million to micron in connection with its purchase of the u.s. nanofab facility , which it had been leasing from micron under an operating lease that was to end in december 2014. the purchase of the facility resulted in the company 's outstanding operating lease commitments being reduced by a total of $ 15 million for fiscal years 2013 and 2014. in the second quarter of fiscal 2012 the company , in connection with its purchase of the u.s. nanofab facility , amended its credit facility to include the addition of a $ 25 million term loan maturing in march 2017 with minimum quarterly principal payments of $ 0.6 million ( quarterly payments commenced in june 2012 and were based on a ten year repayment period ) . in the first quarter of fiscal 2014 the company repaid the $ 21.3 million outstanding balance of this term loan . in the first quarter of fiscal 2012 the company ceased the manufacture of photomasks at its singapore facility . this action , which was substantially completed in fiscal 2012 , resulted in the company recording restructuring charges of $ 1.4 million in fiscal 2012. in 2012 the board of directors of psmc authorized psmc to repurchase additional shares of its outstanding common stock for retirement . these repurchase programs resulted in 35.9 million shares being purchased for $ 15.6 million in the fiscal year ended october 28 , 2012. psmc 's repurchase of these shares increased the company 's ownership percentage in psmc from 62.25 % at october 30 , 2011 to 72.09 % as of october 28 , 2012 . 19 story_separator_special_tag gain of $ 16.4 million in the second quarter of fiscal 2014. story_separator_special_tag see note 2 of the consolidated financial statements for more information . interest expense decreased in 2014 as compared to 2013 , primarily as a result of reduced outstanding borrowing balances . interest and other income ( expense ) , net decreased in 2014 as compared to 2013 , primarily as a result of reduced interest income , offset in part by increased foreign currency exchange gains . interest expense increased slightly in 2013 as compared to 2012 , primarily as a result of an additional capital lease commencing in 2013 related to the purchase of high-end equipment . interest and other income ( expense ) , net increased in 2013 as compared to 2012 , primarily as a result of increased foreign currency exchange gains . 22 income tax provision replace_table_token_9_th the effective tax rate differs from the u.s. statutory rate of 35 % in fiscal years 2014 , 2013 and 2012 primarily due to earnings , including the fiscal year 2014 dptt acquisition gain , being taxed at lower statutory rates in foreign jurisdictions combined with the benefit of various investment credits claimed in a foreign jurisdiction , as well as valuation allowances in jurisdictions with historic and continuing losses . the company considers all available evidence when evaluating the potential future realization of its deferred tax assets and when , based on the weight of all available evidence , it determines that it is more likely than not that some portion or all of its deferred tax assets will not be realized , it reduces its deferred tax assets by a valuation allowance . as a result of these considerations , including any changes in its deferred tax liability , the valuation allowance was increased ( decreased ) by ( $ 7.1 million ) , $ 1.1 million and $ 2.5 million as of the end of the fiscal years 2014 , 2013 and 2012 , respectively . the company also regularly assesses the potential outcomes of ongoing and future tax examinations and , accordingly , has recorded accruals for such contingencies . pklt , the company 's fpd manufacturing facility in taiwan , has been accorded a tax holiday which commenced in 2012 and expires in 2017. the availability of this tax holiday did not have a significant impact on the company 's decision to increase its asian presence , which was in response to fundamental changes that took place in the semiconductor industry that the company serves . this tax holiday had no dollar or per share effect on the 2014 , 2013 or 2012 fiscal years . pdmc acquired an ic manufacturing facility in taiwan as a result of the dptt acquisition that has been accorded a tax holiday , which is scheduled to commence in 2015 and expire in 2019. the availability of this tax holiday did not have a significant impact on the company 's decision to enter into the dptt acquisition and increase its asian presence . this tax holiday had no dollar or per share effect on the 2014 , 2013 or 2012 fiscal years . net income attributable to noncontrolling interests net income attributable to noncontrolling interests increased $ 4.4 million to $ 6.0 million in 2014 , as compared to $ 1.6 million in 2013 , primarily as a result of changes in the ownership structure of the company 's ic manufacturing facility located in taiwan . during 2013 the company reacquired shares held by noncontrolling interests of this subsidiary and , during 2014 , the company exchanged a 49.99 % noncontrolling interest in this subsidiary in return for the net assets of an acquiree . see notes 2 and 14 of the consolidated financial statements for further information . net income attributable to noncontrolling interests decreased to $ 1.6 million in 2013 as compared to $ 2.0 million in 2012 , primarily as a result of the effect of shares of psmc purchased under the tender offer and share repurchase programs discussed in note 14 to the consolidated financial statements . liquidity and capital resources replace_table_token_10_th 23 as of november 2 , 2014 , the company had cash and cash equivalents of $ 192.9 million compared to $ 215.6 million as of november 3 , 2013. the company 's working capital decreased $ 16.5 million to $ 197.4 million at november 2 , 2014 , as compared to $ 213.9 million at november 3 , 2013. the decrease in cash and working capital in 2014 was primarily related to the repayment of a term loan outstanding balance of $ 21.3 million in december 2013. the company may use its cash available on hand for operations , capital expenditures , debt repayments , strategic opportunities , stock repurchases or other corporate uses , any of which may be material . as of november 3 , 2013 , the company had cash and cash equivalents of $ 215.6 million compared to $ 218.0 million as of october 28 , 2012. the company 's working capital decreased $ 20.4 million to $ 213.9 million at november 3 , 2013 , as compared to $ 234.3 million at october 28 , 2012. the decrease in working capital was primarily the result of the purchase of psmc shares and increased payables for capital expenditures . as of november 2 , 2014 and november 3 , 2013 , the company 's total cash and cash equivalents include $ 105.9 million and $ 165.7 million , respectively , held by its foreign subsidiaries . the majority of earnings of the company 's foreign subsidiaries are considered to be indefinitely reinvested . the repatriation of these funds to the u.s. may subject these funds to u.s. federal income taxes and local country withholding tax in certain jurisdictions . the company 's foreign subsidiaries continue to grow through the reinvestment of earnings in additional manufacturing capacity and capability , particularly in the high-end ic and fpd areas .
| as a percent of total sales in 2014 , sales were 31 % in korea , 23 % in the united states , 37 % in taiwan , 8 % in europe , and 1 % at other international locations . 20 net sales for 2013 decreased 6.3 % to $ 422.2 million as compared to $ 450.4 million for 2012 , primarily related to reduced high-end ic sales of $ 30 million as compared to the prior year . the reduced high-end ic revenue was primarily attributable to an asian foundry customer for which the company was not qualified as a result of a node migration , and to a lesser extent , reduced asps . total ic sales decreased by $ 29.5 million or 8.4 % in 2013 as compared to 2012 , primarily due to reduced high-end ic sales discussed previously , and mainstream ic sales were essentially flat . total fpd sales increased by $ 1.3 million or 1.3 % in 2013 as compared to 2012 , primarily due to increased high-end fpd sales , which was partially offset by a $ 4 million decrease in mainstream fpd sales . total revenues attributable to high-end products decreased by $ 24 million to $ 149 million in 2013 , as high-end revenues for ic decreased by $ 30 million to $ 80 million , which were partially offset by a $ 6 million increase in high-end fpd revenues to $ 69 million . high-end photomask applications , which typically have higher asps , include photomask sets for ic products using 45 nanometer and below technologies , and for fpd products using generation 8 and above and amoled technologies . by geographic area , net sales in 2013 as compared to 2012 decreased by $ 26.9 million or 16.7 % in korea , decreased by $ 8.1 million or 6.0 % in the united states , increased by $ 8.1 million or 7.4 % in taiwan , increased by $ 0.5 million or 1.2 % in europe and decreased by $ 1.8 million at other international locations . as a percent of total sales in 2013 , sales were 32 % in korea , 30 % in the united states , 28 % in taiwan , 9 % in europe ,
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on october 27 , 2020 , a jury returned a verdict in our favor in the amount of $ 854 million , including $ 570 million punitive damages , in our lawsuit with syntel , which was initiated in 2015. we expect syntel to appeal the decision and thus we will not record the gain in our financial statements until it becomes realizable . for more information , see note 15 to our consolidated financial statements . in the fourth quarter of 2020 , we made an offer to settle and exit a large customer engagement in financial services in continental europe ( `` proposed exit '' ) . the offer includes , among other terms , a proposed payment and the forgiveness of certain receivables . the 2020 impact of the proposed exit was a reduction of revenues of $ 118 million and additional expenses of $ 33 million , primarily related to the impairment of long-lived assets . the proposed exit negatively impacted each of our gaap and adjusted diluted eps by $ 0.27 for the year ended december 31 , 2020. while the amounts recorded are based on our best estimate of the expected terms of the exit , the negotiations are ongoing and , as such , we may not reach an agreement or the final terms of the agreement that is reached may materially differ from those contemplated in our accounting . in either instance , there could be additional impacts to our statement of operations , financial condition and our cash flows . 2020 financial results the following table sets forth a summary of our financial results for the years ended december 31 , 2020 and 2019 : replace_table_token_4_th our financial results were negatively impacted by our exit from certain content-related services , the proposed exit , the ransomware attack and the covid-19 pandemic . we continue to experience pricing pressure within our core portfolio of services as our clients optimize the cost of supporting their legacy systems and operations . at the same time , clients are adopting and integrating digital technologies and their demand for our digital services and solutions has continued to increase since the beginning of the covid-19 pandemic as a result of increased demand for mobile workplace solutions , e-commerce , automation and ai and cybersecurity services and solutions . 1 adjusted income from operations and adjusted diluted eps are not measurements of financial performance prepared in accordance with gaap . see “ non-gaap financial measures ” for more information and reconciliations to the most directly comparable gaap financial measures . 20 the following charts set forth revenues and change in revenues by business segment and geography for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 : replace_table_token_5_th across all our business segments and regions , revenues were negatively impacted by the covid- 19 pandemic and the ransomware attack . retail , consumer goods , travel and hospitality clients within our products and resources segment as well as communications and media clients in our communications , media and technology segment were particularly adversely affected by the pandemic . revenues in our financial services segment in our continental europe region were negatively impacted by $ 118 million due to the proposed exit . additionally , we continued to see certain financial services and healthcare clients transition the support of some of their legacy systems and operations in-house . revenue growth among our life sciences clients was driven by revenues from zenith and increased demand for our services among pharmaceutical companies while revenues from our healthcare clients benefited from stronger software license sales . o ur manufacturing , logistics , energy and utilities clients within our products and resources segment generated revenue growth due to our clients ' continued adoption and integration of digital technologies . revenues among our technology clients in our communicatio ns , media and technology segment in the north america region were negatively impacted by approximately $ 178 million due to our exit from certain content-related services . we continue to see growing demand from our technology clients for other more strategic digital content services . additionally , the year-over-year change in our revenues included 210 basis points of benefit from our recently completed acquisitions , including co llaborative solutions , zenith and contino . our operating margin and adjusted operating margin 2 decreased to 12.7 % and 14.4 % , respectively , for the year ended december 31 , 2020 from 14.6 % and 16.6 % , respectively , for the year ended december 31 , 2019. our gaap and adjusted operating margin 2 were adversely impacted by higher incentive-based compensation accrual rates , investments intended to drive organic and inorganic revenue growth , the impact of the proposed exit , the decline in revenues brought on by the covid-19 pandemic and the impact of the ransomware attack on both revenues and costs . these impacts were partially offset by a significant decrease in travel and entertainment expenses due to the covid-19 pandemic , the cost savings generated as a result of the 2020 fit for growth plan , lower immigration costs and the depreciation of the indian rupee against the u.s. dollar . in addition , our 2019 gaap operating margin included a 0.7 % negative impact of the incremental accrual in 2019 related to the india defined contribution obligation as discussed in note 15 to our consolidated financial statements , while our 2020 gaap operating margin was negatively impacted by covid-19 charges . 2 constant currency revenue growth ( cc ) and adjusted operating margin are not measurements of financial performance prepared in accordance with gaap . see “ non-gaap financial measures ” for more information and a reconciliation to the most directly comparable gaap financial measure , as applicable . 21 business outlook we have four strategic priorities as we seek to increase our commercial momentum and accelerate growth . story_separator_special_tag these strategic priorities are : accelerating digital - growing our digital business organically and inorganically ; globalizing cognizant - growing our business in key international markets and diversifying leadership , capabilities and delivery footprint ; repositioning our brand - improving our global brand recognition and becoming better known as a global digital partner to the entire c-suite ; and increasing our relevance to our clients - leading with thought leadership and capabilities to address clients ' business needs . we continue to expect the long-term focus of our clients to be on their digital transformation into software-driven , data-enabled , customer-centric and differentiated businesses . as our clients seek to optimize the cost of supporting their legacy systems and operations , our core portfolio of services may be subject to pricing pressure and lower demand due to clients transitioning certain work in-house . at the same time , clients continue to adopt and integrate digital technologies and their demand for our digital operations services and solutions has only increased since the beginning of the covid-19 pandemic , as demand for mobile workplace solutions , e-commerce , automation and ai and cybersecurity services and solutions has grown . our clients will likely continue to contend with industry-specific changes driven by evolving digital technologies , uncertainty in the regulatory environment , industry consolidation and convergence as well as international trade policies and other macroeconomic factors , which could affect their demand for our services . the covid-19 pandemic ma y continue to negatively impact demand , particularly among our retail , consumer goods , travel and hospitality clients within our products and resources segment as well as communications and media clients in our communications , media and technology segment . the significant and evolving nature of the covid-19 pandemic makes it difficult to estimate its future impact on our ongoing business , results of operations and overall financial performance . see part i , item 1a . risk factors . as a global professional services company , we compete on the basis of the knowledge , experience , insights , skills and talent of our employees and the value they can provide to our clients . competition for skilled labor is intense and our success is dependent , in large part , on our ability to keep our supply of skilled employees , in particular those with experience in key digital areas , in balance with client demand around the world . as such , we will continue to focus on recruiting , talent management and employee engagement to attract and retain our employees . we will continue to pursue strategic acquisitions , investments and alliances that will expand our talent , experience and capabilities in key digital areas or in particular geographies or industries . in addition , our future results may be affected by immigration law changes that may impact our ability to do business or significantly increase our costs of doing busi ness , potential tax law changes and other potential regulatory changes , including potentially increased costs in 2021 and future years for employment and post-employment benefits in india as a result of the issuance of the code in late 20 20 , as well as costs related to the potential resolution of legal a nd regulatory matters discussed in note 15 to our consolidated financial statements . for additional information , see part i , item 1a . risk factors . 22 story_separator_special_tag ( exclusive of depreciation and amortization expense ) sg & a expenses consist primarily of salaries , incentive-based compensation , stock-based compensation expense , employee benefits , immigration , travel , marketing , communications , management , finance , administrative and occupancy costs . sg & a expenses increased by 4.3 % during 2020 as compared to 2019 , increasing as a percentage of revenues to 18.6 % in 2020 as compared to 17.7 % in 2019. the increase , as a percentage of revenues , was due primarily to an increase in costs related to higher incentive-based compensation accrual rates in 2020 , investments intended to drive organic and inorganic revenue growth and the impacts of the covid-19 pandemic , the proposed exit and the ransomware attack . these negative impacts were partially offset by a significant decrease in travel and entertainment costs as a result of a reduction in travel due to the covid-19 pandemic and lower immigration costs , in addition to the $ 117 million incremental accrual in 2019 related to the india defined contribution obligation as discussed in note 15 to our consolidated financial statements . restructuring charges restructuring charges consist of our 2020 fit for growth plan and our realignment program . restructuring charges were $ 215 million , or 1.3 % as a percentage of revenues during 2020 , as compared to $ 217 million , or 1.3 % as a percentage of revenues , during 2019. for further detail on our restructuring charges see note 4 to our consolidated financial statements . depreciation and amortization expense depreciation and amortization expense increased by 8.9 % during 2020 as compared to 2019. the increase was due to procurement of additional computer equipment primarily to provision work-from-home arrangements and amortization of intangibles from recently completed acquisitions . 5 constant currency revenue growth is not a measurement of financial performance prepared in accordance with gaap . see “ non-gaap financial measures ” for more information . 25 operating margin - overall our operating margin and adjusted operating margin 6 decreased to 12.7 % and 14.4 % , respectively , in 2020 from 14.6 % and 16.6 % , respectively , during 2019. our gaap and adjusted operating margin 6 were adversely impacted by higher incentive-based compensation accrual rates , investments intended to drive organic and inorganic revenue growth , the impact of the proposed exit , the decline in revenues brought on by the covid-19 pandemic and the impact of the ransomware attack on both revenues and costs .
| 3 adjusted income from operations , adjusted operating margin , adjusted diluted eps and constant currency revenue growth are not measurements of financial performance prepared in accordance with gaap . see “ non-gaap financial measures ” for more information and reconciliations to the most directly comparable gaap financial measures , as applicable . 23 revenues - reportable business segments revenues by reportable business segment were as follows : replace_table_token_7_th financial services revenues from our financial services segment declined 4.2 % , or 4.0 % on a constant currency basis 4 , in 2020. revenues among our insurance clients decreased by $ 85 million as compared to a decrease of $ 163 million from our banking clients . the proposed exit negatively impacted our revenues from banking clients by $ 118 million . revenues from clients added during 2020 , including those related to acquisitions , were $ 70 million . moderate revenue growth generated by our digital services did not fully offset revenue declines attributable to certain financial services clients who continued to transition the support of some of their legacy systems and operations in-house . healthcare revenues from our healthcare segment grew 3.3 % , or 3.1 % on a constant currency basis 4 , in 2020. revenues in this segment increased by $ 173 million among our life science clients while revenues from our healthcare clients decreased $ 16 million . revenue growth among our life sciences clients was driven by revenues from zenith and increased demand for our services among pharmaceutical companies . revenues from our healthcare clients were negatively impacted by the establishment of an offshore captive by a large client , partially offset by the 2019 negative impact of a customer dispute with a healthcare client related to a large volume based contract . additionally , revenues from our healthcare clients benefited from stronger software license sales in 2020. revenues from clients added during 2020 , including those related to acquisitions , were $ 50 million . demand from our healthcare clients may continue to be affected by uncertainty in the regulatory and
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at- 001 is a novel ari with broad systemic exposure and peripheral nerve permeability that we are developing for the treatment of diabetic cardiomyopathy , or dbcm , a fatal fibrosis of the heart , for which no treatments are available . we completed a phase 1/2 clinical trial evaluating at-001 in approximately 120 patients with type 2 80 diabetes , in which no drug- related adverse effects or tolerability issues were observed . in september 2019 , we announced the initiation of a phase 3 registrational trial of at-001 in dbcm . the study , called arise-hf , is designed to evaluate at-001 's ability to improve or prevent the decline of functional capacity in patients with dbcm at high risk of progression to overt heart failure . although we did experience enrollment delays in 2020 associated with the covid-19 pandemic , modifications were made to the trial to include additional sites and geographies to address covid-19-related issues . we expect the study to be fully enrolled in 2021. at-003 is a novel ari designed to cross through the back of the eye when dosed orally , and has demonstrated strong retinal penetrance , for the treatment of diabetic retinopathy , or dr. dr is an ophthalmic disease that occurs in diabetic patients and for which treatments are currently limited to high-cost biologics requiring intravitreal administration . dr has been linked to ar activity , including elevations in sorbitol and subsequent changes in retinal blood vessels , which distorts vision and leads to permanent blindness . we are currently in late stages of preclinical development and intend to advance at-003 into a phase 1 clinical trial in 2021. at-104 is a dual selective pi3k inhibitor in preclinical development for t cell acute lymphoblastic leukemia ( t-all ) . at-104 has demonstrated significant benefit in both in vitro and in vivo models of t-all . in september 2020 we received pediatric rare disease designation for at-104 in t-all . as we advance our product candidates forward in additional indications , such as sord deficiency , pmm2-cdg and retinopathy , we anticipate potential moderate growth in our clinical development and operations teams to support the additional clinical trials , as well as addition of a medical affairs team to support the late stage indications and preparations for commercialization . in march 2020 , we hired a chief commercial officer , and build-out of commercial infrastructure commenced . as such , we expect commercial expenditures to continue to increase in 2020 as we prepare for potential galactosemia commercial launch , including additional costs related to marketing , market access , market research and sales and forecasting , as well as an increase in compensation expense related to several new hires in connection with the build-out . since inception in 2016 , our operations have focused on developing our product candidates , organizing and staffing our company , business planning , raising capital , establishing our intellectual property portfolio and conducting clinical trials . we do not have any product candidates approved for sale and have not generated any revenue . we have incurred significant operating losses since inception in 2016. our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates . our net loss was $ 94.0 million for the year ended december 31 , 2020. as of december 31 , 2020 , we had an accumulated deficit of $ 160.7 million . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future in connection with our ongoing activities . furthermore , we expect to incur additional costs associated with operating as a public company that we did not previously incur or had previously incurred at lower rates as a private company , including significant legal , accounting , investor relations and other expenses . as of december 31 , 2020 , we had cash and cash equivalents and short-term investments of $ 96.8 million . january 2020 secondary public offering in january 2020 , we issued and sold 2,741,489 shares of our common stock at a public offering price of $ 45.50 per share , with an additional 411,223 shares sold pursuant to the underwriters ' full exercise of their option to purchase additional shares in the secondary public offering . we received aggregate net proceeds , net of underwriting discounts and commissions and offering costs of $ 134.1 million . february 2021 secondary public offering in february 2021 , we issued and sold 3,000,000 shares of common stock at a public offering price of $ 23.00 per share , with an additional 450,000 shares sold pursuant to the underwriters ' full exercise of their option to purchase 81 additional shares in the february offering . we received aggregate net proceeds , net of underwriting discounts and commissions and offering costs of $ 74.3 million . components of our results of operations revenue since inception , we have not generated any revenue and do not expect to generate any revenue from the sale of products in the near future . if our development efforts for our product candidates are successful and result in regulatory approval , or if we enter into collaboration or license agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements . story_separator_special_tag operating expenses research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts and the development of our product candidates , and include : ● employee-related expenses , including salaries , related benefits and stock-based compensation expense for employees engaged in research and development functions ; ● fees paid to consultants for services directly related to our product development and regulatory efforts ; ● expenses incurred under agreements with contract research organizations , or cros , as well as contract manufacturing organizations , or cmos , and consultants that conduct and provide supplies for our preclinical studies and clinical trials ; ● costs associated with preclinical activities and development activities ; ● costs associated with our technology and our intellectual property portfolio ; and ● costs related to compliance with regulatory requirements . we expense research and development costs as incurred . costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued research and development expenses . research and development costs also include costs incurred in connection with certain licensing arrangements . before a compound receives regulatory approval , we record upfront and milestone payments made by us to third parties under licensing arrangements as expense . upfront payments are recorded when incurred , and milestone payments are recorded when the specific milestone has been achieved . once a compound receives regulatory approval , we will record any milestone payments in identifiable intangible assets , less accumulated amortization and , unless the asset is determined to have an indefinite life , we amortize the payments on a straight-line basis over the remaining agreement term or the expected product life cycle , whichever is shorter . research and development activities are central to our business model . we expect that our research and development expenses will continue to increase for the foreseeable future as we continue clinical development for our product candidates and continue to discover and develop additional product candidates . if any of our product candidates enter into later stages of clinical development , they will 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 . historically , 82 we have incurred research and development expenses that primarily relate to the development of at-007 , at-001 and our ari program . as we advance our product candidates , we expect to allocate our direct external research and development costs across each of the indications or product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , and commercial functions . general and administrative expenses also include professional fees for legal , accounting , auditing , tax and consulting services ; travel expenses ; and facility-related expenses , which include allocated expenses for rent and maintenance of facilities and other operating costs . commercial expenses consist of payroll expense for commercial personnel , as well as marketing , market research , market access , and other focused investments to support launch of drug candidates , generate evidence of commercial potential and value proposition , and maximize potential business development deal leverage . commercial expenses are included in general and administrative expenses . we expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and development and potential commercialization of our product candidates . we also expect to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax compliance services ; director and officer insurance costs ; and investor and public relations costs . other income ( expense ) , net other income ( expense ) , net consists of interest income ( expense ) , net , and other income ( expense ) , net . interest income ( expense ) , net consists primarily of our interest income on our cash and cash equivalents and marketable securities . other income ( expense ) , net consists primarily of realized gains and losses on sales of marketable securities . story_separator_special_tag $ 56.4 million , primarily from the cash proceeds from the ipo of $ 37.2 million , net of underwriting costs , and from the issuance of series b preferred stock resulting in $ 3.0 million cash proceeds , as well as $ 18.5 million of cash proceeds from the private placement . funding requirements we expect our expenses to increase substantially in connection with our ongoing activities , particularly as we advance the preclinical activities and clinical trials of our product candidates . we believe that our expenses may increase significantly if and as we : ● continue the ongoing and planned development of our product candidates ; ● initiate , conduct and complete any ongoing , anticipated or future preclinical studies and clinical trials for our current and future product candidates ; ● seek marketing approvals for any product candidates that successfully complete clinical trials ; ● establish a sales , marketing , manufacturing and distribution infrastructure to commercialize any current or future product candidate for which we may obtain marketing approval ; ● seek to discover and develop additional product candidates ; ● continue to build a portfolio of product candidates through the acquisition or in-license of drugs , product candidates or technologies ; ● maintain , protect and expand our intellectual property portfolio ; ● hire additional clinical , regulatory and scientific personnel ; and ● add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization
| ended december 31 , 2019. the increase of approximately $ 19.4 million was primarily related to : ● an increase in professional and legal fees of $ 4.1 million due to increased operations and costs associated with being a public company for a full year ; ● an increase of $ 5.7 million related to the establishment of a commercial department ; ● an increase in personnel expenses of $ 4.2 million and an increase in stock-based compensation of $ 2.0 million due to an increase in headcount ; ● an increase of insurance expenses of $ 1.8 million related to increased d & o insurance costs ; and ● an increase in other expenses of $ 1.6 million , primarily relating to increased costs of rent and other office expenses . other income ( expense ) , net other income ( expense ) , net was income of approximately $ 0.5 million for the year ended december 31 , 2020 , compared to income of $ 69,000 for the year ended december 31 , 2019. the increase was primarily related to interest income earned on marketable securities . liquidity and capital resources since our inception through december 31 , 2020 , we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations . we expect our existing cash and cash equivalents and short-term investments of $ 96.8 million as of december 31 , 2020 , along with the net proceeds of approximately $ 74.3 million raised in the february offering will be sufficient to fund our operating expenses and capital expenditure requirements for at least one year from the date of this annual report . cash flows the following table summarizes our cash flows for each of the periods presented : replace_table_token_6_th operating activities during the year ended december 31 , 2020 , operating activities used cash of $ 78.2 million , primarily
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therefore , our comparable sales also include our ecommerce sales . changes in our comparable sales between two periods are based on net sales of store or ecommerce businesses which were in operation during both of the two periods being compared and , if a store or ecommerce business is included in the calculation of comparable sales for only a portion of one of the two periods being compared , then that store or ecommerce business is included in the calculation for only the comparable portion of the other period . any change in square footage of an existing comparable store , including remodels and relocations , does not eliminate that store from inclusion in the calculation of comparable sales . any store or ecommerce business that we acquire will be included in the calculation of comparable sales after the first anniversary of the acquisition date . current year foreign exchange rates are applied to both current year and prior year comparable sales to achieve a consistent basis for comparison . there may be variations in the way in which some of our competitors and other apparel retailers calculate comparable sales . as a result , data herein regarding our comparable sales may not be comparable to similar data made available by our competitors or other retailers . cost of goods sold consists of branded merchandise costs and our private label merchandise costs including design , sourcing , importing and inbound freight costs . our cost of goods sold also includes shrinkage , buying , occupancy , ecommerce fulfillment , distribution and warehousing costs ( including associated depreciation ) and freight costs for store merchandise transfers . this may not be comparable to the way in which our competitors or other retailers compute their cost of goods sold . cash consideration received from vendors is reported as a reduction of cost of goods sold if the inventory has sold , a reduction of the carrying value of the inventory if the inventory is still on hand , or a reduction of selling , general and administrative expense if the amounts are reimbursements of specific , incremental and identifiable costs of selling the vendors ' products . with respect to the freight component of our ecommerce sales , amounts billed to our customers are included in net sales and the related freight cost is charged to cost of goods sold . 27 selling , general and administrative expenses consist primarily of store personnel wages and benefits , administrative staff and infrastructure expe nses , freight costs for merchandise shipments from the distribution centers to the stores , store supplies , depreciation on fixed assets at our home office and stores , facility expenses , training expenses and advertising and marketing costs . credit card fe es , insurance , public company expenses , legal expenses , amortization of intangibles , and other miscellaneous operating costs are also included in selling , general and administrative expenses . this may not be comparable to the way in which our competitors or other retailers compute their selling , general and administrative expenses . key performance indicators our management evaluates the following items , which we consider key performance indicators , in assessing our performance : comparable sales . as previously described in detail under the caption “ general , ” comparable sales provide a measure of sales growth for stores and ecommerce businesses open at least one year over the comparable prior year period . we consider comparable sales to be an important indicator of our current performance . comparable sales results are important to achieve leveraging of our costs , including store payroll and store occupancy . comparable sales also have a direct impact on our total net sales , operating profit , cash and working capital . gross profit . gross profit measures whether we are optimizing the price and inventory levels of our merchandise . gross profit is the difference between net sales and cost of goods sold . any inability to obtain acceptable levels of initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations . operating profit . we view operating profit as a key indicator of our success . operating profit is the difference between gross profit and selling , general and administrative expenses . the key drivers of operating profit are comparable sales , gross profit , our ability to control selling , general and administrative expenses and our level of capital expenditures affecting depreciation expense . story_separator_special_tag costs partially offset by 70 basis point decrease from the fiscal 2014 expense associated with the future incentive payments to be paid in conjunction with our acquisition of blue tomato . net income net income for fiscal 2015 was $ 28.8 million , or $ 1.04 per diluted share , compared with net income of $ 43.2 million , or $ 1.47 per diluted share , for fiscal 2014. our effective income tax rate for fiscal 2015 was 37.2 % compared to 39.7 % for fiscal 2014. the decrease in the effective tax rate for fiscal 2015 compared to fiscal 2014 was primarily due to the tax impact of foreign operations and the incentive payments in fiscal 2014. seasonality and quarterly results as is the case with many retailers of apparel and related merchandise , our business is subject to seasonal influences . as a result , we have historically experienced , and expect to continue to experience , seasonal and quarterly fluctuations in our net sales and operating results . our net sales and operating results are typically lower in the first and second quarters of our fiscal year , while the back-to-school and winter holiday periods in our third and fourth fiscal quarters historically have accounted for the largest percentage of our annual net sales . story_separator_special_tag quarterly results of operations may also fluctuate significantly as a result of a variety of factors , including the timing of store openings and the relative proportion of our new stores to mature stores , fashion trends and changes in consumer preferences , calendar shifts of holiday or seasonal periods , changes in merchandise mix , timing of promotional events , general economic conditions , competition and weather conditions . the following table sets forth selected unaudited quarterly consolidated statements of income data . the unaudited quarterly information has been prepared on a basis consistent with the audited consolidated financial statements included elsewhere herein and includes all adjustments that we consider necessary for a fair presentation of the information shown . this information should be read in conjunction with our audited consolidated financial statements and the notes thereto . the operating results for any fiscal quarter are not indicative of the operating results for a full fiscal year or for any future period and there can be no assurance that any trend reflected in such results will continue in the future . replace_table_token_9_th 30 replace_table_token_10_th liquidity and capital resources our primary uses of cash are for operational expenditures , inventory purchases and capital investments , including new stores , store remodels , store relocations , store fixtures and ongoing infrastructure improvements . additionally , we may use cash for the repurchase of our common stock . refer to note 11 , “ stockholders ' equity ” of the notes to consolidated financial statements for further discussion of the repurchase plan . historically , our main source of liquidity has been cash flows from operations . the significant components of our working capital are inventories and liquid assets such as cash , cash equivalents , current marketable securities and receivables , reduced by accounts payable and accrued expenses . our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale , while we typically have longer payment terms with our vendors . at january 28 , 2017 and january 30 , 2016 , cash , cash equivalents and current marketable securities were $ 78.8 million and $ 75.6 million . working capital , the excess of current assets over current liabilities , was $ 137.8 million at the end of fiscal 2016 , an increase of 6.2 % from $ 129.8 million at the end of fiscal 2015. the increase in cash , cash equivalents and current marketable securities in fiscal 2016 was due primarily to cash provided by operating activities of $ 48.5 million , partially offset by $ 21.6 million repurchase of common stock and $ 20.4 million of capital expenditures primarily related to the opening of 28 new stores in fiscal 2016 and 14 remodels and relocations . the following table summarizes our cash flows from operating , investing and financing activities ( in thousands ) : replace_table_token_11_th 31 operating activities net cash provided by operating activities decreased by $ 0.1 million in fiscal 2016 to $ 48.5 million from $ 48.6 million in fiscal 2015. net cash provided by operating activities decreased by $ 41.3 million in fiscal 2015 to $ 48.6 million from $ 89.9 million in fiscal 2014. our operating cash flows result primarily from cash received from our customers , offset by cash payments we make for inventory , employee compensation , store occupancy expenses and other operational expenditures . cash received from our customers generally corresponds to our net sales . because our customers primarily use credit cards or cash to buy from us , our receivables from customers settle quickly . changes to our operating cash flows have historically been driven primarily by changes in operating income , which is impacted by changes to non-cash items such as depreciation , amortization and accretion , deferred taxes and excess tax benefit from stock-based compensation , and changes to the components of working capital . investing activities net cash provided by investing activities was $ 51.5 million in fiscal 2016 related to $ 25.7 million in net purchases of marketable securities , $ 20.4 million of capital expenditures primarily for new store openings and existing store remodels or relocations and $ 5.4 million for the acquisition of fast times ( net of cash acquired ) . net cash provided by investing activities was $ 64.7 million in fiscal 2015 related to $ 99.6 million in net sales of marketable securities partially offset by $ 34.8 million of capital expenditures primarily for new store openings and existing store remodels or relocations . net cash used in investing activities was $ 73.9 million in fiscal 2014 related to $ 35.8 million of capital expenditures primarily for new store openings and existing store remodels or relocations and $ 38.1 million in net purchases of marketable securities . financing activities net cash used in financing activities in fiscal 2016 was $ 20.1 million , related to $ 21.6 million cash paid for repurchase of common stock , partially offset by $ 0.9 million in proceeds from stock-based compensation exercises and related tax benefits and $ 0.6 million of net proceeds on revolving credit facilities . net cash used in financing activities in fiscal 2015 was $ 90.8 million , related to $ 92.2 million cash paid for repurchase of common stock , partially offset by proceeds from stock-based compensation exercises and related tax benefits of $ 1.6 million . net cash used in financing activities in fiscal 2014 was $ 13.9 million , related to $ 19.6 million cash paid for repurchase of common stock and $ 2.1 million of net payments on revolving credit facilities , and other liabilities , partially offset by proceeds from stock-based compensation exercises and related tax benefits of $ 7.7 million . sources of liquidity our most significant sources of liquidity continue to be funds generated by operating activities and available cash , cash equivalents and current marketable securities .
| selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses were $ 235.3 million for fiscal 2016 compared to $ 222.5 million for fiscal 2015 , an increase of $ 12.8 million , or 5.8 % . sg & a expenses as a percent of net sales increased by 40 basis points in fiscal 2016 to 28.1 % . the increase was primarily driven by 30 basis points from the deleveraging of store costs primarily related to wages and 30 basis point increase in corporate costs primarily related to wages partially offset by 20 basis point decrease in impairment of long-lived assets compared to fiscal 2015. net income net income for fiscal 2016 was $ 25.9 million , or $ 1.04 per diluted share , compared with net income of $ 28.8 million , or $ 1.04 per diluted share , for fiscal 2015. our effective income tax rate for fiscal 2016 was 35.6 % compared to 37.2 % for fiscal 2015. the decrease in the effective tax rate for fiscal 2016 compared to fiscal 2015 was primarily due to the tax impact of our foreign operations . fiscal 2015 results compared with fiscal 2014 net sales net sales were $ 804.2 million for fiscal 2015 compared to $ 811.6 million for fiscal 2014 , a decrease of $ 7.4 million or 0.9 % . the decrease reflected a $ 42.1 million decrease due to comparable sales for fiscal 2015 and a decrease of $ 19.6 million due to the impact of changes in foreign exchange rates , partially offset by the net addition of 55 stores ( made up of 51 new stores in north america and 6 new stores in europe offset by 2 store closures in north america ) . by region , north america sales decreased $ 19.0 million or 2.5 % and european sales increased $ 11.6 million or 18.0 % during fiscal 2015 compared to fiscal 2014. the 5.3 % decrease in comparable sales was primarily driven by a decrease in comparable transactions partially offset by an increase in dollars per transaction .
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in evaluating the use of non-gaap measures , investors should be aware that in the future we may incur expenses similar to the adjustments presented below . our presentation of non-gaap measures should not be construed as an inference that our future results will be unaffected by expenses that are unusual , non-routine or non-recurring . a non-gaap measure has limitations as an analytical tool , and you should not consider it in isolation , or as a substitute for net income ( loss ) , operating income ( loss ) , or any other performance measure derived in accordance with and reported under gaap or as an alternative to cash flow from operating activities or as a measure of our liquidity . non-gaap financial measures , when viewed in a reconciliation to respective gaap financial measures , provide an additional way of viewing the company 's results of operations and the factors and trends affecting the company 's business . non-gaap financial measures should be considered as a supplement to , and not as a substitute for , or superior to , the respective financial results presented in accordance with gaap . 2017 review during 2017 , we made progress against our transformation strategy and objective of sustainable and responsible growth within the university group as well as completed the closure of all but seven of our campuses that are in teach-out ; the remaining campuses , which have approximately 100 students remaining at the end of 2017 , will close during 2018. we experienced improving student interest at both aiu and ctu which resulted in both new and total enrollment growth for 2017. throughout the year , operating performance at both our university group institutions as well as our teach-out operations was ahead of our expectations and we continued to make investments in improving student onboarding and academic processes . within our university group total enrollments increased 3.3 % , driven by positive new student enrollment growth as well as improved retention trends as compared to the prior year . new enrollment growth benefitted from our recent investments in student support operations , including execution and increasing tenure within our admissions operations , enhanced training and coaching of staff , establishment of advisor accountability standards , and increased interaction and dialogue between advisors and faculty . we believe these initiatives have enhanced the overall quality of service for our students and have elevated their onboarding and orientation experience as they prepare for their chosen program of study as well as provided more personalized and relevant interaction which we believe positively impacted student retention . additionally , we opened new admissions and advising centers near phoenix , arizona , which contributed to the improvements in new student enrollments as compared to the prior year . we continued to focus on technological advancements as well , including the introduction of a faculty mobile application at both of our universities during the year . the new application provides informative dashboards , ability to complete tasks on the go and enhanced outreach and communication capabilities that we believe make student interactions easier and more effective . additionally , within aiu , a revised learning management system was launched in the fourth quarter that offers students a more stream-lined experience , making it easier for students to navigate course content by providing a step by step roadmap for completing all their activities . we believe these initiatives helped improve student experiences both before and after they are enrolled in our programs which positively impacted student retention and academic outcomes . within the all other campuses segment , which includes those campuses which are currently being taught out or which have completed their teach-out activities or have been sold subsequent to january 1 , 2015 , we completed the teach-outs of all our former le cordon bleu culinary arts campuses as well as all but seven campuses within our former transitional group . as a result , we are almost complete with our strategic decision to close out these campuses and focus our resources on our university group institutions . over the past year , we have continued to reduce our remaining lease obligations for the teach-out campuses through lease terminations and sublease opportunities . therefore , we expect the losses from these campuses to continue to decline in 2018 as they complete the close-out process . in addition , we commenced our search for a permanent chief financial officer . we have retained a search firm to assist us with the search and we expect to complete the selection process shortly . financial highlights revenue from continuing operations in 2017 declined $ 108.0 million or 15.3 % , primarily as a result of our decision to teach-out campuses within the all other campuses segment . for the current year , we reported operating income of $ 34.1 million as compared 41 to an operating loss of $ 32.3 million for the prior year . this improvement was driven by the continued elimination of expenses in the current year related to our teach-out campuses and increased revenues within the university group as a result of various o perating initiatives contributing to improved enrollment trends . additionally , the prior year included $ 32.0 million of legal settlements as compared to $ 6.5 million in the current year . lastly , we reported cash used in operations for the current year of $ 21.8 million as compared to cash generated from operations of $ 6.5 million for the prior year . the cash usage for the current year includes payment of $ 32.0 million of legal settlements during the first quarter of 2017. for our university group , revenue increased $ 7.2 million or 1.3 % as compared to the prior year , driven by various operating initiatives that contributed to improvements in total and new student enrollments . total enrollments for the university group increased by 3.3 % for the current year as compared to the prior year . story_separator_special_tag operating income for the university group increased $ 47.8 million , or 68.5 % , for the current year as compared to the prior year . the improvement in operating income was partially driven by improved efficiencies in advertising costs as well as improvements in bad debt expenses . additionally , the prior year operating loss included legal settlement charges recorded within aiu for $ 32.0 million . within our all other campuses segment , operating loss of $ 61.4 million improved 20.3 % as we continued to eliminate costs as campuses complete their teach-outs . we completed the teach-outs of all remaining culinary arts institutions during 2017 as well as seven non-culinary arts insitutions . we have approximately 100 students remaining within our teach-out campuses as of the end of 2017 who are scheduled to complete their programs during 2018. as the teach-out campuses complete their close outs in 2018 , we expect to see expenses further decrease . the company believes it is useful to present non-gaap financial measures , which exclude certain significant and non-cash items , as a means to understand the performance of its operations . ( see tables below for a gaap to non-gaap reconciliation . ) adjusted operating income for the university group and corporate was $ 105.9 million for the current year as compared to $ 89.3 million in the prior year , driven by the increase in revenue , efficiencies in advertising expenses and improvements in bad debt expenses . adjusted operating loss for the all other campuses segment increased to $ 39.0 million for the current year as compared to an adjusted operating loss of $ 29.8 million in the prior year as a result of the deleveraging of expenses as we neared the end of teach-out completion . adjusted operating income ( loss ) for the years ended december 31 , 2017 and 2016 is presented below ( dollars in thousands , unless otherwise noted ) : replace_table_token_10_th _ ( 1 ) operating income for the university group and corporate and operating loss for all other campuses make up the components of operating income ( loss ) . a reconciliation of these components for the years ended december 31 , 2017 and december 31 , 2016 is presented below : 42 replace_table_token_11_th ( 2 ) amounts relate to the university group and corporate . ( 3 ) unused space charges represent the net present value of remaining lease obligations for vacated space less an estimated amount for sublease income . these charges relate to exiting leased space as the company continues to right-size the organization and therefore are not considered representative of ongoing operations . ( 4 ) amounts relate to all other campuses . outlook as we look to 2018 , our priorities remain the same . we are focused on continuing to execute against our objective of sustainable and responsible growth . we plan to continue to make responsible growth investments in our universities that we believe will ultimately benefit our students . as a result , consistent with our objective of sustainable and responsible growth , we are providing an outlook for adjusted operating income and ending cash balances for 2018 and 2019 , as well as an enrollment outlook for the first quarter of 2018 , subject to the key assumptions identified below . financial outlook replace_table_token_12_th 43 we expect cash , cash equivalents , restricted cash and short-term investments to be between $ 22 0 million and $ 2 25 million as of december 31 , 2018 and to increase in 2019. we expect adjusted operating income for the total company to grow in 2019 as compared to 2018. university group enrollment outlook ctu new student enrollments for the first quarter of 2018 are expected to increase as compared to the prior year quarter . aiu : the academic calendar redesign has caused significant variability in quarterly new enrollment trends due to the varying number of enrollment days in any given quarter . as a result , we expect new student enrollments to decrease approximately 40 % in the first quarter of 2018 as compared to the prior year quarter . however , we expect this decrease to be more than offset by growth in new student enrollments in the second and third quarters of 2018 , such that on a rolling three quarter basis we expect new student enrollments to reflect growth . forward looking adjusted operating income ( loss ) expectations are presented in the reconciliation of gaap to non-gaap items above . operating income ( loss ) , which is the most directly comparable gaap measure to adjusted operating income ( loss ) , may not follow the same trends as discussed in our outlook above because of adjustments made for unused space charges that represent the present value of future remaining lease obligations for vacated space less an estimated amount for sublease income as well as depreciation , amortization , asset impairment charges and significant legal settlements . the expectations provided in the paragraph above and table above for 2018 and 2019 are based on the following key assumptions and factors , among others : ( i ) prospective student interest in our programs continues to trend in line with recent experiences , ( ii ) initiatives and investments in student-serving processes and operations continue to positively impact enrollments trends within the university group , ( iii ) achievement of anticipated recovery rates for our real estate obligations and timing of any associated lease termination payments in line with our current expectations , ( iv ) no material changes in the current legal or regulatory environment and excludes legal and regulatory liabilities and other related impacts which are not probable and estimable at this time and any impact of new or proposed regulations , including the “ borrower defense to repayment ” and gainful employment regulations and any modifications thereto , and ( v ) no material changes in the estimated amount of compensation expense that could be impacted by changes in the company 's stock price .
| aiu will continue to experience quarterly variability in new student enrollments due to the academic calendar redesign which began in 2017. additionally , new and total student enrollments within both aiu and ctu improved compared to 2016 primarily driven by our student initiatives and investments , including our admissions and advising centers in arizona , as well as enhanced onboarding and orientation processes that we believe positively benefit student retention . current year operating income for ctu increased $ 9.8 million or 9.8 % as compared to the prior year . the increase in revenue as well as improved efficiencies in advertising costs and improvements in bad debt drove operating margin to improve by 2.5 % for the ctu segment . current year operating income for aiu increased $ 38.0 million or 128.4 % as compared to the prior year . this increase was primarily driven by the prior year legal settlements of $ 32.0 million as well as the increase in revenue . advertising expenses within both university segments decreased 12.0 % or $ 18.6 million for the current year as compared to the prior year due to efficiencies across various marketing channels while maintaining the level of student inquiries . all other campuses . this segment includes our lcb campuses ( formerly the culinary arts segment ) which were announced for teach-out during december 2015 as well as our non-lcb campuses ( formerly the transitional group segment ) that are currently being taught out or have completed their teach-outs . the decline in revenue as compared to 2016 is primarily a result of the decrease in total student enrollments as campuses complete their closures . the operating loss improved by $ 15.7 million or 20.3 % for the current year as compared to the prior year primarily due to overall decreases in general and administrative costs as campuses cease operations . as of december 31 , 2017 , the company had completed the teach-outs of all lcb campuses and has seven remaining non-lcb campuses which are scheduled to complete their teach-outs during 2018. we expect revenue and operating expenses to continue to decline compared to prior periods as campuses wind down their operations through 2018 . 50 corporate and other . this category includes unallo cated costs that are incurred on behalf of the entire company . corporate and other operating loss improved by $
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the company has identified the following as critical accounting policies : adequacy of the allowance for loan losses goodwill valuation and analysis for impairment valuation of investment securities and impairment analysis valuation of deferred tax assets the calculation of the allowance for loan losses is a critical accounting policy of the company . the allowance for loan losses is a valuation account that reflects management 's evaluation of the probable losses in the loan portfolio . the company maintains the allowance for loan losses through provisions for loan losses that are charged to income . charge-offs against the allowance for loan losses are taken on loans where management determines that the collection of loan principal is unlikely . recoveries made on loans that have been charged-off are credited to the allowance for loan losses . the company 's evaluation of the adequacy of the allowance for loan losses includes a review of all loans on which the collectibility of principal may not be reasonably assured . for residential mortgage and consumer loans , this is determined primarily by delinquency and collateral values . for commercial real estate and commercial loans , an extensive review of financial performance , payment history and collateral values is conducted on a quarterly basis . as part of the evaluation of the adequacy of the allowance for loan losses , each quarter management prepares an analysis that categorizes the entire loan portfolio by certain risk characteristics such as loan type ( residential mortgage , commercial mortgage , construction , commercial , etc . ) and loan risk rating . when assigning a risk rating to a loan , management utilizes a nine point internal risk rating system . loans deemed to be “ acceptable quality ” are rated 1 through 4 , with a rating of 1 established for loans with minimal risk . loans deemed to be of “ questionable quality ” are rated 5 ( watch ) or 6 ( special mention ) . loans with adverse classifications ( substandard , doubtful or loss ) are rated 7 , 8 or 9 , respectively . commercial mortgage , commercial and construction loans are rated individually and each lending officer is responsible for risk rating loans in their portfolio . these risk ratings are then reviewed by the department manager and or the chief lending officer and the credit department . the risk ratings are also confirmed through periodic loan review examinations , which are currently performed by an independent third party , and periodically by the credit committee in the credit renewal or approval . in addition , the bank requires an annual review be performed for commercial and commercial real estate loans above certain dollar thresholds , depending on loan type , to help determine the appropriate risk rating . management estimates the amount of loan losses for groups of loans by applying quantitative loss factors to loan segments at the risk rating level , and applying qualitative adjustments to each loan segment at the portfolio level . quantitative loss factors give consideration to historical loss experience by loan type based upon an appropriate look back period and adjusted for a loss emergence period . quantitative loss factors are evaluated at least annually . qualitative adjustments give consideration to other qualitative or environmental factors such as trends and levels of delinquencies , impaired loans , charge-offs , recoveries and loan volumes , as well as national and local economic trends and conditions . qualitative adjustments reflect risks in the loan portfolio not captured by the quantitative loss factors and , as such , are evaluated from a risk level perspective relative to the risk levels 41 present over the look back period . qualitative adjustments are evaluated at least quarterly . the reserves resulting from the application of both of these sets of loss factors are combined to arrive at the allowance for loan losses . management believes the primary risks inherent in the portfolio are a general decline in the economy , a decline in real estate market values , rising unemployment or a protracted period of elevated unemployment , increasing vacancy rates in commercial investment properties and possible increases in interest rates in the absence of economic improvement . any one or a combination of these events may adversely affect borrowers ' ability to repay the loans , resulting in increased delinquencies , loan losses and future levels of provisions . accordingly , the company has provided for loan losses at the current level to address the current risk in its loan portfolio . management considers it important to maintain the ratio of the allowance for loan losses to total loans at an acceptable level given current economic conditions , interest rates and the composition of the portfolio . although management believes that the company has established and maintained the allowance for loan losses at appropriate levels , additions may be necessary if future economic and other conditions differ substantially from the current operating environment . management evaluates its estimates and assumptions on an ongoing basis giving consideration to historical experience and other factors , including the current economic environment , which management believes to be reasonable under the circumstances . such estimates and assumptions are adjusted when facts and circumstances dictate . illiquid credit markets , volatile securities markets , and declines in the housing and commercial real estate markets and the economy generally can combine to increase the uncertainty inherent in such estimates and assumptions . as future events and their effects can not be determined with precision , actual results could differ significantly from these estimates . changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods . in addition , various regulatory agencies periodically review the adequacy of the company 's allowance for loan losses as an integral part of their examination process . such agencies may require the company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination . story_separator_special_tag although management uses the best information available , the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change . additional critical accounting policies relate to judgments about other asset impairments , including goodwill , investment securities and deferred tax assets . goodwill is evaluated for impairment on an annual basis , or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates . management qualitatively determines whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing step 1 of the goodwill impairment test . if an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , the entity would be required to perform step 1 of the assessment and then , if needed , step 2 to determine whether goodwill is impaired . however , if it is more likely than not that the fair value of the reporting unit is more than its carrying amount , the entity does not need to apply the two-step impairment test . for this analysis , the reporting unit is defined as the bank , which includes all core and retail banking operations of the company but excludes the assets , liabilities , equity , earnings and operations held exclusively at the company level . the guidance provides certain factors an entity should consider in its qualitative assessment in determining whether it is more likely than not that a reporting unit 's fair value is less than its carrying amount . the factors include : macroeconomic conditions , such as deterioration in economic condition and limited access to capital . industry and market considerations , such as increased competition , regulatory developments and decline in market-dependent multiples . cost factors , such as increased labor costs , cost of materials and other operating costs . overall financial performance , such as declining cash flows and decline in revenue or earnings . other relevant entity-specific events , such as changes in management , strategy or customers , litigation and contemplation of bankruptcy . reporting unit events , such as selling or disposing a portion of a reporting unit and a change in composition of assets . the company may , based upon its qualitative assessment , or at its option , perform the two-step process to evaluate the potential impairment of goodwill . if , based upon step 1 , the fair value of the reporting unit exceeds its carrying amount , goodwill of the reporting unit is considered not impaired . however , if the carrying amount of the reporting unit exceeds its fair value , an additional test must be performed . the second step test compares the implied fair value of the reporting unit 's goodwill with the carrying amount of that goodwill . an impairment loss would be recorded to the extent that the carrying amount of goodwill exceeds its implied fair value . 42 the company completed its annual goodwill impairment test as of september 30 , 2016 . based upon its qualitative assessment of goodwill , the company concluded it is more likely than not that the fair value of the reporting unit exceeds its carrying amount , such that goodwill was not impaired and no further quantitative analysis ( step 1 ) was warranted . the company 's available for sale securities portfolio is carried at estimated fair value , with any unrealized gains or losses , net of taxes , reported as accumulated other comprehensive income or loss in stockholders ' equity . estimated fair values are based on market quotations or matrix pricing as discussed in note 16 to the consolidated financial statements . securities which the company has the positive intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost . management conducts a periodic review and evaluation of the securities portfolio to determine if any declines in the fair values of securities are other-than-temporary . in this evaluation , if such a decline were deemed other-than-temporary , management would measure the total credit-related component of the unrealized loss , and recognize that portion of the loss as a charge to current period earnings . the remaining portion of the unrealized loss would be recognized as an adjustment to accumulated other comprehensive income . the fair value of the securities portfolio is significantly affected by changes in interest rates . in general , as interest rates rise , the fair value of fixed-rate securities decreases and as interest rates fall , the fair value of fixed-rate securities increases . the company determines if it has the intent to sell these securities or if it is more likely than not that the company would be required to sell the securities before the anticipated recovery . if either exists , the entire decline in value is considered other-than-temporary and would be recognized as an expense in the current period . in its evaluations , the company did not recognize an other-than-temporary impairment charge on securities for the years ended 2016 , 2015 and 2014 . the determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities , utilization against carry-back years and estimates of future taxable income . such estimates are subject to management 's judgment . a valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items . the company did not require a valuation allowance at december 31 , 2016 and 2015 . 43 analysis of net interest income net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities .
| average interest-earning assets increased $ 577.4 million , or 8.0 % , to $ 7.82 billion for 2015 , compared to $ 7.24 billion for 2014. the average outstanding loan balances increased $ 615.8 million , or 11.0 % , to $ 6.22 billion for 2015 from $ 5.60 billion for 2014 , the average balance of securities available for sale decreased $ 102.2 million , or 9.0 % , to $ 1.03 billion for 2015 , compared to $ 1.13 billion for 2014 , and the average balance of investment securities held to maturity increased $ 53.3 million , or 12.7 % , to $ 473.4 million for 2015 , compared to $ 420.2 million for 2014. the yield on interest-earning assets decreased 13 basis points to 3.73 % for 2015 , from 3.86 % for 2014 , with a reduction in the weighted average yield on total loans and investment securities , partially offset by an increase in the weighted average yield on the fhlbny stock . interest expense increased $ 1.4 million , or 3.5 % , to $ 41.9 million for 2015 , from $ 40.5 million for 2014. the increase in interest expense was attributable to an increase in average borrowings , which funded a portion of the growth in average interest-earning assets , partially offset by a shift in the funding composition to lower-costing core deposits from time deposits and a reduction in the average cost of borrowings . also offsetting the increase in interest expense was a $ 157.6 million , or 16.4 % , increase in average non-interest bearing demand deposits to $ 1.12 billion for 2015 , from $ 959.8 million for 2014. the average rate paid on interest-bearing liabilities decreased 2 basis points to 0.66 % for 2015 , compared to 2014. the average rate paid on interest-bearing deposits decreased 2 basis points to 0.31 % for 2015 , from 0.33 % for 2014. the average rate paid on borrowings decreased 17 basis points to 1.71 % for 2015 , from 1.88 % for 2014. the average balance of interest-bearing liabilities increased $ 394.6 million to $ 6.33 billion for 2015 , compared to $ 5.93 billion for 2014. average interest-bearing deposits increased $ 129.1 million , or 2.8 % , to $ 4.72 billion for 2015 , from $ 4.60 billion for 2014. within average interest-bearing deposits , average interest-bearing core deposits
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nustar energy received proceeds of $ 288.8 million , net of issuance cost . in conjunction with nustar energy 's issuance of common units , we contributed $ 6.2 million to nustar energy in order to maintain our 2 % general partner interest and our ownership in nustar energy was reduced from 20.5 % at december 31 , 2008 to 18.7 % at december 31 , 2009. story_separator_special_tag size= '' 2 '' style= '' font-family : times new roman '' > the earnings of nustar energy 's asphalt and fuels marketing segment were negatively impacted by a hedging loss of $ 61.0 million in the second quarter of 2008 associated with certain crude oil futures contracts entered into concurrently with the acquisition of the east coast asphalt operations . 34 the following table summarizes our equity in earnings of nustar energy for the years ended december 31 , 2008 and 2007 : replace_table_token_11_th ( a ) for the first quarter of 2008 , nustar energy 's net income allocation to general and limited partners reflected total cash distributions based on the partnership interests outstanding as of march 31 , 2008. nustar energy issued approximately 5.1 million common units in april 2008. actual distribution payments are made within 45 days after the end of each quarter as of a record date that is set after the end of each quarter . therefore , our portion of the actual distributions made with respect to the year ended december 31 , 2008 , including the idr , exceeded the net income allocated to us . higher earnings at nustar energy for the year ended december 31 , 2008 increased our equity earnings related to our general and limited partner interests in nustar energy for the year ended december 31 , 2008 , compared to the year ended december 31 , 2007. nustar energy 's per unit quarterly distributions for the year ended december 31 , 2008 also increased compared to the year ended december 31 , 2007 , to $ 4.085 from $ 3.835. that increase , coupled with an increase in the number of nustar energy units outstanding resulting from the issuance of units in the fourth quarter of 2007 and the second quarter of 2008 , resulted in nustar energy increasing its total cash distributions . because our idr in nustar energy entitle us to an increasing amount of nustar energy 's cash distributions , our equity in earnings of nustar energy related to our idr also increased for the period . outlook overall , nustar energy expects its results for 2010 to improve compared to 2009. however , the outlook on nustar energy 's operations could change depending on the pace of the economic recovery and other economic conditions . nustar energy 's transportation segment nustar energy expects the transportation segment results for 2010 to be comparable to slightly lower than 2009. throughputs for 2010 are forecasted to increase slightly compared to 2009 , barring any major unplanned turnaround activity and excluding the impact from the sale of pipelines in 2009. however , nustar energy expects the tariffs on its pipelines regulated by the ferc , which adjust annually based upon changes in the producer price index , to decline slightly in july , when the adjustment takes effect . even with the effect of the tariff rate decline , nustar energy 's overall tariff rate for 2010 should be slightly higher than 2009. if throughputs increase or if the cost of natural gas increases , nustar energy would expect its power expenses to increase in 2010 compared to 2009. the pace of the economic recovery , changes to refinery maintenance schedules , or other factors that impact overall demand for products nustar energy transports could affect its throughputs and revenues . 35 nustar energy 's storage segment for 2010 , nustar energy expects its earnings for the storage segment to increase compared to 2009. nustar energy expects to benefit from a full year 's contribution of terminal expansion projects completed in 2009 and from new internal growth projects , a portion of which should be completed in 2010. in addition , nustar energy expects to benefit from renewal rates that increased significantly in 2009. nustar energy 's asphalt and fuels marketing segment the earnings of nustar energy 's asphalt and fuels marketing segment largely depend upon the margin earned by its asphalt operations . nustar energy 's margin results from the difference between the sales prices of its products and the purchase prices of its raw materials , principally crude oil . the prices of crude oil and the products produced by nustar energy 's asphalt operations fluctuate in response to many factors , such as changes in supply , demand , seasonality , market uncertainties and other factors . nustar energy expects its results for 2010 to improve compared to 2009. specifically , nustar energy expects asphalt supply levels to remain below recent averages due to lower u.s. refinery utilization rates , resulting in lower refinery production , including asphalt , and the continued lack of asphalt imports . assuming the spending associated with the american recovery and revitalization act and other federal highway and public transportation programs increases in 2010 over 2009 levels , nustar energy would expect an increase in demand for asphalt . if supply levels remain lower than historical averages and demand increases , it should result in a higher margin per barrel and increased sales volumes in nustar energy 's asphalt operations . we expect our equity in earnings of nustar energy to increase or decrease consistent with nustar energy 's earnings . liquidity and capital resources general our cash flows consist of distributions from nustar energy on our partnership interests , including all of the idr that we own . story_separator_special_tag due to our ownership of nustar energy 's idr , our portion of nustar energy 's total distributions may exceed our 18.7 % ownership interest in nustar energy as of december 31 , 2009. our primary cash requirements are for distributions to members , capital contributions to maintain our 2 % general partner interest in nustar energy in the event nustar energy issues additional units , debt service requirements , if any , benefit plan funding and general and administrative expenses . in addition , because nustar gp , llc elected to be treated as a taxable entity in august 2006 , we may be required to pay income taxes , which may exceed the amount of tax expense recorded in the consolidated financial statements . we expect to fund our cash requirements primarily with the quarterly cash distributions we receive from nustar energy and borrowings under our revolving credit facility , if necessary . additionally , nustar energy reimburses us for all costs incurred on their behalf , primarily employee-related costs . cash distributions from nustar energy nustar energy pays quarterly distributions within 45 days following the end of each quarter based on the partnership interests outstanding as of a record date that is set after the end of each quarter . the table set forth below shows the cash distributions earned for the periods shown with respect to our ownership interests in nustar energy and idr : replace_table_token_12_th 36 cash flows for the years ended december 31 , 2009 , 2008 and 2007 cash distributions received from nustar energy were $ 76.6 million for the year ended december 31 , 2009 , which we used principally to fund distributions to our unitholders totaling $ 73.3 million . we borrowed $ 14.3 million for the year ended december 31 , 2009 to fund our contribution to nustar energy in order to maintain our 2 % general partner interest following its issuance of common units in november 2009 , and for other capital resource requirements . cash distributions received from nustar energy were $ 69.4 million for the year ended december 31 , 2008 , which we used principally to fund distributions to our unitholders totaling $ 64.2 million . we borrowed $ 5.0 million for the year ended december 31 , 2008 to fund our contribution to nustar energy in order to maintain our 2 % general partner interest following its issuance of common units in april 2008. cash distributions received from nustar energy were $ 59.6 million for the year ended december 31 , 2007 , which we used principally to fund distributions to our unitholders totaling $ 57.0 million . we borrowed $ 3.0 million for the year ended december 31 , 2007 to fund our contribution to nustar energy in order to maintain our 2 % general partner interest following its issuance of common units in november 2007. credit facility borrowings under our revolving credit facility are used to fund capital contributions to nustar energy to maintain our 2 % general partner interest as nustar energy issues additional units and meet other liquidity and capital resource requirements . on july 17 , 2009 , we entered into an amended and restated revolving credit facility ( 2009 credit facility ) with terms and objectives substantially equivalent to those under our previous three-year revolving credit facility ( 2006 credit facility ) , which matured in july 2009. the 2009 credit facility has a borrowing capacity of up to $ 19.5 million and matures on july 16 , 2010. interest on the 2009 credit facility is based upon , at our option , either an alternative base rate plus 3.5 % or a libor-based rate plus 4.5 % , which was 4.8 % as of december 31 , 2009. these interest rates are 3.5 % to 4.0 % higher than the rates that were in effect under the 2006 credit facility . the 2009 credit facility includes $ 10 million available for letters of credit . our obligations under the 2009 credit facility are unsecured . the 2009 credit facility contains customary covenants and provisions including limitations on indebtedness , liens , dispositions of material property , mergers and asset transfers . under the terms of the 2009 credit facility , nustar energy is required to maintain a total debt-to-ebitda ratio of less than 5.0 to 1.0 for any four consecutive quarters , subject to adjustment following certain acquisitions , which was 4.1x as of december 31 , 2009. we are also required to receive cash distributions of at least $ 25.0 million in respect of our ownership interests in nustar energy for the preceding four fiscal quarters ending on the last day of each fiscal quarter . our management believes that we are in compliance with the covenants as of december 31 , 2009. as of december 31 , 2009 , we had availability of $ 5.2 million for borrowings or letters of credit under the 2009 credit facility . the weighted average interest rate related to combined borrowings under both the 2009 credit facility and the 2006 credit facility for the year ended december 31 , 2009 was 2.7 % . we are in discussions with the lenders to renew or replace our 2009 credit facility . investment in nustar energy in november 2009 , nustar energy issued approximately 5.8 million common units representing limited partner interests at a price of $ 52.45 resulting in net proceeds of $ 288.8 million and in april 2008 issued approximately 5.1 million common units representing limited partner interests at a price of $ 48.75 resulting in net proceeds of $ 236.2 million . in order to maintain our 2 % general partner interest , we contributed $ 6.2 million to nustar energy in 2009 and $ 5.0 million to nustar energy in 2008 . 37 cash distributions to unitholders our limited liability company agreement requires that , within 50 days after the end of each quarter , we distribute all of our available cash to the holders of record of our units on the applicable record date .
| the following table summarizes our equity in earnings of nustar energy for the years ended december 31 , 2009 and 2008 : replace_table_token_8_th ( a ) for the first quarter of 2008 , nustar energy 's net income allocation to general and limited partners reflected total cash distributions based on the partnership interests outstanding as of march 31 , 2008. nustar energy issued approximately 5.1 million common units in april 2008. actual distribution payments are made within 45 days after the end of each quarter as of a record date that is set after the end of each quarter . therefore , 32 our portion of the actual distributions made with respect to the year ended december 31 , 2008 , including the idr , exceeded the net income allocated to us . our equity in earnings related to our general and limited partner interests in nustar energy decreased for the year ended december 31 , 2009 , compared to the year ended december 31 , 2008 , due to a decrease in nustar energy 's net income . nustar energy 's per unit distributions for the year ended december 31 , 2009 , increased compared to the year ended december 31 , 2008 , to $ 4.245 from $ 4.085. that increase , coupled with an increase in the number of nustar energy units outstanding resulting from the issuance of units in the fourth quarter of 2009 , resulted in nustar energy increasing its total cash distributions . since our idr in nustar energy entitle us to an increasing amount of nustar energy 's cash distributions , our equity in earnings of nustar energy related to our idr increased for the period . other income ( expense ) , net other income ( expense ) , net increased for the year ended december 31 , 2009 , compared to the year ended december 31 , 2008 due to nustar energy 's issuance of 5,750,000 common units in november 2009. this issuance resulted in a gain of $ 5.4 million representing the increase in the value of our proportionate share of nustar energy 's capital , due to the financial accounting standards board 's revised requirements for equity method investments . year ended december 31 , 2008 compared to year ended december 31 , 2007 financial highlights ( thousands
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for ppp loans disbursed prior to such enactment , the flexibility act permits the borrower and lender to mutually agree to extend the term of the loan to five years . ctb actively participated in assisting its customers with applications for resources through the program . ppp loans earn interest at fixed rate of 1 % . ctb anticipates that the majority of these loans will ultimately be forgiven by the sba in accordance with the terms of the program . as of december 31 , 2020 , we closed 2,962 paycheck protection program ( ppp ) loans totaling $ 277.0 million , stemming from the cares act passed by congress as a stimulus response to the potential economic impacts of covid-19 . t he initial phase of the ppp program expired on august 8 , 2020 , and the loan forgiveness process began shortly thereafter . through december 31 , 2020 , we had $ 18.8 million of our ppp loans forgiven by the sba . an additional stimulus package , included as part of the consolidated appropriations act 2021 , was signed into law in late december providing for an additional $ 284 billion in funding under the ppp , with authority to make loans under the program being extended through march 31 , 2021. ctbi intends to participate in the second round of lending as soon as possible . as of february 15 , 2021 , ctbi has closed 437 loans totaling $ 42 million in new ppp loans stemming from the consolidated appropriations act 2021. paycheck protection program lending facility to provide liquidity to small business lenders and the broader credit markets , to help stabilize the financial system , and to provide economic relief to small businesses nationwide , the board of governors of the federal reserve system ( the “ federal reserve board ” ) authorized each of the federal reserve banks to participate in the paycheck protection program lending facility ( the “ pppl facility ” ) , pursuant to the federal reserve act . under the pppl facility , each of the federal reserve banks was authorized to extend non-recourse loans to eligible financial institutions such as ctb to fund loans guaranteed by the sba under the ppp . ctb has not accessed funds under the pppl facility , but has until march 31 , 2021 to do so , unless otherwise extended by the federal reserve and the department of the treasury . loan modifications and troubled debt restructurings the cares act section 4013 , which was signed into law on march 27 , 2020 , permitted financial institutions to suspend troubled debt restructuring ( “ tdr ” ) assessment and reporting requirements under generally accepted accounting principles ( “ gaap ” ) for loan modifications . on april 7 , 2020 , the federal reserve board , the office of the comptroller of the currency ( the “ occ ” ) , and the federal deposit insurance corporation ( the “ fdic ” and , together with the federal reserve board and the occ , the “ federal banking regulators ” ) issued a revised interagency statement on loan modifications and reporting for financial institutions , in response to the cares act legislation , which , among other things , encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of covid-19 . this guidance stated that institutions generally do not need to categorize covid-19-related modifications as troubled debt restructurings as long as the loans were not 30 days past due at december 31 , 2019 and that the agencies will not direct supervised institutions to automatically categorize all covid-19 related loan modifications as troubled debt restructurings . this ability to exclude covid-19-related modifications as troubled debt restructurings , which was set to expire on december 31 , 2020 , was extended under the consolidated appropriations act 2021 to the earlier of ( i ) 60 days after the national emergency concerning the covid-19 outbreak terminates , or ( ii ) january 1 , 2022. see “ results of operations and financial condition ” of this md & a for information relating to covid-19 loan deferrals . 35 regulatory capital current expected credit loss ( “ cecl ” ) methodology . on march 27 , 2020 , federal banking regulators issued an interim final rule that delays the estimated impact on regulatory capital stemming from the implementation of accounting standards update ( “ asu ” ) no . 2016-13 , financial instruments - credit losses ( topic 326 ) for a transition period of up to five years ( the “ cecl ifr ” ) . the cecl ifr provided banking organizations that were required ( as of january 1 , 2020 ) to adopt cecl for accounting purposes under u.s. generally accepted accounting principles during 2020 an option to delay an estimate of cecl 's impact on regulatory capital . the capital relief in the cecl ifr is calibrated to approximate the difference in allowances under cecl relative to the incurred loss methodology for the first two years of the transition period . the cumulative difference at the end of the second year of the transition period is then phased in to regulatory capital over a three-year transition period . in this way , the cecl ifr gradually phases in the full effect of cecl on regulatory capital , providing a five-year transition period . ctbi adopted cecl effective january 1 , 2020 and chose the option to delay the estimated impact on regulatory capital using the relief options described above . see “ critical accounting policies and estimates – allowance for credit losses ” of this md & a for additional information relating to cecl . community bank leverage ratio . on april 6 , 2020 , federal banking regulators issued two interim final rules that made changes to the community bank leverage ratio ( “ cblr ” ) framework and implemented certain directives of the cares act . story_separator_special_tag under the existing cblr framework , which became effective as of january 1 , 2020 , community banks and holding companies ( which includes ctb and ctbi ) that satisfy certain qualifying criteria , including having less than $ 10 billion in average total consolidated assets and a leverage ratio ( referred to as the “ community bank leverage ratio ” ) of greater than 9 % , were eligible to opt-in to the cblr framework . the community bank leverage ratio is the ratio of a banking organization 's tier 1 capital to its average total consolidated assets , both as reported on the banking organization 's applicable regulatory filings . the first of the april 2020 interim final rules provides that , as of the second quarter 2020 , banking organizations with leverage ratios of 8 % or greater ( and that meet the other existing qualifying criteria ) may elect to use the cblr framework . it also established a two-quarter grace period for qualifying community banking organizations whose leverage ratios fell below the 8 % cblr requirement , so long as the banking organization maintained a leverage ratio of 7 % or greater . the second interim final rule provides a transition from the temporary 8 % cblr requirement to a 9 % cblr requirement . it established a minimum cblr of 8 % for the second through fourth quarters of 2020 , 8.5 % for 2021 , and 9 % thereafter , and maintained a two-quarter grace period for qualifying community banking organizations whose leverage ratios fell no more than 100 basis points below the applicable cblr requirement . ctbi elected to use the cblr framework . under either framework , ctbi and ctb would be considered well-capitalized under the applicable guidelines . see note 20 to the consolidated financial statements for additional information regarding ctbi 's regulatory capital requirements . story_separator_special_tag 100 % ; border-width : 0 ; height : 2px ; color : # 000000 ; background-color : # 000000 ; clear : both ; '' / > shareholders ' equity at december 31 , 2020 was $ 654.9 million , a 6.5 % increase from the $ 614.9 million at december 31 , 2019. ctbi 's annualized dividend yield to shareholders as of december 31 , 2020 was 4.16 % . loans replace_table_token_21_th asset quality ctbi 's total nonperforming loans , not including troubled debt restructurings , were $ 26.6 million , or 0.75 % of total loans , at december 31 , 2020 compared to $ 33.6 million , or 1.03 % of total loans , at december 31 , 2019. accruing loans 90+ days past due decreased $ 2.5 million from december 31 , 2019. nonaccrual loans decreased $ 4.6 million from december 31 , 2019. accruing loans 30-89 days past due at $ 12.5 million was a decrease of $ 10.5 million from december 31 , 2019. our loan portfolio management processes focus on the immediate identification , management , and resolution of problem loans to maximize recovery and minimize loss . our loan portfolio risk management processes include weekly delinquent loan review meetings at the market levels and monthly delinquent loan review meetings involving senior corporate management to review all nonaccrual loans and loans 30 days or more past due . any activity regarding a criticized/classified loan ( i.e . problem loan ) must be approved by ctb 's watch list asset committee ( i.e . problem loan committee ) . ctb 's watch list asset committee also meets on a quarterly basis and reviews every criticized/classified loan of $ 100,000 or greater . ctb 's loan portfolio risk management committee also meets quarterly focusing on the overall asset quality and risk metrics of the loan portfolio . we also have a loan review department that reviews every market within ctb annually and performs extensive testing of the loan portfolio to assure the accuracy of loan grades and classifications for delinquency , troubled debt restructuring , nonaccrual status , and adequate loan loss reserves . the loan review department has annually reviewed on average 96 % of the outstanding commercial loan portfolio for the past three years . the average annual review percentage of the consumer and residential loan portfolio for the past three years was 86 % based on the loan production during the number of months included in the review scope . the review scope is generally four to six months of production . ctbi generally does not offer high risk loans such as option arm products , high loan to value ratio mortgages , interest-only loans , loans with initial teaser rates , or loans with negative amortizations , and therefore , ctbi would have no significant exposure to these products . for further information regarding nonperforming loans , see note 4 to the consolidated financial statements . 39 our reserve coverage ( allowance for credit losses to nonperforming loans ) at december 31 , 2020 was 180.7 % compared to 104.4 % at december 31 , 2019. our credit loss reserve as a percentage of total loans outstanding at december 31 , 2020 was 1.35 % , an increase from the allowance for loan loss reserve incurred loss model of 1.08 % from december 31 , 2019. our level of foreclosed properties at $ 7.7 million at december 31 , 2020 was a decrease of $ 11.8 million from the $ 19.5 million at december 31 , 2019. sales of foreclosed properties for the year ended december 31 , 2020 totaled $ 14.8 million while new foreclosed properties totaled $ 4.4 million . at december 31 , 2020 , the book value of properties under contracts to sell was $ 1.2 million ; however , the closings had not occurred at year-end . when foreclosed properties are acquired , appraisals are obtained and the properties are booked at the current market value less expected sales costs . additionally , periodic updated appraisals are obtained on unsold foreclosed properties .
| through december 31 , 2020 , we processed 3,844 covid-19 loan deferrals totaling $ 992 million . these loan deferrals and modifications were executed consistent with the guidelines of the cares act . pursuant to the cares act , these loan deferrals are not included in our nonperforming loans . our customers have shown improvement in their ability to resume payments as 3,071 ( representing $ 540 million ) had resumed payment status at december 31 , 2020. at december 31 , 2020 the number of customers with cares act deferrals reduced to 410 for a total outstanding amount of $ 130 million . see below for further detail regarding the types of deferrals received . cares act loan deferral status replace_table_token_19_th we have also participated in the paycheck protection program ( ppp ) as discussed in the covid-19 , the cares act , and related regulatory actions section above . of the 2,962 ppp loans we closed totaling $ 277.0 million , 2,817 were under $ 350 thousand , 132 were between $ 350 thousand and $ 2.0 million , and 13 were over $ 2.0 million . see below for additional information related to our ppp loans for the year ended december 31 , 2020 . ( in thousands ) average balance interest average effective rate ppp loans $ 182,008 $ 5,638 3.05 % income statement review replace_table_token_20_th * yield on average earning assets and net interest margin are computed on a taxable equivalent basis using a 21 % tax rate . 37 net interest income net interest income for the year ended december 31 , 2020 of $ 151.0 million increased $ 6.1 million , or 4.2 % , from prior year . average earning assets for the year 2020 increased $ 518.2 million over prior year . our yield on average earning assets for the year 2020 decreased 72 basis points from prior year , as we continue to find limited high yield investment opportunities for our excess liquidity , while our cost of interest bearing funds decreased 60 basis points during the same time period .
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in january 2016 , we realigned our field support functions by combining our three regions into two field groups , consolidating our areas and streamlining select operational support roles at our phoenix headquarters . these changes included reducing administrative staffing levels , relocating office space and closing certain office locations . the savings realized from the realignment were reinvested in our customer-focused programs and initiatives . additionally , in the second quarter of 2016 , we began the redesign of our back-office functions as well as the consolidation of over 100 customer service locations into three customer resource centers . 31 during 2017 and 2016 , we incurred $ 17.6 million and $ 40.7 million of restructuring charges , respectively , that consisted of severance and other employee termination benefits , relocation benefits , and the closure of offices with lease agreements with non-cancelable terms . in january 2018 , we eliminated certain positions following the consolidation of select back office functions , including but not limited to the integration of our national accounts support functions into our existing corporate support functions . these changes include a reduction in administrative staffing and closing of certain office locations . in 2018 , we expect to incur restructuring charges of approximately $ 25 million to $ 30 million primarily related to employee severance costs , lease exit and contract termination costs and the relocation of certain employees . we expect annual savings of approximately $ 25 million to $ 30 million . substantially all of these restructuring charges will be recorded in our corporate segment . loss on extinguishment of debt . in the fourth quarter of 2017 we retired $ 86.7 million of 5.25 % tax-exempt bonds due june 2023 , resulting in a non-cash charge for deferred issuance costs of $ 0.8 million . during 2016 , we priced cash tender offers to purchase $ 575.4 million of outstanding notes and debentures with coupons ranging from 5.7 % to 7.4 % ( the existing notes ) . additionally , we issued $ 500.0 million of 2.90 % senior notes due 2026 ( the 2.90 % notes ) and used the net proceeds of the offering , together with borrowing under our credit facilities , to purchase the $ 575.4 million of the combined aggregate principal amount of the existing notes . we also used the net proceeds to pay a premium due of $ 148.1 million and early tender consideration of $ 28.7 million . ( gain ) loss on business divestitures and impairments , net . during 2017 , we recorded a net gain on business divestitures and asset impairments related to business divestitures of $ 27.1 million . we also recorded a net gain on business divestitures and asset impairments of $ 6.8 million due to the transfer of ownership of the landfill gas collection and control system and the remaining post-closure and environmental liabilities associated with one of our divested landfills . during 2016 , we recorded a charge to earnings of $ 4.6 million primarily related to environmental costs associated with one of our divested landfills . during 2016 , we also recorded a net gain related to a business divestiture of $ 4.7 million . incremental contract start-up costs - large municipal contract . during 2017 , we incurred direct and incremental costs of $ 8.2 million related to the implementation of a large municipal contract . adoption of the tax act . the tax act was enacted on december 22 , 2017. among other things , the tax act reduces the u.s. federal corporate tax rate from 35 % to 21 % . accordingly , we re-measured our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future . however , we are still analyzing certain aspects of the tax act and refining our calculations , which could potentially affect the measurement of these balances . the provisional amount recorded at december 31 , 2017 reduced our tax provision by $ 463.9 million , primarily due to a reduction in our deferred tax liabilities . bridgeton insurance recovery . during 2015 , we collected an insurance recovery of $ 50.0 million related to our closed bridgeton landfill in missouri . as such , we recorded a reduction of remediation expenses included in our cost of operations . recent developments 2018 financial guidance in 2018 , we will continue to focus on managing the controllable aspects of our business by enhancing the quality of our revenue , investing in profitable growth opportunities and reducing costs . our team remains focused on executing our strategy to deliver consistent earnings and free cash flow growth , and improve return on invested capital . we are committed to an efficient capital structure , maintaining our investment grade credit ratings and increasing cash returns to our shareholders . 32 our guidance is based on current economic conditions and does not assume any significant changes in the overall economy in 2018 . specific guidance follows : revenue we expect 2018 revenue to increase by approximately 4.0 to 4.5 % comprised of the following : increase ( decrease ) average yield 2.25 % volume 0.0 to 0.25 energy services 0.25 fuel recovery fees 0.5 recycled commodities ( 1.0 to 0.75 ) acquisitions 2.0 subtotal 4.0 to 4.5 % adoption of the new revenue recognition standard ( 3.75 ) total change 0.25 to 0.75 % changes in price are restricted on approximately 50 % of our annual service revenue . the majority of these restricted pricing arrangements are tied to fluctuations in a specific index ( primarily a consumer price index ) as defined in the contract . the consumer price index varies from a single historical stated period of time or an average of trailing historical rates over a stated period of time . in addition , the initial effect of pricing resets typically lags 6 to 12 months from the end of the index measurement period to the date the revised pricing goes into effect . story_separator_special_tag as a result , current changes in a specific index may not manifest themselves in our reported pricing for several quarters into the future . adjusted diluted earnings per share the following is a summary of anticipated adjusted diluted earnings per share for the year ending december 31 , 2018 compared to the actual adjusted diluted earnings per share for the year ended december 31 , 2017 . adjusted diluted earnings per share is not a measure determined in accordance with u.s. gaap : replace_table_token_8_th the 2018 anticipated adjusted diluted earnings per share assumes an effective tax rate of approximately 27 % . we believe that the presentation of adjusted diluted earnings per share , which excludes withdrawal costs - multiemployer pension funds , restructuring charges , loss on extinguishment of debt , ( gain ) loss on business divestitures and impairments , net , incremental contract startup costs , and the impact of the tax act provides an understanding of operational activities before the financial effect of certain items . we use this measure , and believe investors will find it helpful , in understanding the ongoing performance of our operations separate from items that have a disproportionate effect on our results for a particular period . we have incurred comparable charges and costs in prior periods , and similar types of adjustments can reasonably be expected to be recorded in future periods . our definition of adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies . property and equipment , net in 2018 , we anticipate receiving approximately $ 1.1 billion of property and equipment , net of proceeds from the sale of property and equipment . 33 story_separator_special_tag style= '' vertical-align : top ; '' > acquisitions increased revenue by 0.6 % primarily due to our continued acquisition growth strategy of acquiring privately held solid waste and recycling companies that complement our existing business platform . cost of operations cost of operations includes labor and related benefits , which consists of salaries and wages , health and welfare benefits , incentive compensation and payroll taxes . it also includes transfer and disposal costs representing tipping fees paid to third party disposal facilities and transfer stations ; maintenance and repairs relating to our vehicles , equipment and containers , including related labor and benefit costs ; transportation and subcontractor costs , which include costs for independent haulers that transport our waste to disposal facilities and costs for local operators who provide waste handling services associated with our national accounts in markets outside our standard operating areas ; fuel , which includes the direct cost of fuel used by our vehicles , net of fuel tax credits ; disposal franchise fees and taxes , consisting of landfill taxes , municipal franchise fees , host community fees and royalties ; landfill operating costs , which includes financial assurance , leachate disposal , remediation charges and other landfill maintenance costs ; risk management costs , which includes casualty insurance premiums and claims ; cost of goods sold , which includes material costs paid to suppliers associated with recycled commodities ; and other , which includes expenses such as facility operating costs , equipment rent and gains or losses on sale of assets used in our operations . the following table summarizes the major components of our cost of operations for the years ended december 31 , 2017 , 2016 and 2015 ( in millions of dollars and as a percentage of revenue ) : replace_table_token_11_th these cost categories may change from time to time and may not be comparable to similarly titled categories used by other companies . as such , you should take care when comparing our cost of operations by cost component to that of other companies . cost of operations - 2017 compared to 2016 our cost of operations increased for 2017 compared to 2016 , primarily as a result of the following : labor and related benefits increased in aggregate dollars due to increased hourly and salaried wages as a result of merit increases , increased headcount , higher collection volumes and higher health care and benefits costs . however , as a percentage of revenue , labor and related benefits costs decreased due to higher large-container collection and post-collection revenue primarily driven by our transfer and landfill lines of business . 36 transfer and disposal costs increased in aggregate dollars primarily due to higher collection volumes . during both 2017 and 2016 , approximately 68 % of the total waste volume we collected was disposed at landfill sites that we own or operate ( internalization ) . maintenance and repairs expense increased in aggregate dollars due to higher collection volumes , cost of parts , and internal labor . however , as a percentage of revenue , maintenance and repair costs decreased due to an increase in large-container collection and post-collection revenue primarily driven by our transfer and landfill lines of business . transportation and subcontract costs increased primarily due to higher collection and transfer station volumes . our fuel costs increased due to higher prices of diesel fuel and the expiration of compressed natural gas ( cng ) tax credits . the national average fuel cost per gallon for 2017 was $ 2.65 compared to $ 2.30 for 2016 , an increase of $ 0.35 or approximately 15 % . at current consumption levels , we believe a twenty-cent per gallon change in the price of diesel fuel would change our fuel costs by approximately $ 25 million per year . offsetting these changes in fuel expense would be changes in our fuel recovery fee charged to our customers . at current participation rates , we believe a twenty-cent per gallon change in the price of diesel fuel changes our fuel recovery fee by approximately $ 25 million per year . franchise fees and taxes increased in aggregate dollars primarily due to volume increases in our landfill line of business .
| the following table reflects our revenue by service line for the years ended december 31 , 2017 , 2016 and 2015 ( in millions of dollars and as a percentage of revenue ) : replace_table_token_9_th 34 the following table reflects changes in components of our revenue , as a percentage of total revenue , for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_10_th average yield is defined as revenue growth from the change in average price per unit of service , expressed as a percentage . core price is defined as price increases to our customers and fees , excluding fuel recovery , net of price decreases to retain customers . we also measure changes in average yield and core price as a percentage of related-business revenue , defined as total revenue excluding recycled commodities and fuel recovery fees , to determine the effectiveness of our pricing strategies . average yield as a percentage of related-business revenue was 2.6 % , 2.3 % , and 2.6 % for 2017 , 2016 and 2015 , respectively . core price as a percentage of related-business revenue was 4.3 % , 3.7 % , and 4.0 % for 2017 , 2016 and 2015 , respectively . revenue – 2017 compared to 2016 during 2017 , we experienced the following changes in our revenue as compared to 2016 : average yield increased revenue by 2.5 % due to positive pricing in all lines of business . the fuel recovery fee program , which mitigates our exposure to increases in fuel prices , increased revenue by 0.4 % . these fees fluctuate with the price of fuel and , consequently , any decrease in fuel prices results in a decrease in our revenue . higher fuel recovery fees for 2017 resulted primarily from the increase in fuel prices when compared to fuel prices for the same period in 2016. volume increased revenue by 1.8 % primarily due to volume growth in our large-container collection , landfill and transfer station lines of business , which were partially offset by volume declines in our small-container collection line of business . the volume increase in our landfill line of business is primarily attributable to increased special waste and construction and demolition volumes . recycled commodities increased revenue by 0.9 % primarily due to increased commodity prices . the average price for old corrugated containers for 2017 was $ 159 per ton compared to $ 114 per ton for 2016 . the average price of old
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we market our products to hospitals whose interventional cardiologists , vascular surgeons and interventional radiologists treat patients with pad and cad . we have dedicated meaningful resources to establish a direct sales capability in the united states , germany , austria and switzerland , which we have complemented with distributors actively selling our products in over 50 countries in north and south america , europe , the middle east , asia , africa and australia/new zealand . we are actively expanding our international field presence through new distributors , as well as additional sales and clinical personnel . in addition , we are adding new u.s. sales territories . for the years ended december 31 , 2020 , 2019 and 2018 , we generated product revenue of $ 67.8 million , $ 42.9 million and $ 12.3 million , respectively , and a $ 65.7 million , $ 51.8 million and $ 41.2 million loss from operations , respectively . for the years ended december 31 , 2020 , 2019 and 2018 , 45 % , 47 % and 43 % , respectively , of our product revenue was generated from customers located outside of the united states . our sales outside of the united states are denominated principally in euros . as a result , we have foreign exchange exposure . we have not entered into any material foreign currency hedging contracts , although we may do so in the future . since inception , we have incurred significant net losses and expect to continue to incur net losses for the foreseeable future . to date , our principal sources of liquidity have been the net proceeds we received through the sale of our common stock in our initial public offering , private sales of equity securities and payments received from customers using our products . as of december 31 , 2020 , we had $ 202.4 million in cash , cash equivalents and short-term investments and an accumulated deficit of $ 243.7 million . impact of the covid-19 pandemic the global covid-19 pandemic presents significant risks to us and has had , and continues to have , far reaching impacts on our business , operations , and financial results and condition , directly and indirectly , including , without limitation , impacts on : the health of our management and employees ; our manufacturing , distribution , marketing and sales operations ; our research and development activities , including clinical activities ; and customer and patient behaviors . access to many hospitals and other customer sites continues to be restricted to essential personnel , which negatively impacts our ability to promote the use of our products with physicians . additionally , many hospitals and other therapeutic centers have in the past suspended , and may suspend or continue to suspend in the future , many elective procedures , resulting in a reduced volume of procedures using our products . our customer behavior is impacted by the prevalence of covid-19 and changes in the infection rates in the locations where our customers are located . quarantines , shelter-in-place and similar government orders have also impacted and may continue to impact , our third-party manufacturers and suppliers , and could in turn adversely impact the availability or cost of materials , which could disrupt our supply chain . we have taken a variety of steps to address the impact of the covid-19 pandemic , while attempting to minimize business disruption . essential staff in manufacturing and limited support functions have continued to work from our santa clara headquarters following appropriate hygiene and social distancing protocols . to reduce the risk to our employees and their families from potential exposure to covid-19 , all other staff in our santa clara headquarters have been required to work from home . we have restricted non-essential travel to protect the health and safety of our employees and customers . we are continuing to monitor the impact of the covid-19 pandemic on our employees and customers and on the markets in which we operate , and will take further actions that we consider prudent to address the covid-19 pandemic , while ensuring that we can support our customers and continue to develop our products . the ultimate extent of the impact of the covid-19 pandemic on us remains highly uncertain and will depend on future developments and factors that continue to evolve , including the ability of various regions to effectively manage covid-19 , 70 the extent of the continuing resurgence of covid-19 , the e fficacy and extent of distribution of vaccines , and the impact of mutations of covid-19 . most of these developments and factors are outside of our control and could exist for an extended period of time even after the pandemic might end . public offerings of common stock on march 11 , 2019 , we closed on our initial public offering ( “ ipo ” ) of 6,555,000 shares of common stock at an offering price of $ 17.00 per share , which included the full exercise of the underwriters ' over-allotment option to purchase 855,000 additional shares of our common stock . we raised a total of $ 111.4 million in gross proceeds from the ipo , or approximately $ 99.9 million in net proceeds after deducting underwriters ' discounts and commissions of $ 7.1 million and offering costs of $ 4.4 million . concurrent with the ipo , we issued 588,235 shares of common stock in a private placement ( the “ private placement ” ) for net proceeds of $ 10.0 million . on november 15 , 2019 , we completed a follow-on offering of 2,854,048 shares of our common stock , including 372,267 shares sold pursuant to the underwriters ' exercise of their option to purchase additional shares at a public offering price of $ 36.25 per share . upon completion of our follow-on offering , we received net proceeds of $ 96.7 million , after deducting underwriters ' discounts and commissions and offering expenses . story_separator_special_tag on june 19 , 2020 , we completed an offering of 1,955,000 shares of our common stock , including 255,000 shares sold pursuant to the underwriters ' exercise of their option to purchase additional shares at a public offering price of $ 45.75 per share . upon completion of the june 2020 offering , we received net proceeds of $ 83.4 million , after deducting underwriting discounts and commissions and offering expenses . factors affecting our business there are a number of factors that have impacted , and we believe will continue to impact , our results of operations and growth . these factors include : market acceptance . the growth of our business depends on our ability to gain broader acceptance of our current products by continuing to make physicians and other hospital staff aware of the benefits of our products to generate increased demand and frequency of use , and thus increase sales to our hospital customers . our ability to grow our business will also depend on our ability to expand our customer base in existing or new target end markets . although we are attempting to increase the number of patients treated with procedures that use our products through our established relationships and focused sales efforts , we can not provide assurance that our efforts will increase the use of our products . regulatory approvals/clearances and timing and efficiency of new product introductions . we must successfully obtain timely approvals or clearances and introduce new products that gain acceptance with physicians , ensuring adequate supply while avoiding excess inventory of older products and resulting inventory write-downs or write-offs . for our sales to grow , we will also need to obtain regulatory clearance or approval of our other pipeline products in the united states and in international markets . in addition , as we introduce new products , we expect to build our inventory of components and finished goods in advance of sales , which may cause quarterly fluctuations in our results of operations . sales force size and effectiveness . the rate at which we grow our sales force and the speed at which newly hired salespeople become effective can impact our revenue growth or our costs incurred in anticipation of such growth . we intend to continue to make significant investments in our sales and marketing organization by increasing the number of u.s. sales representatives and expanding our international marketing programs to help facilitate further adoption among existing hospital accounts as well as broaden awareness of our products to new hospital accounts . competition . our industry is intensely competitive and , in particular , we compete with a number of large , well-capitalized companies . we must continue to successfully compete in light of our competitors ' existing and future products and related pricing and their resources to successfully market to the physicians who use our products . reimbursement . the level of reimbursement from third-party payors for procedures performed using our products could have a substantial impact on the prices we are able to charge for our products and how widely our products are accepted . the level at which reimbursement is set for procedures using our products , and any increase in reimbursement for procedures using our products , will depend substantially on our ability to generate clinical evidence , to gain advocacy in the respective physician societies and to work with the centers for medicare & medicaid services and payors . 71 clinical results . pub lications of clinical results by us , our competitors and other third parties can have a significant influence on whether , and the degree to which , our products are used by physicians and the procedures and treatments those physicians choose to administer f or a given condition . product and geographic mix ; timing . our financial results , including our gross margins , may fluctuate from period to period based on the timing of customer orders or medical procedures , the number of available selling days in a particular period , which can be impacted by a number of factors , such as holidays or days of severe inclement weather in a particular geography , the mix of products sold and the geographic mix of where products are sold . in particular , our distributors for international sales receive a distribution margin on sales of our ivl catheters , which affects our gross margin . seasonality . we have experienced some seasonality during summer months , which we believe is attributable to the postponement of elective surgeries for summer vacation plans of physicians and patients . we also anticipate that we may in the future experience some seasonal slowing of demand for our products in our fourth quarters due to year-end clinical treatment patterns , such as the postponement of elective surgeries during the holiday period . we expect these seasonal factors to become more pronounced in the future as our business grows . in addition , we have experienced and expect to continue to experience meaningful variability in our quarterly revenue and gross profit/loss as a result of a number of factors , including , but not limited to : inventory write-offs and write-downs ; costs , benefits and timing of new product introductions ; the availability and cost of components and raw materials ; and fluctuations in foreign currency exchange rates . additionally , we experience quarters in which operating expenses , in particular research and development expenses , fluctuate depending on the stage and timing of product development . while these factors may present significant opportunities for us , they also pose significant risks and challenges that we must address . components of our results of operations product revenue product revenue is primarily from the sale of our ivl catheters . we sell our products to hospitals , primarily through direct sales representatives , as well as through distributors in selected international markets . for products sold through direct sales representatives , control is transferred upon delivery to customers .
| cost of product revenue increased by $ 3.8 million , or 22 % , from $ 17.2 million in 2019 to $ 21.0 million in 20 20 . the increase was primarily due to growth in sales volume . gross margin percentage improved to 69.0 % in 2020 , compared to 60.0 % in 2019 . this change in gross margin percentage was primarily due to lower fixed costs per unit from increased production volume of our ivl catheters and increa sed manufacturing efficiencies from improvements to operations and production . research and development expenses . the following table summarizes our r & d expenses incurred during the periods presented : replace_table_token_4_th r & d expenses increased by $ 4.1 million , or 12 % , from $ 32.9 million in 2019 to $ 36.9 million in 2020. the increase was primarily due to a $ 3.8 million increase in compensation and personnel-related costs due to an increase in head count to support quality assurance functions . there was also a $ 0.9 million increase in other r & d costs primarily driven by an increase in software license expense related to r & d , a $ 0.9 million increase in materials and supplies , a $ 0.7 million increase in facilities and other allocated costs due to increased rent and building expenditures and a $ 0.4 million increase for outside consultants . these increases were partially offset by a $ 2.7 million decrease in clinical-related costs primarily due to the completion of patient enrollment for the current clinical trials . sales and marketing expenses . sales and marketing expenses increased by $ 21.1 million , or 69 % , from $ 30.6 million in 2019 to $ 51.7 million in 2020. the increase was primarily due to a $ 17.0 million increase in compensation and personnel-related costs , which included a $ 4.7 million increase in commission expense , as a result of a higher head count and increased revenue for the year-ended
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as a result , we will need to generate significantly higher revenues to achieve profitability . critical accounting policies revenue recognition we recognize revenues when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable , and collectibility is reasonably assured . collaborative agreements revenues include both license revenue and contract research revenue . activities under collaborative agreements are evaluated to determine if they represent a multiple element revenue agreement . the company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting . the company accounts for those components as separate units of accounting if the following two criteria are met : the delivered item or items have value to the customer on a stand-alone basis . if there is a general right of return relative to the delivered items , delivery or performance of the undelivered items is considered probable and within the company 's control . factors considered in this determination include , among other things , whether any other vendors sell the items separately and if the licensee could use the delivered item for its intended purpose without the receipt of the remaining deliverables . if multiple deliverables included in an arrangement are separable into different units of accounting , the company allocates the arrangement consideration to those units of accounting . the amount of allocable arrangement consideration is limited to amounts that are fixed or determinable . arrangement consideration is allocated at the inception of the arrangement to the identified units of accounting based on their relative estimated selling price . revenue is recognized for each unit of accounting when the appropriate revenue recognition criteria are met . future milestone payments that are contingent upon the achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved . a milestone is substantive if : 5 it can only be achieved based in whole or in part on either the company 's performance or on the occurrence of a specific outcome resulting from the company 's performance ; there is substantive uncertainty at the date an arrangement is entered into that the event will be achieved ; and it would result in additional payments being due to the company . subscription and license fees are recognized as revenue upon the grant of the technology license when performance is complete and there is no continuing involvement . royalty revenues are recognized as earned in accordance with the contract terms at the time the royalty amount is fixed and determinable based on information received from the sublicensees and at the time collectibility is reasonably assured . a change in our revenue recognition policy or changes in the terms of contracts under which we recognize revenues could have an impact on the amount and timing of our recognition of revenues . research and development expenses research and development expenses consist of costs incurred for research and development activities solely sponsored by us as well as collaborative research and development activities . these costs include direct and research-related overhead expenses and are expensed as incurred . technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred . we have advanced multiple drug candidates into clinical development . we are presently devoting most of our resources to the development of our two most advanced drug candidates : telotristat etiprate , or lx1032 , an orally-delivered small molecule drug candidate that we are developing as a treatment for carcinoid syndrome ; and sotagliflozin , or lx4211 , an orally-delivered small molecule drug candidate that we are developing as a treatment for type 1 and type 2 diabetes our most advanced drug candidates , as well as compounds from a number of additional drug discovery and development programs that we have advanced into various stages of clinical and preclinical development , originated from our own internal drug discovery efforts . these efforts were driven by a systematic , target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets . we identified and validated in living animals , or in vivo , more than 100 targets with promising profiles for drug discovery . the drug development process takes many years to complete . the cost and length of time varies due to many factors including the type , complexity and intended use of the drug candidate . we estimate that drug development activities are typically completed over the following periods : phase estimated completion period preclinical development 1-2 years phase 1 clinical trials 1-2 years phase 2 clinical trials 1-2 years phase 3 clinical trials 2-4 years we expect research and development costs to increase in the future as our existing clinical drug candidates advance to later stage clinical trials and new drug candidates enter clinical development . due to the variability in the length of time necessary for drug development , the uncertainties related to the cost of these activities and ultimate ability to obtain governmental approval for commercialization , accurate and meaningful estimates of the ultimate costs to bring our potential drug candidates to market are not available . we record significant accrued liabilities related to unbilled expenses for products or services that we have received from service providers , specifically related to ongoing nonclinical studies and clinical trials . these costs primarily relate to clinical study management , monitoring , laboratory and analysis costs , drug supplies , toxicology studies and investigator grants . we have multiple drugs in concurrent nonclinical studies and clinical trials at clinical sites throughout the world . story_separator_special_tag in order to ensure that we have adequately provided for ongoing nonclinical and clinical development costs during the period in which we incur such costs , we maintain accruals to cover these expenses . substantial portions of our nonclinical studies and 6 clinical trials are performed by third-party laboratories , medical centers , contract research organizations and other vendors . for nonclinical studies , we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining . for clinical studies , expenses are accrued based upon the number of patients enrolled and the duration of the study . we monitor patient enrollment , the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to us by the vendors and clinical site visits . our estimates depend on the timeliness and accuracy of the data provided by our vendors regarding the status of each program and total program spending . we periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive . although we use consistent milestones or subject or patient enrollment to drive expense recognition , the assessment of these costs is a subjective process that requires judgment . upon settlement , these costs may differ materially from the amounts accrued in our consolidated financial statements . we record our research and development costs by type or category , rather than by project . significant categories of costs include personnel , facilities and equipment costs , laboratory supplies and third-party and other services . in addition , a significant portion of our research and development expenses is not tracked by project as it benefits multiple projects . consequently , fully-loaded research and development cost summaries by project are not available . stock-based compensation expense we recognize compensation expense in our statements of comprehensive loss for share-based payments , including stock options issued to employees , based on their fair values on the date of the grant , with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award . stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis . stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met . we had stock-based compensation expense of $ 7.1 million for the year ended december 31 , 2014 , or $ 0.01 per share . as of december 31 , 2014 , stock-based compensation cost for all outstanding unvested options was $ 10.4 million , which is expected to be recognized over a weighted-average vesting period of 1.3 years . the fair value of stock options is estimated at the date of grant using the black-scholes option-pricing model . for purposes of determining the fair value of stock options , we segregate our options into two homogeneous groups , based on exercise and post-vesting employment termination behaviors , resulting in a change in the assumptions used for expected option lives and forfeitures . expected volatility is based on the historical volatility in our stock price . the following weighted-average assumptions were used for options granted in the years ended december 31 , 2014 , 2013 and 2012 , respectively : replace_table_token_4_th impairment of long-lived assets our long-lived assets include property , plant and equipment , intangible assets and goodwill . we regularly review long-lived assets for impairment . the recoverability of long-lived assets , other than goodwill , is measured by comparing the assets carrying amount to the expected undiscounted future cash flows that the asset is expected to generate . determining whether an impairment has occurred typically requires various estimates and assumptions , including determining which cash flows are directly related to the potentially impaired asset , the useful life over which cash flows will occur , their amount , and the asset 's residual value , if any . we use internal cash flow estimates , quoted market prices when available and independent appraisals as appropriate to determine fair value . we derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate . 7 indefinite-lived intangible assets , composed primarily of in-process research and development ( “ ipr & d ” ) projects acquired in business combinations which have not reached technological feasibility , are reviewed annually for impairment and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . estimating future cash flows of an ipr & d product candidate for purposes of an impairment analysis requires us to make significant estimates and assumptions regarding the amount and timing of costs to complete the project and the amount , timing and probability of achieving revenues from the completed product similar to how the acquisition date fair value of the project was determined . during the year ended december 31 , 2014 , we reclassified our buildings and land to assets held for sale . we estimated the fair value of the net assets to be sold at approximately $ 23.8 million as of december 31 , 2014 , which represents estimated selling price less costs to sell . this resulted in an impairment loss on the assets held for sale of $ 13.1 million in the year ended december 31 , 2014 , which was recorded in impairment loss on buildings in the accompanying consolidated statement of comprehensive loss for the year ended december 31 , 2014 . there were no significant impairments of long-lived assets in 2012 and 2013 . goodwill is not amortized , but is tested at least annually for impairment at the reporting unit level . we have determined that the reporting unit is the single operating segment disclosed in our current financial statements . impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value .
| impairment loss on buildings in september 2014 , lexicon determined its buildings and land should be classified as assets held for sale on its consolidated balance sheet . the company recognized an impairment loss on its buildings of $ 13.1 million for the year ended december 31 , 2014 , as a result of writing down the buildings to the estimated net selling price ( see note 6 , assets held for sale , of the notes to consolidated financial statements , for more information ) . interest expense and interest and other income ( expense ) , net interest expense . interest expense increased 14 % in 2014 to $ 2.3 million from $ 2.0 million in 2013 and decreased 7 % in 2013 from $ 2.1 million in 2012 . interest and other income ( expense ) , net . interest and other income , net was $ 2.3 million , $ 0.2 million , and $ 0.3 million in the years ended december 31 , 2014 , 2013 , and 2012 , respectively . the increase in interest and other income in 2014 was primarily due to gains from sales of excess property and equipment . income tax benefit the income tax benefit for the years ended december 31 , 2014 , 2013 , and 2012 was $ 70,000 , $ 0 and $ 0 , respectively . consolidated net loss and consolidated net loss per common share consolidated net loss decreased to $ 100.3 million in 2014 from $ 104.1 million in 2013 and $ 110.2 million in 2012 . net loss per common share was $ 0.19 in 2014 , $ 0.20 in 2013 , and $ 0.23 in 2012 . liquidity and capital resources we have financed our operations from inception primarily through sales of common and preferred stock , contract and milestone payments to us under our drug discovery and development collaborations , target validation , database subscription and technology license agreements , government grants and contracts and financing under debt and lease
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29 b. iodc acquisition on january 10 , 2018 , we completed the iodc transaction and at the closing of the iodc transaction , we paid approximately $ 1,347.0 million . in addition to the amount paid at the closing of the iodc transaction , there was the potential of $ 35.0 million in additional payments associated with the execution of future customer contracts through the one-year anniversary of the iodc transaction , of which approximately $ 31.0 million is accrued at december 31 , 2018. this amount is reported as a third-party commissions asset as a component of other within other assets , net , on our consolidated balance sheet at december 31 , 2018. see note 6 to notes to consolidated financial statements included in this annual report for unaudited pro forma results of operations for us and iodc , as if the iodc transaction was completed on january 1 , 2017 , for the years ended december 31 , 2017 and 2018. divestments a. recall divestments see note 6 to notes to consolidated financial statements included in this annual report for information regarding divestments we agreed to make in connection with the receipt of regulatory approval of the recall transaction . see note 13 to notes to consolidated financial statements included in this annual report for additional information regarding the presentation of the divestments ( as defined in note 6 to notes to consolidated financial statements included in this annual report ) in our consolidated statements of operations and consolidated statements of cash flows for the years ended december 31 , 2016 , 2017 and 2018. b. iron mountain - russia and ukraine divestment on may 30 , 2017 , iron mountain ees holdings ltd. ( `` im ees '' ) , a consolidated subsidiary of imi , sold its records and information management operations in russia and ukraine to osg records management ( europe ) limited ( “ osg ” ) in a stock transaction ( the “ russia and ukraine divestment ” ) . as consideration for the russia and ukraine divestment , im ees received a 25 % equity interest in osg ( the `` osg investment '' ) . we have concluded that the russia and ukraine divestment does not meet the criteria to be reported as discontinued operations in our consolidated financial statements , as our decision to divest these businesses does not represent a strategic shift that will have a major effect on our operations and financial results . accordingly , the revenues and expenses associated with these businesses are presented as a component of income ( loss ) from continuing operations in our consolidated statements of operations for the years ended december 31 , 2016 and 2017 , respectively , and the cash flows associated with these businesses are presented as a component of cash flows from continuing operations in our consolidated statements of cash flows for the years ended december 31 , 2016 and 2017 , respectively , through the sale date . our businesses in russia and ukraine represented approximately $ 17.5 million and $ 8.6 million of total revenues for the years ended december 31 , 2016 and 2017 , respectively . our businesses in russia and ukraine represented approximately $ 0.3 million and $ 0.9 million of total ( loss ) income from continuing operations for the years ended december 31 , 2016 and 2017 , respectively . as a result of the russia and ukraine divestment , we recorded a gain on sale of $ 38.9 million to other expense ( income ) , net , in the second quarter of 2017 , representing the excess of the fair value of the consideration received over the carrying value of our businesses in russia and ukraine . 30 c. imfs divestment on september 28 , 2018 , iron mountain fulfillment services ( `` imfs '' ) , a consolidated subsidiary of imi that operated our fulfillment services business in the united states , sold substantially all of its assets for total consideration of approximately $ 3.0 million ( the `` imfs divestment '' ) . we have concluded that the imfs divestment does not meet the criteria to be reported as discontinued operations in our consolidated financial statements , as our decision to divest this business does not represent a strategic shift that will have a major effect on our operations and financial results . accordingly , the revenues and expenses associated with this business are presented as a component of income ( loss ) from continuing operations in our consolidated statements of operations for the years ended december 31 , 2016 , 2017 and 2018 and the cash flows associated with this business are presented as a component of cash flows from continuing operations in our consolidated statements of cash flows for the years ended december 31 , 2016 , 2017 and 2018 through the sale date . the fair value of the consideration received as a result of the imfs divestment approximated the carrying value of imfs and , therefore , during the third quarter of 2018 , we recorded an insignificant loss in connection with the imfs divestment to other expense ( income ) , net . our imfs business represented approximately $ 23.8 million , $ 22.3 million and $ 20.2 million of total revenues for the years ended december 2016 , 2017 and 2018 , respectively . our imfs business represented approximately $ 2.7 million , $ 2.1 million and $ 1.6 million of total income from continuing operations for the years ended december 31 , 2016 , 2017 and 2018 , respectively . revenues for the year ended december 31 , 2018 reflect the impact of the adoption of asu 2014-09 whereas revenues for the years ended december 31 , 2016 and 2017 do not . story_separator_special_tag significant acquisition costs we currently estimate total acquisition and integration expenditures associated with the recall transaction and acquisition expenditures associated with the iodc transaction to be approximately $ 405.0 million , the substantial majority of which was incurred prior to the end of 2018. this amount consists of operating expenditures associated with ( 1 ) the recall transaction , including : ( i ) advisory and professional fees to complete the recall transaction ; ( ii ) costs associated with the divestments ( as defined in note 6 to notes to consolidated financial statements included in this annual report ) required in connection with receipt of regulatory approvals ( including transitional services ) ; and ( iii ) costs to integrate recall with our existing operations , including moving , severance , facility upgrade , reit integration and system upgrade costs , as well as certain costs associated with our shared service center initiative for our finance , human resources and information technology functions ; and ( 2 ) the advisory and professional fees to complete the iodc transaction ( collectively , `` significant acquisition costs '' ) . from january 1 , 2015 through december 31 , 2018 , we have incurred cumulative operating and capital expenditures associated with the recall transaction and the iodc transaction of $ 388.1 million , including $ 314.5 million of significant acquisition costs and $ 73.6 million of capital expenditures . see note 14 to notes to consolidated financial statements included in this annual report for more information on significant acquisition costs , including costs recorded by segment as well as recorded between cost of sales and selling , general and administrative expenses . adoption of asu 2014-09 , revenue from contracts with customers in may 2014 , the financial accounting standards board ( `` fasb '' ) issued asu 2014-09. asu 2014-09 provides guidance for management to reassess revenue recognition as it relates to : ( 1 ) transfer of control , ( 2 ) variable consideration , ( 3 ) allocation of transaction price based on relative standalone selling price , ( 4 ) licenses , ( 5 ) time value of money , and ( 6 ) contract costs . we adopted asu 2014-09 as of january 1 , 2018 using the modified retrospective method for all of our customer contracts , whereby the cumulative effect of applying asu 2014-09 is recognized at the date of initial application . see note 2.l . to notes to consolidated financial statements included in this annual report for information on the impact to opening balance of ( distributions in excess of earnings ) earnings in excess of distributions on the consolidated balance sheet . as a result of the adoption of asu 2014-09 , adjusted ebitda for the year ended december 31 , 2018 increased by approximately $ 25.3 million , compared to the prior year period . the adoption of asu 2014-09 did not have a material impact on adjusted eps , ffo ( nareit ) or ffo ( normalized ) for the year ended december 31 , 2018 compared to the prior year period . the revenues for the year ended december 31 , 2018 reflect a net $ 14.2 million , reclassification of certain components of storage rental revenues to service revenues associated with the adoption of asu 2014-09 . 31 non-gaap measures adjusted ebitda adjusted ebitda is defined as income ( loss ) from continuing operations before interest expense , net , provision ( benefit ) for income taxes , depreciation and amortization , and also excludes certain items that we believe are not indicative of our core operating results , specifically : ( 1 ) ( gain ) loss on disposal/write-down of property , plant and equipment ( excluding real estate ) , net ; ( 2 ) intangible impairments ; ( 3 ) other expense ( income ) , net ; ( 4 ) gain on sale of real estate , net of tax ; ( 5 ) significant acquisition costs ; and ( 6 ) reit costs ( as defined below ) . adjusted ebitda margin is calculated by dividing adjusted ebitda by total revenues . we use multiples of current or projected adjusted ebitda in conjunction with our discounted cash flow models to determine our estimated overall enterprise valuation and to evaluate acquisition targets . we believe adjusted ebitda and adjusted ebitda margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flow to support business investment . these measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business . adjusted ebitda excludes both interest expense , net and the provision ( benefit ) for income taxes . these expenses are associated with our capitalization and tax structures , which we do not consider when evaluating the operating profitability of our core operations . finally , adjusted ebitda does not include depreciation and amortization expenses , in order to eliminate the impact of capital investments , which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues . adjusted ebitda and adjusted ebitda margin should be considered in addition to , but not as a substitute for , other measures of financial performance reported in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) , such as operating income , income ( loss ) from continuing operations , net income ( loss ) or cash flows from operating activities from continuing operations ( as determined in accordance with gaap ) . reconciliation of income ( loss ) from continuing operations to adjusted ebitda ( in thousands ) : replace_table_token_11_th _ ( 1 ) tax expense associated with the gain on sale of real estate for the years ended december 31 , 2014 , 2015 , 2016 , 2017 and 2018 was $ 2.2 million , $ 0.2 million , $ 0.1 million , $ 0.0 million and $ 8.5 million , respectively .
| the impact of acquisitions/divestitures , net of the impact of the adoption of asu 2014-09 , contributed 8.2 % to the reported storage rental revenue growth rates for the year ended december 31 , 2018 compared to the prior year period , primarily driven by acquisitions in our global data center business segment . internal storage rental revenue growth of 2.4 % in the year ended december 31 , 2018 compared to the prior year period was driven by internal storage rental revenue growth of 1.7 % in our north american records and information management business segment , including results from revenue management , as well as internal storage rental revenue growth of 1.9 % and 5.4 % in our western european business and other international business segments , respectively , primarily caused by volume increases and , to a lesser extent , by revenue management in our western european business segment . internal storage rental revenue growth in our north american data management business was negative 0.3 % for the year ended december 31 , 2018 , primarily due to lower storage volume . excluding the impact of acquisitions/divestitures , global records management net volumes as of december 31 , 2018 were flat compared to the ending volume as of december 31 , 2017. including the impact of acquisitions/divestitures , global records management reported net volumes as of december 31 , 2018 increased by 1.0 % over the ending volume at december 31 , 2017 , supported by volume increases of 0.8 % and 7.0 % in our western european business and other international business segments , respectively , partially offset by a net volume decrease of 1.4 % in our north american records and information management business segment . foreign currency exchange rate fluctuations decreased our reported storage rental revenue growth rate for the year ended december 31 , 2018 by 0.3 % , compared to the prior year period . 44 in the year ended december 31 , 2017 , the increase in reported consolidated storage revenue was driven by the favorable impact of acquisitions/divestitures , consolidated internal storage rental revenue growth and favorable fluctuations in foreign currency
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we own the global development and commercialization rights to tazemetostat outside of japan . eisai holds the rights to develop and commercialize tazemetostat in japan , and holds a limited right of first negotiation for the rest of asia . we have collaboration agreements with celgene , gsk , and eisai for research and development activities . we also have a collaboration with roche molecular to develop a companion diagnostic to detect ezh2 activating mutations in patients with nhl . these collaborations provide us with access to considerable scientific , development , regulatory and commercial capabilities . we have received $ 207.8 million in non-equity funding under these collaborations to date . since our inception , we have pioneered the discovery and development of novel epigenetic medicines . we have discovered and developed three first-in-class experimental medicines that are in clinical trials . pinometostat , an inhibitor of the dot1l hmt that is the subject to our collaboration with celgene , is currently being evaluated through a crada with the ctep of the nci , as a combination therapy for patients with acute leukemias . under our collaboration with gsk , gsk3326595 , a prmt5 inhibitor , is being evaluated by gsk in a phase 1 clinical trial in patients with solid tumors and nhl . we have additional small molecule hmt inhibitors that are being developed under our collaborations with celgene and gsk . we have also identified multiple novel epigenetic targets for which we are developing small molecule inhibitors in preclinical drug discovery . we own the global development and commercialization rights to these programs . all of our novel targets have been identified internally using our proprietary drug discovery platform , and all of our small molecule inhibitors have been discovered internally . through december 31 , 2016 , we have raised an aggregate of $ 728.7 million to fund our operations , of which $ 207.8 million was non-equity funding through our collaboration agreements , $ 444.9 million was from the sale of common stock in our public offerings and $ 76.0 million was from the sale of redeemable convertible preferred stock . as of december 31 , 2016 , we had $ 242.2 million in cash , cash equivalents and marketable securities . we commenced active operations in early 2008 , and since inception , have incurred significant operating losses . as of december 31 , 2016 , our accumulated deficit totaled $ 353.7 million . as a clinical stage company , we expect to continue to incur significant expenses and operating losses over the next several years . our net losses may fluctuate significantly from quarter to quarter and year to year . we expect our expenses to increase in connection with our ongoing activities , including our continued execution on our clinical development plans for tazemetostat . collaborations refer to item 1 , collaborations and note 9 , collaborations , of the notes to our consolidated financial statements in item 15 of this annual report on form 10-k for a description of the key terms of our arrangements with eisai , celgene and gsk , as well as the related accounting and revenue recognition considerations . 79 results of operations for the years ended december 31 , 2016 , 2015 and 2014 collaboration revenue the following is a comparison of collaboration revenue for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_4_th our revenue consists of collaboration revenue , including amounts recognized from deferred revenue related to upfront payments for licenses or options to obtain licenses in the future , research and development services revenue earned and milestone payments earned under collaboration and license agreements with our collaboration partners . the following table summarizes our collaboration revenue , by collaboration , for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_5_th collaboration revenue for the year ended december 31 , 2016 increased $ 5.4 million as compared to the year ended december 31 , 2015 , primarily as a result of the achievement of a $ 6.0 million milestone under our agreement with gsk during 2016. collaboration revenues for the year ended december 31 , 2015 decreased $ 38.8 million as compared to the year ended december 31 , 2014 , primarily as a result of the completion of a significant portion of our performance obligations under our collaborations during 2014 and achievement of a $ 3.0 million milestone under our agreement with gsk during 2014. gsk . in the year ended december 31 , 2016 , revenue attributable to the gsk collaboration reflects the $ 6.0 million milestone earned upon gsk 's initiation of patient dosing in a phase 1 clinical trial of gsk3326595 , a prmt5 inhibitor discovered by us and licensed to gsk under the collaboration agreement . upfront revenue of $ 1.0 million and $ 11.5 million in the years ended december 31 , 2015 and 2014 , respectively , reflects the recognition of deferred revenue related to upfront payments for licenses under the agreement . milestone revenue from gsk in the year ended december 31 , 2014 represents $ 3.0 million in preclinical research and development milestones achieved under the agreement . research and development revenue of $ 0.4 million and $ 11.0 million in the years ended december 31 , 2015 and 2014 , respectively , relates to research and development services performed during the year . since we have no further performance obligations under the gsk collaboration , future revenues under the collaboration will relate to milestone payments and royalties received under the 80 agreement , if any . upfront and research and development revenue decreased each year as a result of the completion of a significant portion of our performance obligations during 2014. celgene . story_separator_special_tag collaboration revenue attributed to the celgene collaboration increased in the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 , primarily due to the recognition of deferred revenue attributed to the pinometostat clinical trial services as part of the accounting for the amended and restated celgene agreement , which was entered into during the third quarter of 2015. upfront revenue of $ 1.1 million and $ 9.6 million in the years ended december 31 , 2015 and 2014 , respectively , reflects the recognition of deferred revenue related to upfront payments for licenses under the agreement . upfront revenue decreased from 2014 to 2015 a result of the completion of a significant portion of our performance obligations during 2014. as of december 31 , 2016 , all of our deferred revenue relates to our celgene collaboration . the recognition of deferred revenue under the amended and restated celgene agreement is dependent on the future development of the non-pinometostat targets that are subject to the collaboration , as all of the $ 28.8 million deferred revenue as of december 31 , 2016 relates to the non-pinometostat targets . we do not expect to recognize any of the remaining $ 28.8 million of deferred revenue as of december 31 , 2016 related to the three non-pinometostat targets for the next twelve months , unless or until celgene exercises its option rights with respect to those targets or those option rights lapse . eisai . following the execution of the amended and restated collaboration and license agreement with eisai , we do not expect to recognize any further amounts from eisai , except for potential royalties on ezh2 product sales in japan that we may receive in the future . upfront revenue of $ 1.6 million in the year ended december 31 , 2014 reflects the recognition of deferred revenue related to an upfront payment under the agreement . research and development revenue of $ 4.7 million in the year ended december 31 , 2014 relates to research and development services performed during the year . research and development research and development expenses consist of expenses incurred in performing research and development activities , including clinical trials and related clinical manufacturing expenses , fees paid to external providers of research and development services , third party clinical research organizations , or cros , compensation and benefits for full-time research and development employees , facilities expenses , overhead expenses , and other outside expenses . most of our research and development costs are external costs , which we track on a program-by-program basis . our internal research and development costs are primarily compensation expenses for our full-time research and development employees , including stock-based compensation expense . in our early-stage research , we identify and prioritize novel cmps that are implicated in cancer and other diseases , and seek to develop potent and selective small molecule inhibitors of these targets . during this phase of research , our external costs primarily relate to lead discovery , biology , drug metabolism and pharmacokinetics and chemistry services from a multinational network of third party providers of research and development services . as our product candidates progress into preclinical and clinical development , external costs are driven by clinical trial costs , manufacturing expenses , and third-party research and development expenses . in circumstances where our collaboration and license agreements provide for equally co-funded global development under joint risk sharing collaborations , and where we are the study sponsor , such as our celgene collaboration , amounts received for co-funding are recorded as a reduction to research and development expense . 81 the following is a comparison of research and development expenses for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_6_th during the year ended december 31 , 2016 , total research and development expenses decreased by $ 19.7 million compared to the year ended december 31 , 2015 , primarily due to the $ 40.0 million upfront payment that we made to eisai in the first quarter of 2015 to reacquire the worldwide rights , excluding japan , to tazemetostat . the impact of the prior year upfront payment was partially offset by higher spending on the tazemetostat program and discovery/preclinical and internal research and development costs in the year ended december 31 , 2016 compared to the year ended december 31 , 2015. during the year ended december 31 , 2015 total research and development expenses increased by $ 35.6 million compared to the year ended december 31 , 2014 , primarily due to the $ 40.0 million upfront payment that we made to eisai to reacquire the worldwide rights , excluding japan , to the ezh2 program , including tazemetostat , and the related costs to accelerate the development of tazemetostat . these cost increases were partially offset by reduced spending on pinometostat and related dot1l programs and on our discovery and preclinical programs . the following table illustrates the components of our research and development expenses : replace_table_token_7_th external research and development costs related to tazemetostat include ongoing clinical trial costs , preclinical research in support of the tazemetostat program , expenses associated with our companion diagnostic program , and external manufacturing costs related to the acquisition of active pharmaceutical ingredient and manufacturing of clinical drug supply . external research and development expenses for tazemetostat decreased $ 23.2 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015. the decrease in tazemetostat related spending in the year ended december 31 , 2016 is primarily a result of the $ 40.0 million upfront payment made to eisai in the prior year , offset by a significant increase in tazemetostat clinical trial activities in the year ended december 31 , 2016. external research and development expenses for tazemetostat during 2015 include the costs associated with our reacquisition of worldwide rights , excluding japan , to the ezh2 program , including tazemetostat , from eisai during the first quarter of 2015. external
| other income , net the following is a comparison of other income , net for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_9_th other income , net consists of interest income earned on our cash equivalents and marketable securities , net of imputed interest expense paid under our capital lease obligation , and other income recorded from a tax incentive award received in 2013. net interest income increased $ 1.4 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , primarily due to an increased cash balance as a result of the january 2016 follow-on offering and the purchases of short term interest bearing securities in 2016. income tax expense we maintain a full valuation allowance against our deferred tax assets and therefore did not recognize an income tax benefit for the year ended december 31 , 2016 or december 31 , 2015. income tax expense for the year ended december 31 , 2014 reflects adjustments identified in 2014 related to the year ended december 31 , 2013 in the course of preparing the 2013 income tax returns . liquidity and capital resources through december 31 , 2016 , we have raised an aggregate of $ 728.7 million to fund our operations , of which $ 207.8 million was non-equity funding through our collaboration agreements , $ 444.9 million was from the sale of common stock in our public offerings and $ 76.0 million was from the sale of redeemable convertible preferred stock . as of december 31 , 2016 , we had $ 242.2 million in cash , cash equivalents and marketable securities . on april 15 , 2016 , we entered into a sales agreement with cowen and company , llc , or cowen , to sell , from time to time , shares of our common stock having an aggregate sales price of up to $ 50.0 million through an at the market offering as defined in rule 415 under the securities act of 1933 , as amended , under which cowen would act as sales agent , which we refer to as the atm offering . the shares that may be sold under the sales agreement , if any , would be issued and sold pursuant to our $ 250.0 million universal shelf registration statement on form s-3 that was declared effective by the sec on april 29 , 2016. through march 10 , 2017 , we sold 155,834 shares of common stock under the sales agreement , resulting
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we intend that all forward-looking statements be subject to the safe harbor provisions of the pslra . story_separator_special_tag was the drilling of a new horizontal well nearby to the wells drilled in the 2010 drilling program noted above , the tiller # 4h well . in january 2013 , the company and 0947388 bc ltd. ( “ 094 ” ) entered into a letter of intent for 094 to farm into the edwards formation assets acquired through its acquisition of pan american oil company , llc ( see note 2 ) and numa luling , llc ( see note 4 ) and also the 80 % interest in certain leasehold interests acquired from eagle ford oil co. , inc. ( see note 4 ) . the company and 094 were unable to successfully negotiate a farm-in by 094. at the time of entering the letter of intent , 094 paid a deposit of $ 300,000. that deposit remains outstanding as of december 31 , 2013 and is included in short term notes payable . in the third quarter of 2013 , the company entered into an agreement to acquire eagle ford . the purchase price was $ 300,000 plus the assumption of all of its outstanding liabilities . acquisition of eagle ford would increase the company 's ownership in the leasehold interests acquired from an 80 % working interest to a 100 % working interest and it would also give them the ability to act as operator for their own and other leasehold interest should they choose to do so . the company was required to pay $ 25,000 at close and then another $ 125,000 on or before september 30 , 2013 with the final $ 150,000 due on or before october 31 , 2013. the company was only able to make the first $ 25,000 payment and a further $ 15,000 payment in the fourth quarter . by year-end , the transaction was abandoned and the company wrote off the $ 40,000 investment . the failure to obtain financing for the deal led the company at the end of 2013 to approve a plan to attempt to sell substantially all of its oil and gas assets in order to reduce its cash flow deficit from its leasehold working interests . in february 2014 , the company entered into a sale agreement with eagle ford , the current operator for its oil field interests , such that the company sold the entirety of its working and net revenue interests in all of its oil field leaseholds and also sold all of its salvage equipment obtained through its acquisitions . in addition , eagle ford agreed to take over all of the company 's payables related to the leasehold interests and all of the remaining obligations incurred by the company when it acquired its leasehold interests from eagle ford back in 2012. as consideration eagle ford issued a note to the company in the amount of $ 500,000 plus a 10 % carried working interest in the oil field leaseholds sold to eagle ford . the 10 % carried working interest is subject to the existing 25 % overriding royalty interests that exist on the leaseholds . the company 's carried working interest means it is not obligated for any cash calls for any drilling or re-work drilling activity and is only obligated for 10 % of the leasehold operating expenses . finance : debt : in october 2012 through december 2012 the company received gross proceeds of $ 1,635,000 from the sale of promissory notes to two stockholders that mature on the earlier of december 31 , 2013 or upon the company raising $ 1,500,000 in debt or equity after the sale of the notes . the notes bear interest at the rate of 6 % per annum and are unsecured . during 2013 , the company borrowed an additional $ 1,267,600 from the same two stockholders on essentially the same terms with maturity dates ranging from january 2014 , through september 2014. the amount owed at december 31 , 2013 was $ 2,902,600. the company is attempting to negotiate an extension of the maturity date of these notes . 17 in march and april 2013 , the company received gross proceeds of $ 110,000 from an unrelated third party and issued promissory notes in the same amount . those notes bear interest at the rate of 6 % per annum , are unsecured and mature on the earlier of the one-year anniversary of the notes or upon the company obtaining $ 1.5 mm in financing . on august 1 , 2013 , the company entered into a secured promissory note with hii technologies , inc. ( “ hii ” ) for $ 290,000. the company entered into the promissory note to forestall mechanics lien issues with the company 's leaseholds . hii was a drilling supplier for eagle ford who , because of its own financial stress , had been unable to timely pay its suppliers , including hii . the company and eagle ford agreed to reduce the company 's operator payable to eagle ford by the same amount of the promissory note . the loan agreement bears interest at the rate of 5 % per annum and matures on or before july 31 , 2014. the loan is secured by a lien on the company leasehold interest in 204 acres in caldwell county , texas . in the first quarter of 2014 , the company was advanced $ 89,000 by a shareholder of the company and an additional $ 37,000 by an unrelated third party . in march and april 2014 , the ceo advanced the company $ 17,000. equity : preferred stock : series a in connection with the acquisition of pan american , the company issued 5,500,000 shares of series a preferred stock as partial consideration for the purchase . story_separator_special_tag the series a preferred stock had an initial issue price of $ 1 per share and accrues a dividend quarterly to each holder at the rate of 3 % per annum based on the original issue price , payable quarterly in cash or in kind . series a preferred holders are required to have received all dividends before any dividend on common stock may be issued . the series a preferred ranks senior to common stock in the event of a liquidation or winding up of the company . the series a preferred may be converted in whole or in part at any time at the option of the holder at the rate of 1 common share for each series a preferred , subject to adjustments as defined in the series a certificate of designation . in addition , should the common stock of the company trade in any over the counter market above $ 1.75 per share for a period of at least 30 consecutive trading days , the company have an initial public offering of any class of securities in which gross proceeds are in excess of $ 50 million or consummate a merger in which the existing company shareholders obtain less than 50 % of the voting control of the combined entity , then the series a preferred will automatically convert into the number of shares of common stock as the then conversion rate indicates . in the event that holders elect not to convert their series a preferred or no automatic conversion is triggered , on january 31 , 2019 , the series a preferred will become mandatorily redeemable for cash at its original issue price plus any unpaid dividends accrued as of that date . series b in connection with the acquisition of numa luling , the company issued 3,250,000 shares of series b preferred stock as partial consideration for the purchase . the series b preferred stock had an initial issue ( also liquidation price ) of $ 1 per share . the series b ranks junior to the series a preferred stock in respect to the payment of dividends but senior to shares of common stock . the series b is non-cumulative and dividends must be declared before they become payable by the company . the series b ranks pari-passu in respect to liquidation and all other matters to the series a preferred stock . each share of series b preferred stock may be converted at any time by the holder into 1.33 shares of common stock . in the event that the company 's common stock trades above $ 1.75 per share for 30 consecutive trading days , the company closes on a qualified sale ( as defined in the agreement ) in which the consideration to be received is greater than $ 50 million , or the company has an underwritten public offering with proceeds in excess of $ 50 million , the series b preferred stock automatically converts into common stock at the rate of 1.33 common shares for each series b share . the holders also have standard anti-dilution protections . 18 series c during the quarter ending september 30 , 2012 the company raised gross proceeds of $ 492,000 and issued 492,000 shares of series c preferred stock . in addition , the company issued one warrant for each share of series c preferred stock sold in the offering . each warrant entitles the holder to acquire one share of the company 's common stock , at an exercise price of $ 2.50 per share and expires 3 years from the date of issuance . the original issuance price was $ 1.00 per share . the series c preferred stock shall , with respect to dividend rights and rights upon liquidation , winding up or dissolution , rank junior to or pari passu to other classes or series of preferred stock and prior to common stock . the corporation shall pay the holders of series c preferred stock a dividend in an amount equal to five percent ( 5 % ) per annum multiplied by the original issue price of the series c preferred stock . cumulative preferred dividends shall be payable in quarterly installments in cash or in kind , at the sole option of the corporation . each share of series c preferred stock may be converted by any holder thereof , without any further consideration , at any time , into 1.11 shares of common stock ( the “ conversion rate ” ) . in addition , each share of series c preferred stock shall be automatically converted into shares of the company 's common stock at the conversion rate upon the occurrence of any of the following events : ( i ) the shares of the company 's common stock shall trade at a price of over $ 1.75 per share ( as adjusted for stock splits or other events which would result in an adjustment of the conversion rate ) for a period in excess of thirty ( 30 ) consecutive trading days and the shares of the company 's common stock underlying the series c preferred stock are either ( i ) included in an effective registration statement or ( ii ) eligible to be traded pursuant to an applicable exemption from registration . ( ii ) the sale of all or substantially all of the assets of the corporation or the outstanding shares of capital stock of the corporation entitled to vote generally for the election of directors . ( iii ) the merger of the company which results in the shareholders of the company prior to the merger owning less than fifty percent ( 50 % ) of the voting power of the company following the merger .
| material events operations : in july 2011 , pan american oil company , llc ( “ pan american ” ) entered into a preliminary purchase and sale agreement with rio bravo oil , llc in which pan american agreed to purchase all of rio bravo oil llc 's right , title and interest in its approximate 27 % working interest and 23 % net revenue interest in certain leaseholds in the luling-edwards field . the purchase price was approximately $ 1.5 million in cash with a requirement to close on or before november 30 , 2011. the agreement was subsequently modified to include rio bravo 's approximate 3.345 % working interest and 12.5 % net revenue interest ( after overrides ) in certain leaseholds in the bateman field and the purchase price was increased to include approximately an additional $ 1.7 million in cash with the acquisition date extended until pan american was able to arrange funding . in february 2012 the agreement was modified again such that the assets included in the amended purchase and sale agreement included the original luling-edwards field leaseholds and an option to purchase the bateman field leaseholds . this transaction closed on february 13 , 2012. in november 2011 , pan american oil company , llc entered into two separate purchase and sale agreements with entities that were sold partial interests in the luling-edwards field by rio bravo oil , llc in march 2010. the agreements called for pan american to purchase approximately 20.75 % net revenue interest and 30 % working interest in the leaseholds in the luling-edwards field and had a combined purchase price of $ 300,000 in cash and the requirement of pan american to deliver $ 500,000 worth of the shares of preferred stock pan american receives in connection with a sale of its interests to a public company . on february 13 , 2012 , the company entered into a share exchange agreement with pan american . pursuant to the agreement , pan american exchanged its outstanding membership interests for 5,500,000 shares of rio bravo 's series
| 14,879 |
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